FINA3313-031 Business Finance, Spring 2006
Due by February 10, 2006.
Instructor: Bing Y. Du
Please mark your answers on the SCANTRON (form 882) correspondingly and only
submit the scantron.
Please write your name, last 4 digits of SSN, and “Homework1” on your scantorn.
Late submission will not be accepted.
CH1 Firm and Financial Manager (Question 1-19)
1. The liability of general partner is limited to the amount of their investment in the
2. Agency problem in corporate business organization is generated by the separation of
management and ownership.
3. A successful investment is worth more than its cost.
4. General Motor’s new opening of an assembly line in Arlington is a financing decision.
5. A partnership business is a legal entity, thus it is double taxed.
6. Agency problems will be an obstacle to achieving a firm’s goal.
7. Lenders such as banks or insurance companies are involved in monitoring and
controlling the risk associated with investment projects and financing decisions.
8. Both Patents and trade marks are financial assets.
9. The goal of the firm is to maximize the profits.
10. One common reason for partnerships to convert to a corporate form of organization is
that the partnership:
A) faces rapidly growing financing requirements.
B) wishes to avoid double taxation of profits.
C) has issued all of its allotted shares.
D) agreement expires after ten years of use.
11. When a sole proprietorship business fails, the maximum that can lost by an investor is:
A) the amount of the initial investment.
B) the amount of the profit on the investment.
C) the amount necessary to pay the corporation's debts.
D) the amount of the investor's personal wealth.
A) coincident with that of its CEO.
B) equal to the life of the Board of Directors.
C) permanent, as long as shareholders don't change.
D) permanent, regardless of current ownership.
13. Which of the following would not be considered a financial asset?
A) A 10 year’s corporation bond issued by GM
C) A patent
D) Your savings deposits in Bank of America
14. A financial manager facing a financing decision must decide whether to:
A) Keep an assembly line idle for another three months.
B) use the money market or capital market.
C) Build a new plant in Mexico.
D) buy new machinery or repair the old.
15. The term “capital structure” refers to:
A) the manner in which a firm obtains its long-term sources of funding.
B) the length of time needed to repay debt.
C) whether the firm invests in capital budgeting projects.
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