p.5
Impact of the Sarbanes-Oxley Act
What did the financial crisis impose on taxpayers?
Huge costs due to the bailout of financial institutions.
p.9
Types of Business Organizations
What are the four main forms of business organizations?
Proprietorships, partnerships, corporations, and limited liability companies (LLCs) or limited liability partnerships (LLPs).
p.12
Balancing Shareholder Value and Societal Interests
What is the primary goal of a corporation according to the text?
To maximize its owners' value.
p.7
Overview of Financial Management
What are the three areas finance is generally divided into?
Financial management, capital markets, and investments.
p.6
Overview of Financial Management
What is finance defined as in the context of business?
A field that has many facets, focusing on the management of assets and future cash flows.
p.5
Corporate Governance and Structure
What is the argument made by Nobel Laureate Joseph Stiglitz regarding financial regulation?
He advocates for enhanced regulation of the financial sector.
p.8
Overview of Financial Management
What types of jobs does finance prepare students for?
Jobs in banking, investments, insurance, corporations, and government.
p.4
Corporate Governance and Structure
What are the two sets of constraints mentioned that affect companies?
Costs assessed for harmful actions and regulations imposed through the political process.
p.9
Types of Business Organizations
What is the main disadvantage of partnerships?
All partners are generally subject to unlimited personal liability.
p.11
Types of Business Organizations
How are LLCs and LLPs related to other forms of organization?
LLCs (Limited Liability Companies) and LLPs (Limited Liability Partnerships) combine features of partnerships and corporations, offering limited liability while allowing for flexible management.
p.2
Corporate Governance and Structure
What rights does Cengage Learning reserve regarding the content?
Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
p.8
Investment Strategies and Portfolio Management
What is the primary goal of rational investors when structuring portfolios?
To hold diversified portfolios in order to limit risks.
p.5
Impact of the Sarbanes-Oxley Act
What significant event highlighted the risks in the financial system in 2007 and 2008?
The financial crisis that required a bailout of banks and financial companies.
p.9
Types of Business Organizations
What is a proprietorship?
An unincorporated business owned by one individual.
p.12
Balancing Shareholder Value and Societal Interests
How does Larry Jackson's approach to his business differ from that of a CEO like Linda Smith?
Jackson runs his business based on personal goals, while Smith manages a corporation on behalf of shareholders.
p.4
Social Responsibility in Business
What constraints are suggested for firms in their operations?
Firms should not pollute the air and water, engage in unfair employment practices, or create monopolies that exploit consumers.
p.8
Overview of Financial Management
What type of pension plans are most firms providing today?
Defined contribution pension plans.
p.5
Social Responsibility in Business
How much has Warren Buffett contributed to the Gates Foundation?
Close to $8 billion, with plans for additional contributions.
p.7
Investment Strategies and Portfolio Management
What does security analysis involve?
Finding the proper values of individual securities like stocks and bonds.
p.9
Types of Business Organizations
What is the primary reason most businesses convert from proprietorships to corporations?
To overcome the disadvantages of proprietorships as they grow.
p.6
Overview of Financial Management
How did finance evolve as a discipline?
It grew out of economics and accounting.
p.2
Corporate Governance and Structure
What is the status of the electronic version of the textbook?
It is an electronic version of the print textbook.
p.2
Corporate Governance and Structure
What restrictions apply to copying or duplicating the content?
The content may not be copied, scanned, or duplicated, in whole or in part.
p.7
Impact of the Sarbanes-Oxley Act
What must the CEO and CFO certify to the SEC for publicly owned firms?
That reports released to stockholders, especially the annual report, are accurate.
p.4
Overview of Financial Management
What economic system is considered the best for society according to the text?
The free enterprise system.
p.5
Social Responsibility in Business
What significant foundation did Bill and Melinda Gates establish?
The Bill & Melinda Gates Foundation, which has assets totaling $34 billion.
p.7
Overview of Financial Management
What is the role of financial institutions in capital markets?
They bring together savers who have money to invest and entities that need capital.
p.6
Balancing Shareholder Value and Societal Interests
What is the relationship between stock price, intrinsic value, and executive compensation?
There are links that can affect how executives are compensated based on stock performance and intrinsic value.
p.2
Corporate Governance and Structure
What has editorial review deemed about suppressed content?
