Question 1

Which one of the following is an agency cost?

Accepted Answer

A)   Accepting an investment opportunity that will add value to the firm
B)   Increasing the quarterly dividend
C)   Investing in a new project that creates firm value
D)   Hiring outside accountants to audit the company's financial statements
E)   Closing a division of the firm that is operating at a lossF) A) and E)
G) B) and C)

Question 2

Which one of the following actions by a financial manager is most apt to create an agency problem?

Accepted Answer

A)   Refusing to borrow money when doing so will create losses for the firm
B)   Refusing to lower selling prices if doing so will reduce the net profits
C)   Refusing to expand the company if doing so will lower the value of the equity
D)   Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales
E)   Increasing current profits when doing so lowers the value of the company's equityF) C) and D)
G) A) and C)

Question 3

A ________ has all the respective rights and privileges of a legal person.

Accepted Answer

A)   sole proprietorship
B)   general partnership
C)   limited partnership
D)   corporation
E)   limited liability companyF) A) and D)
G) C) and E)

Question 4

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Accepted Answer

A)   decreasing corporate profits.
B)   the terrorist attacks on 9/11/2001.
C)   a weakening economy.
D)   deregulation of the stock exchanges.
E)   management greed and abuses.F) D) and E)
G) B) and E)

Question 5

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

Accepted Answer

A)   A sole proprietorship is designed to protect the personal assets of the owner.
B)   The profits of a sole proprietorship are subject to double taxation.
C)   The owner of a sole proprietorship is personally responsible for all of the company's debts.
D)   There are very few sole proprietorships remaining in the U.S. today.
E)   A sole proprietorship is structured the same as a limited liability company.F) A) and B)
G) All of the above

Question 6

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Accepted Answer

A)   took place in the primary market.
B)   occurred in a dealer market.
C)   was facilitated in the secondary market.
D)   involved a proxy.
E)   was a private placement.F) B) and D)
G) D) and E)

Question 7

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

Accepted Answer

A)   The life of a sole proprietorship is limited.
B)   A sole proprietor can generally raise large sums of capital quite easily.
C)   Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation.
D)   A sole proprietorship is taxed the same as a C corporation.
E)   A sole proprietorship is the most regulated form of organization.F) B) and E)
G) C) and D)

Question 8

The primary advantage of being a limited partner is:

Accepted Answer

A)   the receipt of tax-free income.
B)   the partner's active participation in the firm's activities.
C)   the lack of any potential financial loss.
D)   the daily control over the business affairs of the partnership.
E)   the partner's maximum loss is limited to their capital investment.F) D) and E)
G) A) and B)

Question 9

Which one of the following statements is generally correct?

Accepted Answer

A)   Private placements must be registered with the SEC.
B)   All secondary markets are auction markets.
C)   Dealer markets have a physical trading floor.
D)   Auction markets match buy and sell orders.
E)   Dealers arrange trades but never own the securities traded.F) C) and D)
G) A) and D)

Question 10

Which one of the following statements is correct?

Accepted Answer

A)   The majority of firms in the U.S. are structured as corporations.
B)   Corporate profits are taxable income to the shareholders when earned.
C)   Corporations can have an unlimited life.
D)   Shareholders are protected from all potential losses.
E)   Shareholders directly elect the corporate president.F) C) and D)
G) All of the above

Question 11

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

Accepted Answer

A)   Primary, dealer market
B)   Secondary, dealer market
C)   Primary, auction market
D)   Secondary, auction market
E)   Secondary, OTC marketF) A) and E)
G) C) and D)

Question 12

Corporate dividends are:

Accepted Answer

A)   tax-free because the income is taxed at the personal level when earned by the firm.
B)   tax-free because they are distributions of aftertax income.
C)   tax-free since the corporation pays tax on that income when it is earned.
D)   taxed at both the corporate and the personal level when the dividends are paid to shareholders.
E)   taxable income of the recipient even though that income was previously taxed.F) All of the above
G) A) and B)

