Question 1

​ Which of the following is a primary market transaction?

Accepted Answer

A)  ​You sell 200 shares of Johnson & Johnson stock on the NYSE through your broker. 
B)  ​Johnson & Johnson issues 2,000,000 shares of new stock and sells them to the public through an investment banker. 
C)  ​You buy 200 shares of Johnson & Johnson stock from your younger brother.You just give him cash and he gives you the stock-the trade is not made through a broker. 
D)  ​One financial institution buys 200,000 shares of Johnson & Johnson stock from another institution.An investment banker arranges the transaction. 
E)  ​You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of Johnson & Johnson shares on the NYSE. 
A)  ​You sell 200 shares of Johnson & Johnson stock on the NYSE through your broker. 
B)  ​Johnson & Johnson issues 2,000,000 shares of new stock and sells them to the public through an investment banker. 
C)  ​You buy 200 shares of Johnson & Johnson stock from your younger brother.You just give him cash and he gives you the stock-the trade is not made through a broker. 
D)  ​One financial institution buys 200,000 shares of Johnson & Johnson stock from another institution.An investment banker arranges the transaction. 
E)  ​You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of Johnson & Johnson shares on the NYSE. B

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)  It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  Corporations generally face fewer regulations than sole proprietorships. 
D)  Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. 
E)  Shareholders in a regular corporation (not an S corporation) pay higher taxes than owners of an otherwise identical proprietorship. 
A)  It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  Corporations generally face fewer regulations than sole proprietorships. 
D)  Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. 
E)  Shareholders in a regular corporation (not an S corporation) pay higher taxes than owners of an otherwise identical proprietorship. A

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than corporations. 
C)  In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. 
B)  Sole proprietorships are subject to more regulations than corporations. 
C)  In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. 
D)  Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. 
E)  Corporations of all types are subject to the corporate income tax. D

Question 4

Cheers Inc.operates as a partnership.Now the partners have decided to convert the business into a regular corporation.Which of the following statements is CORRECT?

Accepted Answer

A)  Assuming Cheers is profitable, less of its income will be subject to federal income taxes. 
B)  Cheers will now be subject to fewer regulations. 
C)  Cheers' shareholders (the ex-partners) will now be exposed to less liability. 
D)  Cheers' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E)  Cheers will find it more difficult to raise additional capital. 
A)  Assuming Cheers is profitable, less of its income will be subject to federal income taxes. 
B)  Cheers will now be subject to fewer regulations. 
C)  Cheers' shareholders (the ex-partners) will now be exposed to less liability. 
D)  Cheers' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. 
E)  Cheers will find it more difficult to raise additional capital.

Question 5

Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

Accepted Answer

A)  Corporations generally find it relatively difficult to raise large amounts of capital. 
B)  Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. 
C)  Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization. 
D)  Corporate investors are exposed to unlimited liability. 
E)  Corporations generally face relatively few regulations. 
A)  Corporations generally find it relatively difficult to raise large amounts of capital. 
B)  Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. 
C)  Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization. 
D)  Corporate investors are exposed to unlimited liability. 
E)  Corporations generally face relatively few regulations.

Question 7

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Accepted Answer

A) True 
 B)False

Question 8

Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field.She will be the sole owner, and she has enough funds to finance the operation.The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years.However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established.Which of the legal forms of business organization would probably best suit her needs?

Accepted Answer

A)  Proprietorship, because of ease of entry. 
B)  S corporation, to gain some tax advantages and also to obtain limited liability. 
C)  Partnership, but only if she needs additional capital. 
D)  Regular corporation, because of the limited liability. 
E)  In this situation, the various forms of organization seem equally desirable. 
A)  Proprietorship, because of ease of entry. 
B)  S corporation, to gain some tax advantages and also to obtain limited liability. 
C)  Partnership, but only if she needs additional capital. 
D)  Regular corporation, because of the limited liability. 
E)  In this situation, the various forms of organization seem equally desirable.

