Question 1

form of organization for a business is not an important issue, as this decision has very little effect on the income and wealth of the firm's owners.

Accepted Answer

A) True 
 B)False  False

Question 2

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. E

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)  It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. 
D)  One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. 
E)  If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 
A)  It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. 
B)  Corporations face fewer regulations than sole proprietorships. 
C)  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. 
D)  One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. 
E)  If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. D

Question 4

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 5

Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors This is a primary market transaction.

Accepted Answer

A) True 
 B)False

Question 6

There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.

Accepted Answer

A) True 
 B)False

Question 7

of the functions of NYSE specialists is to facilitate trading by keeping an inventory of shares of the stocks in which they specialize, buying when investors want to sell and selling when they want to buy They change the bid and ask prices of the securities so as to keep supply and demand in balance.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)  In Europe and Asia hedge funds are legal, but they are not permitted to operate in the United States. 
B)  Hedge funds have more in common with commercial banks than with any other type of financial institution. 
C)  Hedge funds have more in common with investment banks than with any other type of financial institution. 
D)  In the United States hedge funds are legal, but in Europe and Asia they are not permitted to operate. 
E)  The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator. 
A)  In Europe and Asia hedge funds are legal, but they are not permitted to operate in the United States. 
B)  Hedge funds have more in common with commercial banks than with any other type of financial institution. 
C)  Hedge funds have more in common with investment banks than with any other type of financial institution. 
D)  In the United States hedge funds are legal, but in Europe and Asia they are not permitted to operate. 
E)  The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)  If Apple issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B)  If you purchased 100 shares of Apple stock from your sister-in-law, this would be an example of a primary market transaction. 
C)  The IPO market is a subset of the secondary market. 
D)  Only institutions, and not individuals, can participate in derivatives market transactions. 
E)  As they are generally defined, money market transactions involve debt securities with maturities of less than one year. 
A)  If Apple issues additional shares of common stock through an investment banker, this would be a secondary market transaction. 
B)  If you purchased 100 shares of Apple stock from your sister-in-law, this would be an example of a primary market transaction. 
C)  The IPO market is a subset of the secondary market. 
D)  Only institutions, and not individuals, can participate in derivatives market transactions. 
E)  As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

Question 10

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 11

an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

Accepted Answer

A) True 
 B)False

Question 12

disadvantages associated with a proprietorship are similar to those under a partnership One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets As a result, partnerships do not have difficulty raising large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 13

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 14

primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Accepted Answer

A)  Maximize the stock price per share over the long run, which is the stock's intrinsic value. 
B)  Maximize the firm's expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the firm's expected total income. 
E)  Maximize the stock price on a specific target date. 
A)  Maximize the stock price per share over the long run, which is the stock's intrinsic value. 
B)  Maximize the firm's expected EPS. 
C)  Minimize the chances of losses. 
D)  Maximize the firm's expected total income. 
E)  Maximize the stock price on a specific target date.

Question 15

Which of the following statements is CORRECT?

Accepted Answer

A)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
B)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax. 
A)  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 
B)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
C)  One of the advantages of the corporate form of organization is that it avoids double taxation. 
D)  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." 
E)  Corporations of all types are subject to the corporate income tax.

Question 16

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 establishedWhich 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 17

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 18

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 19

disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 1: Overview

form of organization for a business is not an important issue, as this decision has very little effect on the income and wealth of the firm's owners.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors This is a primary market transaction.

There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

disadvantages associated with a proprietorship are similar to those under a partnership One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets As a result, partnerships do not have difficulty raising large amounts of capital.

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

primary operating goal of a publicly-owned firm interested in serving its stockholders should be to

Which of the following statements is CORRECT?

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 would most people in business agree?

disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.

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

Risk and Return: Part I

Risk and Return: Part II

Bonds

Stocks

Financial Options

Financial Analysis

Forecasting

Cost of Capital

Corporate Valuation

Capital Budgeting

Cash Flows and Risk

Real Options

Cap Structure

Cap Structure II

Dividends

Ipos, Invsmt Banking

Leasing

Hybrids

Working Capital

Derivatives

Bankruptcy, Reorganization, and Liquidation

Mergers

Filters