Chapter 1

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Nov 10, 2013 (4 years and 1 month ago)

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Chapter 1


1
.

A business created as a distinct legal entity composed of one or more individuals or entities is
called a:

a. corporation.

b. sole proprietorship.

c. general partnership.

d. limited partnership.

e. unlimited liability company.

Answer: a

Difficulty level: Easy

Topic: CORPORATION


2.

A business entity operated and taxed like a partnership, but with limited liability for the
owners, is called a:

a. limited liability company.

b. general partnership.

c. limited proprietorship.

d. sole propriet
orship.

e. corporation.

Answer: a

Difficulty level: Easy

Topic: LIMITED LIABILITY COMPANY


3.

The primary goal of financial management is to:

a. maximize current dividends per share of the existing stock.

b. maximize the current value per share of the exis
ting stock.

c. avoid financial distress.

d. minimize operational costs and maximize firm efficiency.

e. maintain steady growth in both sales and net earnings.

Answer: b

Difficulty level: Easy

Topic: FINANCIAL MANAGEMENT GOAL


4
.

Agency costs refer to:

a.
the total dividends paid to stockholders over the lifetime of a firm.

b. the costs that result from default and bankruptcy of a firm.

c. corporate income subject to double taxation.

d. the costs of any conflicts of interest between stockholders and managem
ent.

e. the total interest paid to creditors over the lifetime of the firm.

Answer: d

Difficulty level: Easy






5
.

The original sale of securities by governments and corporations to the general public occurs in
the:

a. primary market.

b. secondary market.

c. private placement market.

d. proprietary market.

e. liquidation market.

Answer: a

Difficulty level: Easy

Topic: PRIMARY MARKET


6
.

A market where trading takes place directly between buyers and sellers is called a(n):

a. primary market.

b. OTC market.

c
. dealer market.

d. auction market.

e. liquidation market.

Answer: d

Difficulty level: Easy

Topic: AUCTION MARKET


7
.

The Sarbanes
-
Oxley Act of 2002 is intended to:

a. protect financial managers from investors.

b. not have any affect on foreign companies.

c. reduce corporate revenues.

d. protect investors from corporate abuses.

e. decrease audit costs for U.S. firms.

Answer: d

Difficulty level: Easy

Topic:
SARBANES
-
OXLEY


8
.

Which one of the following statements concerning a sole proprietorship is correct?

a. A sole proprietorship is the least common form of business ownership.

b. The profits of a sole proprietorship are taxed twice.

c. The owners of a sole proprietorship share profits as established by the partnership agreement.

d. The owner of a sole propr
ietorship may be forced to sell his/her personal assets to pay
company debts.

e. A sole proprietorship is often structured as a limited liability company.

Answer: d

Difficulty level: Easy

Topic: SOLE PROPRIETORSHIP






9
. A general partner:

a. has less
legal liability than a limited partner.

b. has more management responsibility than a limited partner.

c. faces double taxation whereas a limited partner does not.

d. cannot lose more than the amount of his/her equity investment.

e. is the term applied only

to corporations which invest in partnerships.

Answer: b

Difficulty level: Easy

Topic: PARTNERSHIP


10
.

Which one of the following statements is correct concerning corporations?

a. The largest firms are usually corporations.

b. The majority of firms are co
rporations.

c. The stockholders are usually the managers of a corporation,.

d. The ability of a corporation to raise capital is quite limited.

e. The income of a corporation is taxed as personal income of the stockholders.

Answer: a

Difficulty level: Easy

Topic: CORPORATION


11
.

Which one of the following business types is best suited to raising large amounts of capital?

a. sole proprietorship

b. limited liability company

c. corporation

d. general partnership

e. limited partnership

Answer: c

Difficulty leve
l: Easy

Topic: CORPORATION


12
.

Which type of business organization has all the respective rights and privileges of a legal
person?

a. sole proprietorship

b. general partnership

c. limited partnership

d. corporation

e. limited liability company

Answer: d

Difficulty level: Easy

Topic: CORPORATION

Topic: GOAL OF FINANCIAL MANAGEMENT





13

Which form of business structure faces the greatest agency problems?

a. sole proprietorship

b. general partnership

c. limited partnership

d. corporation

e. limited liability

company

Answer: d

Difficulty level: Medium

Topic: AGENCY PROBLEM


14
.

Which of the following statements concerning auction markets is (are) correct?

I. NASDAQ is an auction market.

II. The NYSE is an auction market.

III. All trades involve a dealer in an
auction market.

IV. An auction market is called an over
-
the
-
counter market.

a. I only

b. II only

c. I and III only

d. II and III only

e. II and IV only

Answer: b

Difficulty level: Medium

Topic: AUCTION MARKET


15
.

Sole proprietorships are predominantly started because:

a. they are easily and cheaply setup.

b. the proprietorship life is limited to the business owner's life.

c. all business taxes are paid as individual taxes.

d. All of these.

e. None of these
.

Answer
: d

Difficulty level: Easy

Topic:
SOLE PROPRIETORSHIPS


16
.

The NYSE and NASDAQ are both:

a. primary markets.

b. dealer markets.

c. secondary markets.

d. All of these.

e. None of these.

Answer: c

Difficulty level: Easy

Topic: MARKETS





17
.

The value of an investment depends on:

a. the amount of the cash flows.

b. the timing of the cash flows.

c. why the cash flows are coming into the firm.

d. both a and b.

e. both b and c.

Answer: d

Difficulty level: Medium

Topic: CASH FLOWS

Scrambling:
Locked


18.

Which one of the following statements is correct?

a. Both partnerships and corporations incur double taxation.

b. Sole proprietorships and partnerships are taxed in a similar fashion.

c. Partnerships are the most complicated type of business to

form.

d. Both partnerships and corporations have bylaws.

e. All types of business formations have limited lives.

Answer: b

Difficulty level: Medium

Topic: BUSINESS TYPES


19.

As of the end of 2006, there were approximately ___ companies that list their st
ock on the
NYSE.

a. 1,230

b. 1,850

c. 1,960

d. 2,760

e. 4,500

Answer: d

Difficulty level: Medium

Topic: NYSE


20
.

Managers are encouraged to act in the shareholders’ best interests by:

a. election of a board of directors who select management.

b. the
threat of a takeover by another firm.

c. compensation contracts that tie compensation to corporate success.

d. Both A and B.

e. All of these.

Answer: e

Difficulty level:
Medium

Topic: GOVERNANCE

Scrambling: Locked