It does not materially affect the overall learning experience.
p.8
Investment Strategies and Portfolio Management
What does market analysis assess regarding stock and bond markets?
Whether markets are 'too high,' 'too low,' or 'about right.'
p.10
Types of Business Organizations
What is the main advantage of limited liability for stockholders in a corporation?
Stockholders' losses are limited to the amount they invested in the firm.
p.9
Types of Business Organizations
What are the three advantages of proprietorships?
Easily formed, subject to few regulations, and lower income taxes than corporations.
p.12
Balancing Shareholder Value and Societal Interests
What is the obligation of managers when maximizing shareholder value?
To behave ethically and follow laws and societal constraints.
p.10
Types of Business Organizations
What is the primary difference between C corporations and S corporations?
C corporations are subject to double taxation, while S corporations are taxed like partnerships.
p.8
Investment Strategies and Portfolio Management
What must employees decide regarding their defined contribution pension plans?
How to invest the funds among stocks, bonds, or other assets.
p.11
Types of Business Organizations
What is the advantage of an S corporation over a C corporation?
The main advantage is that S corporations avoid double taxation on corporate income.
p.1
Corporate Governance and Structure
What does 'licensed to' typically refer to?
It refers to the permission granted to use a product, service, or intellectual property.
p.4
Overview of Financial Management
What did Adam Smith describe in 1776 regarding companies and profits?
He described how an 'invisible hand' guides companies to make decisions that benefit society while striving for profits.
p.10
Types of Business Organizations
What is an S corporation?
A special designation that allows small businesses to be taxed as if they were a proprietorship or partnership.
p.6
Wealth Maximization for Shareholders
What does 'maximizing the value of the stock' refer to?
The true, long-run value of the stock, which may differ from the current stock price.
p.12
Balancing Shareholder Value and Societal Interests
What is the principal task of the finance department in a corporation?
To evaluate proposed decisions and judge their impact on stock price and shareholder wealth.
p.9
Types of Business Organizations
What is a limited partnership?
A partnership with one general partner who has unlimited liability and one or more limited partners whose liability is limited to their investment.
p.7
Impact of the Sarbanes-Oxley Act
What are the potential consequences for the CEO and CFO if inaccuracies in reports emerge?
They could be fined or even jailed.
p.5
Social Responsibility in Business
What does GE CEO Jeffrey Immelt believe about corporate behavior?
Companies should strive to behave ethically and operate with society's interests in mind.
p.6
Wealth Maximization for Shareholders
What is the primary goal of management in a corporation?
To maximize shareholder wealth, which means maximizing the value of the stock.
p.6
Social Responsibility in Business
How do good managers view the relationship between long-run value maximization and ethics?
They recognize that maximizing long-run value is consistent with being socially responsible.
p.12
Balancing Shareholder Value and Societal Interests
How do stock prices change over time?
They fluctuate based on changing conditions and new information about the company's prospects.
p.11
Types of Business Organizations
Why don’t firms like IBM, GE, and Microsoft choose S corporation status?
These firms typically exceed the shareholder limit for S corporations and prefer the flexibility of C corporation status.
p.3
Overview of Financial Management
What is the title of the book authored by Eugene F. Brigham and Joel F. Houston?
Fundamentals of Financial Management, Thirteenth Edition.
p.8
Overview of Financial Management
Why is knowledge of interest rates important in finance?
Financial decisions depend on the level of interest rates.
p.9
Types of Business Organizations
What are the three limitations of proprietorships?
Unlimited personal liability, limited life of the business, and difficulty in obtaining large sums of capital.
p.9
Types of Business Organizations
What is a partnership?
A legal arrangement between two or more people who decide to do business together.
p.7
Overview of Financial Management
What do capital markets relate to?
Markets where interest rates, stock, and bond prices are determined.
p.11
Types of Business Organizations
What are the key differences between proprietorships, partnerships, and corporations?
Proprietorships are owned by one individual, partnerships involve two or more individuals, and corporations are legal entities separate from their owners.
p.11
Types of Business Organizations
What is an S corporation?
An S corporation is a special type of corporation that allows income to be passed through to shareholders to avoid double taxation.
p.6
Role of the Chief Financial Officer (CFO)
What role does the Chief Financial Officer (CFO) play in an organization?
In charge of accounting, financing, credit policy, asset acquisitions, and investor relations.
p.6
Role of the Chief Financial Officer (CFO)
What has broadened the duties of the CFO over the years?
