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1. What are the two basic sources of funds for all businesses?



Both debt and equity

None of the above

True or False

2. Working capital management is the management of current assets, such as inventory, and current liabilities, such as money owed to suppliers.



3. What are the forms of business organization discussed in this chapter?

Sole Proprietorship



All of the above

4. What is meant by stockholders’ limited liability?

That the stockholder’s legal liability extends to all personal assets as well.

That the stockholder’s legal liability extends only to the debt owed.

That the stockholder’s legal liability extends only to the capital contributed or the amount invested.

None of the above

5. What is double taxation?

The employees of a corporation are subject to double taxation--first when they get their paychecks and then when they pay state and federal income tax.

The owners of a corporation are subject to double taxation—first at the corporate level and then again at a personal level when they are given dividends.

The suppliers of a corporation are subject to double taxation—first when the corporation pays their invoices and then again when they have to pay federal taxes.

None of the above

6. What are some of the regulations pertaining to boards of directors that were put in place to reduce agency conflicts?

The majority of board members must be outsiders.

A separation of the CEO and chairman of the board positions is recommended.

The CEO and CFO must certify all financial statements.

All of the above

7. Which one of the following mechanisms helps to align management interests with those of its shareholders?

A well designed management compensation package

An efficient managerial labor market

The Sarbanes-Oxley Act of 2002

All of the above

8. One of the best ways to reduce agency conflict is by

designing an effective compensation package

instituting severe penalties for bad decisions

hiring outside monitors to keep track of the manage's decisions

having managers report to the board of directors

9. Which of the following factors or activities can be controlled by the management of the firm?

The level of economic activity

Stock market conditions

Capital budgeting

The level of interest rates

10. Current Liabilities are liabilities that will be converted to cash within a year




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