Question 13

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Accepted Answer

A)   corporation.
B)   sole proprietorship.
C)   general partnership.
D)   limited partnership.
E)   limited liability company.F) None of the above
G) A) and D)

Question 14

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Accepted Answer

A)   Compensation based on the value of the stock
B)   Stock option plans
C)   Threat of a company takeover
D)   Threat of a proxy fight
E)   Increasing managers' base salaries F) A) and B)
G) B) and E)

Question 15

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Accepted Answer

A)   general partner.
B)   sole proprietor.
C)   limited partner.
D)   corporate shareholder.
E)   zero partner.F) C) and D)
G) B) and E)

Question 16

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Accepted Answer

A)   Depositing cash receipts
B)   Processing cost reports
C)   Analyzing equipment purchases
D)   Approving credit for a customer
E)   Paying a vendorF) B) and C)
G) A) and E)

Question 17

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Accepted Answer

A)   must continue to provide audited financial statements to the public.
B)   must continue to provide a detailed list of internal control deficiencies on an annual basis.
C)   can provide less information to its shareholders than it did prior to "going dark".
D)   can continue publicly trading its stock but only on the exchange on which it was previously listed.
E)   ceases to exist.F) A) and B)
G) All of the above

Question 18

Which one of the following parties has ultimate control of a corporation?

Accepted Answer

A)   Chairman of the board
B)   Board of directors
C)   Chief executive officer
D)   Chief operating officer
E)   ShareholdersF) B) and D)
G) A) and B)

Question 19

Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?

Accepted Answer

A)   Sole proprietorship
B)   Joint stock company
C)   Limited partnership
D)   Limited liability company
E)   CorporationF) C) and D)
G) A) and E)

Question 20

Which one of the following is a working capital management decision?

Accepted Answer

A)   What type(s)  of equipment is (are)  needed to complete a current project?
B)   Should the firm pay cash for a purchase or use the credit offered by the supplier?
C)   What amount of long-term debt is required to complete a project?
D)   How many shares of stock should the firm issue to fund an acquisition?
E)   Should a project should be accepted?F) A) and C)
G) C) and D)

Exam 1: Introduction to Corporate Finance

Which one of the following is a working capital management decision?

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

Correct Answer
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The Sarbanes-Oxley Act of 2002 is a governmental response to:

Correct Answer
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Corporate dividends are:

Correct Answer
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Which one of the following is an agency cost?

Correct Answer
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A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Correct Answer
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A ________ has all the respective rights and privileges of a legal person.

Correct Answer
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Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Correct Answer
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Correct Answer
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Which one of the following actions by a financial manager is most apt to create an agency problem?

Correct Answer
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Which one of the following parties has ultimate control of a corporation?

Correct Answer
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A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

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

Correct Answer
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Which one of the following statements is generally correct?

Correct Answer
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Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

Correct Answer
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Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Correct Answer
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The primary advantage of being a limited partner is:

Correct Answer
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Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Correct Answer
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Exam 1: Introduction to Corporate Finance

Which one of the following is a working capital management decision?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Correct AnswerverifiedShow Answer

Corporate dividends are:

Correct AnswerverifiedShow Answer

Which one of the following is an agency cost?

Correct AnswerverifiedShow Answer

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Correct AnswerverifiedShow Answer

A ________ has all the respective rights and privileges of a legal person.

Correct AnswerverifiedShow Answer

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following actions by a financial manager is most apt to create an agency problem?

Correct AnswerverifiedShow Answer

Which one of the following parties has ultimate control of a corporation?

Correct AnswerverifiedShow Answer

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following statements is generally correct?

Correct AnswerverifiedShow Answer

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

Correct AnswerverifiedShow Answer

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Correct AnswerverifiedShow Answer

The primary advantage of being a limited partner is:

Correct AnswerverifiedShow Answer

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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