Finance test 1

Which of the following statements is CORRECT?a. One of the disadvantages of incorporating your business is that you could become subject to the firm’s liabilities in the event of bankruptcy. b. Proprietorships are subject to more regulations than corporations. c. In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner.d. Corporations of all types are subject to the corporate income taxe. Proprietorships and partnerships generally have a tax advantage over corporations e. Proprietorships and partnerships generally have a tax advantage over corporations
Which of the following statements is CORRECT?a. One of the advantages of the corporate form of organization is that it avoids double taxation.b. It is easier to transfer one’s ownership interest in a partnership than in a corporation .c. One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability. d. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights. “One person, one vote.”e. Corporations of all types are subject to the corporate income tax. c. One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability.
Which of the following statements is CORRECT?a. Corporations generally face fewer regulations that proprietorships. b. Corporate shareholders are exposed to unlimited liability. c. It is usually easier to transfer ownership in a corporation than in a partnership.d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantage of incorporation. e. There is a tax disadvantage to incorporation and there is no way any corporation can escape the disadvantage, even if it is very small. c. It is usually easier to transfer ownership in a corporation than in a partnership.
Which of the following could explain why a business might choose to operate as a corporation rather than a proprietorship or a partnership?a. Corporations generally face fewer regulationsb. Less of a corporations income is generally subject to federal taxes. c. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantage of incorporation. d. Corporate investors are exposed to unlimited liability. e. Corporations generally find it easier to raise large amounts of capital. e. Corporations generally find it easier to raise large amounts of capital.
The primary operating goal of a publicly-owned firm interested in serving its stockholders should:a. Maximize its expected total corporate incomeb. Maximize its expected EPSc. Minimize the chances of lossesd. Maximize the stock price per share over the long run, which is the stock’s intrinsic value.e. Maximize the stock price on a specific target date d. Maximize the stock price per share over the long run, which is the stock’s intrinsic value.
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Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?a. Compensating managers with stock optionsb. Financing risky projects with additional debtc. The threat of hostile takeoversd. The use of covenants in bond agreements that limit the firm’s use of additional and constrain managers’ actions.e. Abolishing the Security and Exchange Commission. d. The use of covenants in bond agreements that limit the firm’s use of additional and constrain managers’ actions.
Which of the following mechanisms would be most likely to help motivate managers to act in the best interest of shareholders?a. Decrease the use of restrictive covenants in bond agreements.b. Take actions that reduce the possibility of a hostile takeover. c. Elect a board of directors that allows managers greater freedom of action. d. Increase the proportion of executive compensation that comes from stock options and reduce the portion that is paid as cash salaries. e. Eliminate a requirement that members of the board of directors have a substantial investment in the firms stock. d. Increase the proportion of executive compensation that comes from stock options and reduce the portion that is paid as cash salaries.
Which of the following actions would be most likely to encourage a firms managers’ to make decisions in the best interest of shareholders?a. The percentage of executive compensation that comes in the form of cash is increased and the percentage coming from long term stock is reduced. b. The state legislature passes a law that makes it more difficult to successfully complete a hostile takeover. c. The percentage of the firm’s stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%.d. The firm’s founder, and who is also president and chairman, sells 90% of her shares. e. The firm’s board of directors gives the managers greater freedom to take whatever actions they think best without obtaining board approval. c. The percentage of the firm’s stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%.
Which of the following statements is CORRECT?a. Corporations are taxed more favorably than proprietorships b. Corporations have unlimited liabilityc. Because of their size, large corporations face fewer regulations than smaller corporations and proprietorships. d. Reducing the threat of corporate takeover increases the likelihood that managers will shareholders intereste. Bond covenants are designed to protect bondholders and to reduce potential conflicts e. Bond covenants are designed to protect bondholders and to reduce potential conflicts
You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?a. This is an example of direct transfer of capitalb. of a primary market transactionc. of an exchange of physical assetsd. of a money market transactione. of a derivative market transaction a. This is an example of direct transfer of capital
Which of the following statements is CORRECT?a. The NYSE does not exist at a physical location . Rather it represents a loose collection of dealers who trade stock electronically. b. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift. c. Capital market instruments include both long-term debt and common stocks. d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market exchange. e. While the two frequently preform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help raise large blocks of capital from investors. c. Capital market instruments include both long-term debt and common stocks.
Which of the following is a primary market transaction?a. You sell 200 shares of IBM stock on the NYSE through your broker.b. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker–you just give him cash and he gives you the stock. c. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.d. One financial institution buys 200,000 shares of IBM stock from another insitution, An investment banker arranges the transaction. e. IBM sells 2,000,000 shares of treasury stock to its employees when they exercise stock options that were granted in prior years. c. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
Which of the following is an example of a capital market instrument?a. Commercial paperb. preferred stockc. U.S. Treasury billsd. Banker’s acceptancese. Money market mutual funds b. preferred stock
Money markets are markets fora. foreign currencies b. Consumer automobile loansc. Common stocksd. Long-term bonds.e. Short-term debt securities such as Treasury bills and commercial paper e. Short-term debt securities such as Treasury bills and commercial paper
Which of the following statements is CORRECT?a. If you purchase 100 shares of Disney stock from your brother-in-law this is an example of a primary market transaction. b. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. c. The NYSE is an example of an over-the-counter marketd. Only institutions, and not individuals, can engage in derivative market transactions. e. As they are generally defined, money market transactions involve debt securities with maturities less than one year. e. As they are generally defined, money market transactions involve debt securities with maturities less than one year.
You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:a. A money market transactionb. A primary market transaction c. A secondary market transactiond. A futures market transactione. An over-the-counter transaction c. A secondary market transaction
Which of the following statements is CORRECT?a. Hedge funds are legal in Europe and Asia, but are not permitted to operate in the U.S. b. Hedge funds are legal in the U.S., but are not permitted to operate in Europe and Asia e. Hedge funds are not as highly regulated as most other types of financial institutions. The justification for this light regulation is that only “sophisticated investors” (those with high net worth and high incomes) are permitted to invest in these funds, and these investors supposedly can do any necessary “due diligence” on their own rather than have it done by the SEC or some other regulator.
Which of the following statements is CORRECT?a. While the distinctions are becoming blurred, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. b. The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market. c. Money market mutual funds usually invest their money in a well-diversified portfolio or in liquid common stocks. d. Money market are markets for long-term debt and common stockse. A liquidity security is a security whose value is derived from the price of some other “underlying” asset. b. The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market.
Which of the following statements is CORRECT?a. the NYSE is an auction market, and it has a physical location. b. Home mortgage loans are traded in the money market c. If an investor sells shares of stock through a broker, then it would be a primary market transaction.d. Capital markets deal only with common stocks and other equity securities. e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. a. the NYSE is an auction market, and it has a physical location.

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