1. Knowing which assets to buy involves a (financing/investment) decision.

Choosing which assets to buy involves allocating resources towards long-term projects,
which is an investment decision.
2. Investment decisions are also called (capital/cash) budgeting decisions.
Investment decisions are also referred to as capital budgeting because they focus on
allocating capital (funds) for significant asset purchases.
3. Knowing how to pay for assets is a (financial/investment) decision.
Knowing how to pay for assets is a financing decision as it determines how the company will
raise the capital (debt or equity) to fund the investment.
4. A business that is organized without stockholders is called ------.
Businesses without stockholders:
Sole proprietorship: Simplest form, one owner with unlimited liability (responsible for all
debts).
Limited liability partnership (LLP): Partners co-own, share profits/losses, but have limited
liability (protected from personal debts beyond investment). No stock issuance.
5. A business that is owned by stockholders is called a -------.
A business that is owned by stockholders is called a corporation. Corporations are separate
legal entities with limited liability for stockholders.
6. Shareholders (are/are not) personally liable for obligations of the firm.
Shareholders are not personally liable for the firm's obligations. They have limited liability
protection.
7. ------ assets are used to produce goods and services.
Capital assets are used to produce goods and services. These are long-term, physical assets
that are essential for the production process
8. Financial assets are called (tangible assets/securities).
Financial assets are called securities. They are intangible assets representing ownership or
contractual rights (stocks, bonds, etc.).
9. A firm may raise cash in the ------- markets.
A firm can raise cash in the capital markets. These markets offer various financial
instruments for long-term funding.
10. The firm's mix of long-term financing determines its ------- structure.
The firm's mix of long-term financing (debt vs. equity) determines its capital structure. This
structure impacts factors like risk and cost of capital
11. Long-term financing is available in the ------ markets.

Long-term financing is available in the capital markets.

The capital market deals with relatively longer-term debt and equity instrument (e.g. bonds
and stocks).
12. A new issue of securities is sold in the (primary/secondary) market.
A new issue of securities is sold in the primary market. This is where companies first issue
stocks or bonds to raise capital from investors.
13. The trading of existing securities among investors occurs in the (capital/secondary)
market.
The trading of existing securities among investors happens in the secondary market. The
primary market deals with new issuances of securities.
14. Shareholders want the firm to maximize its (profits/market) price.
Shareholders typically want the firm to maximize its profits. This translates to a higher
return on their investment through dividends and potential stock price appreciation
15. In most large companies where managers are not major owners, a conflict of interest
may occur. This is known as an (agency/broker) problem.
In large companies with separate ownership and management, an agency problem can
exist. Managers act as agents for the shareholders (the principals) but might prioritize their
own interests over the shareholders' long-term wealth. This creates a conflict of interest.
16. Anyone with a financial interest in the firm is known as a (shareholder/stakeholder).
Anyone with a financial interest in the firm is considered a stakeholder. This includes
shareholders (owners) but also creditors, employees, suppliers, and even customers in some
cases.
17. The person in a company who is responsible for financing, cash management, and
relationships with financial markets and institutions is called the
(controller/treasurer).
The company officer responsible for financing, cash management, and relationships with
financial institutions is called the treasurer.
The treasurer is the financial officer responsible for managing the company's cash flow,
financing activities, and relationships with banks and investors.
18. The company officer who is responsible for budgeting, accounting and auditing is
called the (controller/treasurer).
The company officer responsible for budgeting, accounting, and auditing is called the
controller. They ensure the accuracy of financial records and reports.
19. The Chief (executive/financial) officer oversees the treasurer and controller and sets
overall financial strategy.
The Chief Executive Officer (CEO) oversees the treasurer and controller and sets the overall
financial strategy of the company. They are the top-ranking executive responsible for the
entire organization's operations and performance.

Chapter 2
1. The financial statement that shows the value of a firm's assets and liabilities at a
particular time is called the -----.
Balance Sheet: This financial statement shows the value of a firm's assets and liabilities at a
specific point in time. It provides a snapshot of the company's financial position.
2. Payments which are due to the company, but which have not yet been collected are
called accounts (payable/receivable).
Accounts Receivable: Payments which are due to the company, but which have not yet been
collected are called accounts receivable. These represent money owed by customers for
goods or services sold on credit.
3. Assets which are unlikely to be used soon or converted into cash in the near future are
described as (current/fixed) assets.
Fixed Assets: Assets which are unlikely to be used soon or converted into cash in the near
future are described as fixed assets. Examples include land, buildings, machinery, and
equipment.
4. The difference between a company's current assets and its current liabilities is called
its net-----
Working Capital: The difference between a company's current assets (cash, inventory,
accounts receivable) and its current liabilities (short-term debts) is called its net working
capital. A positive working capital indicates a company has sufficient resources to cover its
short-term obligations.
5. The difference between assets and liabilities represents the amount of shareholders' --
-.
Equity: The difference between assets and liabilities represents the amount of shareholders
equity. This reflects the owners stake in the company (what would be left over if all debts
were paid off).
6. GAAP stands for ------.
GAAP stands for Generally Accepted Accounting Principles. These are the accounting
standards and guidelines companies in a particular country must follow when preparing
their financial statements.
7. The ------ statement shows the revenues, expenses, and net income of a firm over a
period of time
The income statement shows the revenues, expenses, and net income of a firm over a
period of time (usually a quarter or a year). It reflects the company's profitability during that
period.
8. EBIT stands for------.
EBIT stands for Earnings Before Interest and Taxes. It's a profitability measure that shows a
company's operating income before considering interest expense and income taxes.
9. Net income is either added to ------- or paid out as -------.
Net income is either added to retained earnings (profit kept by the company for
reinvestment) or paid out as dividends (distributed profits to shareholders).
10. Profits are different from cash flows mainly because of (appreciation/depreciation).
Profits are different from cash flows mainly because of depreciation. Depreciation is an
accounting expense that reflects the wear and tear of fixed assets over time. It reduces
reported profits but doesn't involve an actual cash outflow.
11. The statement of cash flows shows the firm's cash receipts and cash payments (at a
particular point in time/over a period).
The statement of cash flows shows the firm's cash receipts and cash payments over a period
of time. It categorizes cash flow from operating activities (revenue generation), investing
activities (buying or selling assets), and financing activities (issuing debt or equity).
12, Patents, trademarks, and franchises are examples of (intangible/tangible) assets.
Patents, trademarks, and franchises are examples of intangible assets. They are non-physical
assets with value due to intellectual property rights or brand recognition.
13. Interest paid by a firm is (deductible/non-taxable)
Interest paid by a firm on its debt is deductible as a business expense when calculating
taxable income. This reduces the company's taxable income and tax liability.