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)  If expected inflation increases, interest rates are likely to increase. 
B)  If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. 
C)  If companies have fewer good investment opportunities, interest rates are likely to increase. 
D)  Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. 
E)  Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. 
A)  If expected inflation increases, interest rates are likely to increase. 
B)  If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. 
C)  If companies have fewer good investment opportunities, interest rates are likely to increase. 
D)  Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. 
E)  Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.

Question 10

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 11

You recently sold 100 shares of your new company, XYZ Corporation, 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 statements best describes this transaction?

Accepted Answer

A)  This is an example of an exchange of physical assets. 
B)  This is an example of a primary market transaction. 
C)  This is an example of a direct transfer of capital. 
D)  This is an example of a money market transaction. 
E)  This is an example of a derivatives market transaction 
A)  This is an example of an exchange of physical assets. 
B)  This is an example of a primary market transaction. 
C)  This is an example of a direct transfer of capital. 
D)  This is an example of a money market transaction. 
E)  This is an example of a derivatives market transaction

Question 12

Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

Accepted Answer

A)  Prices and interest rates would both rise. 
B)  Prices would rise and interest rates would decline. 
C)  Prices and interest rates would both decline. 
D)  There would be no changes in either prices or interest rates. 
E)  Prices would decline and interest rates would rise. 
A)  Prices and interest rates would both rise. 
B)  Prices would rise and interest rates would decline. 
C)  Prices and interest rates would both decline. 
D)  There would be no changes in either prices or interest rates. 
E)  Prices would decline and interest rates would rise.

Question 13

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

Accepted Answer

A) True 
 B)False

Question 14

With which of the following statements would most people in business agree?

Accepted Answer

A)  The short-run profits of a corporation will almost always increase if the firm takes actions the government has determined are in the nation's best interests. 
B)  Government agencies and firms almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. 
C)  Although people's moral characters are probably developed before they get into a business school, it is still useful for business schools to cover ethics, including giving students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation. 
D)  Developing a formal set of rules defining ethical and unethical behavior is not useful for a large corporation.Such rules generally can't be applied in many specific instances, so it is better to deal with ethical issues on a case-by-case basis. 
E)  Because of the courage it takes to blow the whistle, "whistle blowers" are generally promoted more rapidly than other employees. 
A)  The short-run profits of a corporation will almost always increase if the firm takes actions the government has determined are in the nation's best interests. 
B)  Government agencies and firms almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. 
C)  Although people's moral characters are probably developed before they get into a business school, it is still useful for business schools to cover ethics, including giving students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation. 
D)  Developing a formal set of rules defining ethical and unethical behavior is not useful for a large corporation.Such rules generally can't be applied in many specific instances, so it is better to deal with ethical issues on a case-by-case basis. 
E)  Because of the courage it takes to blow the whistle, "whistle blowers" are generally promoted more rapidly than other employees.

Question 15

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Accepted Answer

A)  Households start saving a larger percentage of their income. 
B)  The economy moves from a boom to a recession. 
C)  The level of inflation begins to decline. 
D)  Corporations step up their expansion plans and thus increase their demand for capital. 
E)  The Federal Reserve uses monetary policy in an attempt to stimulate the economy. 
A)  Households start saving a larger percentage of their income. 
B)  The economy moves from a boom to a recession. 
C)  The level of inflation begins to decline. 
D)  Corporations step up their expansion plans and thus increase their demand for capital. 
E)  The Federal Reserve uses monetary policy in an attempt to stimulate the economy.

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)  Most businesses (by number and total dollar sales) are organized as partnerships or proprietorships because it is easier to set up and operate in one of these forms rather than as a corporation.However, if the business gets very large, it becomes advantageous to convert to a corporation, mainly because corporations have important tax advantages over proprietorships and partnerships. 
B)  Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S.businesses (in terms of number of businesses) are organized as corporations. 
C)  Most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often less favorable tax treatment, due to legal considerations related to ownership transfers and limited liability. 
D)  Large corporations are taxed more favorably than sole proprietorships. 
E)  Corporate stockholders are exposed to unlimited liability. 
A)  Most businesses (by number and total dollar sales) are organized as partnerships or proprietorships because it is easier to set up and operate in one of these forms rather than as a corporation.However, if the business gets very large, it becomes advantageous to convert to a corporation, mainly because corporations have important tax advantages over proprietorships and partnerships. 
B)  Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S.businesses (in terms of number of businesses) are organized as corporations. 
C)  Most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often less favorable tax treatment, due to legal considerations related to ownership transfers and limited liability. 
D)  Large corporations are taxed more favorably than sole proprietorships. 
E)  Corporate stockholders are exposed to unlimited liability.

