problems and conflicts arising from the separation of management and owners

The Efficient Market Theory

Prices of assets traded in the market fully reflect all public information

What does capital budgeting entail?

The decision making process with respect to investments in fixed assets

In a limited partnership (LP), what is the primary difference between general partners and limited partners?

General partners have unlimited liability limited partner limited liability

The time value of money is

Dollar received today is worth more than a dollar received next year

Risk and Reward refers to

higher risks demand higher returns

What is the role of working capital management?

the management of the firms current assets and short term financing

What is a disadvantage of an LLC?

Have to create a formal agreement

What are capital structure decisions?

The decision making process with funding choices

the movement of money into and out of a business account

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Chapter 1 Finance Review

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Questions 16

Answers

1
Agency Problems
Problems employees have with owners
problems and conflicts arising from the separation of management and owners
Problems owners have with investors
Problems owners have with government regulations
2
The Efficient Market Theory
Employees looking out for their own best interest opposed to the owners
Companies report earnings every quarter guaranteeing accuracy in prices
Prices of assets traded in the market fully reflect all public information
Markets are efficient because owners respect the rule of law
3
What is the simplest form of business organization that requires no formal registration?
Sole Proprietor
LLC
Limited Partnership
General Partnership
4
What does capital budgeting entail?
The decision making process with funding choices
the management of the firms current assets and short term financing
Decisions made on cash flows
The decision making process with respect to investments in fixed assets
5
In a limited partnership (LP), what is the primary difference between general partners and limited partners?
General partners have a limited say in decision-making
General partners are active managers limited partners are passive investors
General partners have unlimited liability limited partner limited liability
General partners have limited liability limited have unlimited
6
What is a disadvantage of a partnership?
unlimited liability
Pooled resources
Easy to raise funds
limited liability
7
What legal form of business organization is known for its ability to attract investors through shares of stock?
C Corp
General Partnership
Sole Proprietor
LLC
8
The time value of money is
Movement of money into and out of a business account
Employee putting their interests ahead of the business interests
Dollar received today is worth more than a dollar received next year
prices are determined by various factors such as supply and demand
9
Which legal form of business organization provides limited liability to its owners?
LLC
Limited Liability Partnership
General Partnership
Sole Proprietor
10
Risk and Reward refers to
the movement of money into and out of a business bank account
prices are determined by various factors such as supply and demand
Dollar received today is worth more than a dollar received next year
higher risks demand higher returns
11
What is the role of working capital management?
The decision making process with respect to investments in fixed assets
The decision making process with funding choices
the management of the firms current assets and short term financing
Deciding on long term investments
12
What is a disadvantage of an LLC?
Very complex to form. Need a board of directors.
Responsible for partners debts.
unlimited liability
Have to create a formal agreement
13
What are capital structure decisions?
The decision making process with funding choices
Decisions made on cash flows
the management of the firms current assets and short term financing
The decision making process with respect to investments in fixed assets
14
Mr. Giaquinto's Birthday is in which month?
July
June
November
January
15
What is an advantage of a sole proprietorship?
Easy to raise funds
Total Control of the business
Limited Liability
Unlimited Liability
16
Cash flow refers to
the movement of money into and out of a business account
Money being worth more today than next year
potential loss associated with an investment or financial decision
Investing money in the stock market

Chapter 1 Finance Review Flashcards | StudBud