What is the process of double taxation for the stockholders in a C corporation? The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them.
Which of the following organization forms has the most revenue? C corporation
Which of the following is NOT an advantage of a sole proprietorship? limited liability
A limited liability company is essentially a limited partnership without a general partner
What are the main differences between a limited partnership and limited liability corporation? A limited partnership is required to have at least one general partner. A limited liability corporation is similar to a limited partnership but without the general partner.
Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves There are often many owners, and they can often change as they buy and sell stock.
What is the most important duty of a financial officer to make investment decisions
Whose interests should a financial manager consider paramount when making a decision? the stockholders who have risked their money to become owners of the company
What is the principal guiding factor for the financial manager? Maximizing stockholder wealth is the paramount guiding factor for the financial manager.
A ________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO. hostile takeover
Which of the following need be true for an asset to be considered liquid? It can be easily bought and sold and the selling price is very close to the buying price at a given point in time
Which of the stock markets listed below is the smallest, as judged by trading volume Deutsche Börse
Why is a stock exchange like NASDAQ considered a secondary market? Shares sold on it are exchanged between investors without any involvement of the issuing corporation.
On August 19, 2004 Google IPO offered 19,605,052 shares at a price of U.S. $85 per share, which were sold in an online auction in a bid to make the shares more widely available. Which of the following statements best describes why these are considered a primary market transaction? The transaction was between the corporation and investors.
What is the bid-ask spread? the difference in price available for an immediate sale of a stock and the immediate purchase of that stock
Which of the following is a measure of the aggregate price level of collections of pre-selected stocks?A) NASDAQ S&P 500
) Which of the following best describes why the Valuation Principle is a key concept in making financial decisions? It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly.
Which of the following types of firms do not have limited liability sole proprietorships
Over four-fifths of all U.S. business revenue is generated by which type of firm? corporations
What is the most common type of firm in the United States and the world? sole proprietorships
Which of the following is typically the major factor in limiting the growth of a sole proprietorship? The amount of money that can be raised by the firm is limited by the fact that the single owner must make good on all debts
Joe is a general partner in a limited partnership firm, while Jane is a limited partner in that same firm. Which of the following statements regarding their respective relationships to the firm are correct? Jane’s liability for the firm’s debts consists solely of her investment in the firm.
What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership? The owners of a limited liability company can take an active role in running the company.
In which of the following ways is a limited liability company like a corporation? All of its owners’ liability is restricted to their investment in the firm.
Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property? It is a legally defined, artificial entity that is separate from its owners.
Which of the following people may not manage the operations of a firm in which they are part or full owners? limited partners in a limited partnership
Accounts payable is a Current Liability.
A 30 year mortgage loan is a Long-term liability.
Which of the following statements regarding the balance sheet is incorrect? The balance sheet reports liabilities on the left hand side
Gross profit is calculated as Total sales – cost of sales
Which of the following is not a section on the cash flow statement Income generating activities
Which of the following statements regarding the Law of One Price is incorrect? An important property of the Law of One Price is that it holds even in markets where arbitrage is not possible.
A corporate bond which receives a BBB rating from Standard and Poor’s is considered an investment grade bond.
Steep curve interest rates are expected to rise in the future, coming out of a recession
Inverted curve coming out of a recession, declining interest rates
Bond Contract Face value, coupon rate, maturity date
Competitive market good can be bought and sold at the same price
Secondary Market trading without corporation involvement, NYSE
Annuities cash flows at regular intervals
Premium price greater than face value
as interest rates rise bond prices will fall
A yield curve is a graphical representation of the term structure of interest rates
To construct a yield curve you need bond yields for various times to maturity for default free securities
Long-term assets real estate, machinery, patents
zero coupon bond makes no coupon payments, priced a deep discount
the capital market is the market for long-term securities, while the money market is the market for short-term securities
primary markes markets in which securities are sold for the first time
annuties are cash flows at regular intervals

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