Question 17

One drawback of switching from a partnership to the corporate form of organization is the following:

Accepted Answer

A)  It subjects the firm to additional regulations. 
B)  It cannot affect the amount of the firm's operating income that goes to taxes. 
C)  It makes it more difficult for the firm to raise additional capital. 
D)  It makes the firm's investors subject to greater potential personal liabilities. 
E)  It makes it more difficult for the firm's investors to transfer their ownership interests. 
A)  It subjects the firm to additional regulations. 
B)  It cannot affect the amount of the firm's operating income that goes to taxes. 
C)  It makes it more difficult for the firm to raise additional capital. 
D)  It makes the firm's investors subject to greater potential personal liabilities. 
E)  It makes it more difficult for the firm's investors to transfer their ownership interests.

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)  The main method of transferring ownership interest in a corporation is by means of a hostile takeover. 
B)  Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life. 
C)  A corporation is a legal entity that is generally created by a state; its life and existence is separate from the lives of its individual owners and managers. 
D)  Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E)  Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions. 
A)  The main method of transferring ownership interest in a corporation is by means of a hostile takeover. 
B)  Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life. 
C)  A corporation is a legal entity that is generally created by a state; its life and existence is separate from the lives of its individual owners and managers. 
D)  Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. 
E)  Although its stockholders are insulated by limited legal liability, the corporation's legal status does not protect the firm's managers in the same way; i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions.

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations generally are subject to more favorable tax treatment and fewer regulations than partnerships and sole proprietorships, which is why corporations do most of the business in the United States. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers. 
C)  One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm. 
D)  Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  Bond covenants are an effective way to resolve conflicts between shareholders and managers. 
A)  Corporations generally are subject to more favorable tax treatment and fewer regulations than partnerships and sole proprietorships, which is why corporations do most of the business in the United States. 
B)  Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers. 
C)  One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm. 
D)  Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations. 
E)  Bond covenants are an effective way to resolve conflicts between shareholders and managers.

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A)  The corporate bylaws are a standard set of rules established by the state of incorporation.These rules are identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in accordance with state laws. 
B)  The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. 
C)  Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted. 
D)  Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws. 
E)  The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors. 
A)  The corporate bylaws are a standard set of rules established by the state of incorporation.These rules are identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in accordance with state laws. 
B)  The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws.Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. 
C)  Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted. 
D)  Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws. 
E)  The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors.

Which of the following is a primary market transaction?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Cheers Inc.operates as a partnership.Now the partners have decided to convert the business into a regular corporation.Which of the following statements is CORRECT?

Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.

Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Which of the following statements is CORRECT?

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

You recently sold 100 shares of your new company, XYZ Corporation, 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 statements best describes this transaction?

Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

With which of the following statements would most people in business agree?

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Which of the following statements is CORRECT?

One drawback of switching from a partnership to the corporate form of organization is the following:

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Bond Refunding

Supply Chains and Working Capital Management

Multinational Financial Management

Filters

Exam 1: An Overview of Financial Management and the Financial Environment

​ Which of the following is a primary market transaction?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Cheers Inc.operates as a partnership.Now the partners have decided to convert the business into a regular corporation.Which of the following statements is CORRECT?

Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.

Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

Which of the following statements is CORRECT?

If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

You recently sold 100 shares of your new company, XYZ Corporation, 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 statements best describes this transaction?

Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

With which of the following statements would most people in business agree?

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

Which of the following statements is CORRECT?

One drawback of switching from a partnership to the corporate form of organization is the following:

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Bond Refunding

Supply Chains and Working Capital Management

Multinational Financial Management

Filters

Which of the following is a primary market transaction?