The increasing complexity of financial management and responsibilities.
p.11
Social Responsibility in Business
What types of companies do socially responsible funds usually avoid investing in?
They typically avoid companies involved with alcohol, tobacco, gambling, and nuclear power.
p.2
Corporate Governance and Structure
What should users visit for information on pricing and editions?
Visit www.cengage.com/highered to search by ISBN#, author, title, or keyword.
p.5
Overview of Financial Management
What is the primary focus of financial management?
To understand how finance relates to overall business and prepare students for various business fields.
p.10
Types of Business Organizations
What is a corporation?
A legal entity created by a state, separate and distinct from its owners and managers.
p.10
Types of Business Organizations
What is double taxation in the context of corporations?
Corporation's earnings are taxed, and then after-tax earnings paid as dividends are taxed again as personal income to stockholders.
p.5
Social Responsibility in Business
What concept did Bill Gates advocate for at the World Economic Forum?
'Creative capitalism' that aims to make profits while improving lives.
p.9
Types of Business Organizations
How is income taxed in a partnership?
The firm's income is allocated on a pro rata basis to the partners and taxed individually.
p.10
Types of Business Organizations
What is a Limited Liability Partnership (LLP)?
Similar to an LLC but specifically used for professional firms in fields like accounting, law, and architecture.
p.12
Balancing Shareholder Value and Societal Interests
What does shareholder wealth maximization imply for managers of publicly owned companies?
Decisions should be made to maximize the long-run value of the firm's common stock.
p.10
Types of Business Organizations
What factors enhance the value of a corporation?
Limited liability, ability to attract capital, and liquidity of stock.
p.11
Types of Business Organizations
If you are wealthy and looking for a potential investment without being active in the business, would you prefer a partnership or a corporation?
You would likely prefer a corporation due to limited liability and ease of transferring ownership.
p.3
Overview of Financial Management
What is the primary focus of the book?
Financial management principles and practices.
p.8
Corporate Governance and Structure
How are banking, corporate finance, and capital markets interconnected?
Professionals in these areas must understand each other's fields to make informed decisions.
p.7
Impact of the Sarbanes-Oxley Act
What prompted the passing of the Sarbanes-Oxley Act?
A series of corporate scandals involving companies like Enron and WorldCom.
p.8
Overview of Financial Management
Why is finance knowledge important for marketing professionals?
To evaluate the effects of advertising programs on the firm's profitability.
p.12
Balancing Shareholder Value and Societal Interests
What potential costs might a company face if it ignores societal interests?
Difficulty attracting employees, boycotts, lawsuits, and negative publicity.
p.4
Overview of Financial Management
How has the business environment changed since Adam Smith's time?
Firms are now larger, operate globally, have thousands of employees, and are owned by millions of stockholders.
p.10
Types of Business Organizations
Why do larger corporations prefer to be C corporations?
Because of the advantages in raising capital to support growth.
p.7
Investment Strategies and Portfolio Management
What does portfolio theory deal with?
Decisions concerning the composition of investment portfolios.
p.4
Wealth Maximization for Shareholders
What is the principal goal of a firm according to modern interpretations of Adam Smith's theory?
To maximize the wealth of its stockholders, which means maximizing the value of its stock.
p.10
Types of Business Organizations
What is the maximum number of stockholders allowed for an S corporation?
No more than 100 stockholders.
p.7
Overview of Financial Management
What does financial management focus on?
Decisions relating to asset acquisition, capital raising, and maximizing firm value.
p.10
Types of Business Organizations
What is a Limited Liability Company (LLC)?
A hybrid organization between a partnership and a corporation that offers limited liability and is taxed like a partnership.
p.6
Corporate Governance and Structure
What are potential conflicts that can arise within a firm?
Conflicts between stockholders and managers, and between stockholders and bondholders.
p.11
Types of Business Organizations
Why is the value of a business generally maximized when organized as a corporation?
Corporations can raise capital more easily, have limited liability, and can exist indefinitely, which enhances their value.
p.11
Social Responsibility in Business
What societal pressures have influenced investors to seek socially responsible funds?
Investors are motivated by a desire to support companies that align with their values regarding social responsibility and environmental impact.
p.11
Social Responsibility in Business
What criteria do socially responsible funds typically consider?
They consider a company's environmental record, commitment to social causes, and employee relations.
