Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned. 
B)  In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C)  A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership. 
E)  A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation. 
A)  Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned. 
B)  In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. 
C)  A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership. 
E)  A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation.

Question 2

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 3

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 4

​ Which of the following statements is NOT CORRECT?

Accepted Answer

A)  ​When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held." 
B)  ​"Going public" establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firm's shares. 
C)  ​When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. 
D)  ​Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC. 
E)  ​It is possible for a firm to go public and yet not raise any additional new capital at the time. 
A)  ​When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held." 
B)  ​"Going public" establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firm's shares. 
C)  ​When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. 
D)  ​Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC. 
E)  ​It is possible for a firm to go public and yet not raise any additional new capital at the time.

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

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 7

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.

Question 8

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.

Question 9

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 10

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 11

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 12

The 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

If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

Accepted Answer

A) True 
 B)False

Question 14

? 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.

Question 15

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 16

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.

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)  In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B)  Attracting large amounts of capital is more difficult for partnerships than for corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests. 
C)  A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. 
D)  The limited partners in a limited partnership have voting control, while the general partner has operating control over the business.Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy. 
E)  A major disadvantage of all partnerships compared to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself. 
A)  In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business. 
B)  Attracting large amounts of capital is more difficult for partnerships than for corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests. 
C)  A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. 
D)  The limited partners in a limited partnership have voting control, while the general partner has operating control over the business.Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy. 
E)  A major disadvantage of all partnerships compared to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself.

Question 18

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 19

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.

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

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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?

​ Which of the following statements is NOT 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.

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?

Which of the following statements is CORRECT?

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?

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

If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

? Which of the following is a primary market transaction?

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?

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

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters

Which of the following statements is NOT 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.