Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. 
B)  The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden. 
C)  The managers of established, stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers. 
D)  In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that primarily involve research and development. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value. 
A)  Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. 
B)  The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden. 
C)  The managers of established, stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers. 
D)  In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that primarily involve research and development. 
E)  Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)  The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically. 
B)  An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift. 
C)  Capital market instruments include both long-term debt and common stocks. 
D)  If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. 
E)  While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors. 
A)  The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically. 
B)  An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift. 
C)  Capital market instruments include both long-term debt and common stocks. 
D)  If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. 
E)  While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Question 3

Which of the following statements is CORRECT?

Accepted Answer

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

Question 4

Which of the following statements is CORRECT?

Accepted Answer

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

Question 5

Trades on the NYSE are generally completed by having a brokerage firm acting as a "dealer" buy securities and adding them to its inventory or selling from its inventory. The NASDAQ, on the other hand, operates as an auction market, where buyers offer to buy, and sellers to sell, and the price is negotiated on the floor of the exchange.

Accepted Answer

A) True 
 B)False

Question 6

The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.

Accepted Answer

A) True 
 B)False

Question 7

Money markets are markets for

Accepted Answer

A)  Foreign currencies. 
B)  Consumer automobile loans. 
C)  Common stocks. 
D)  Long-term bonds. 
E)  Short-term debt securities such as Treasury bills and commercial paper. 
A)  Foreign currencies. 
B)  Consumer automobile loans. 
C)  Common stocks. 
D)  Long-term bonds. 
E)  Short-term debt securities such as Treasury bills and commercial paper.

Question 8

The NYSE is defined as a "spot" market purely and simply because it has a physical location. The NASDAQ, on the other hand, is not a spot market because it has no one central location.

Accepted Answer

A) True 
 B)False

Question 9

A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken to make them more difficult to undertake.

Accepted Answer

A) True 
 B)False

Question 10

If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the NASDAQ Index.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  A corporation's short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation. 
B)  Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. 
C)  "Whistle blowers," because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees. 
D)  It is not useful for large corporations to develop a formal set of rules defining ethical and unethical behavior. 
E)  Although people's moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation. 
A)  A corporation's short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation. 
B)  Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. 
C)  "Whistle blowers," because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees. 
D)  It is not useful for large corporations to develop a formal set of rules defining ethical and unethical behavior. 
E)  Although people's moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation.

Question 12

The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor" who determines the actual stock price.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is CORRECT?

Accepted Answer

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

Question 14

In a "Dutch auction" for new stock, individual investors place bids for shares directly. Each potential bidder indicates the price he or she is willing to pay and how many shares he or she will purchase at that price. The highest price that permits the company to sell all the shares it wants to sell is determined, and this is the "market clearing price." All bidders who specified this price or higher are allowed to purchase their shares at the market clearing price.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is CORRECT?

Accepted Answer

A)  Corporations generally face fewer regulations than proprietorships. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  It is usually easier to transfer ownership in a corporation than in a partnership. 
D)  Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. 
E)  There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small. 
A)  Corporations generally face fewer regulations than proprietorships. 
B)  Corporate shareholders are exposed to unlimited liability. 
C)  It is usually easier to transfer ownership in a corporation than in a partnership. 
D)  Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. 
E)  There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)  If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses. 
B)  The more capital a firm is likely to require, the smaller the probability that it will be organized as a corporation. 
C)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
D)  One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business. 
E)  Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. 
A)  If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses. 
B)  The more capital a firm is likely to require, the smaller the probability that it will be organized as a corporation. 
C)  It is generally easier to transfer one's ownership interest in a partnership than in a corporation. 
D)  One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business. 
E)  Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

Question 17

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Accepted Answer

A) True 
 B)False

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.

Money markets are markets for

The NYSE is defined as a "spot" market purely and simply because it has a physical location. The NASDAQ, on the other hand, is not a spot market because it has no one central location.

If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the NASDAQ Index.

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

The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor" who determines the actual stock price.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

The Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

Financial and Operating Leverage: Analysis and Calculation

Filters

Exam 1: An Overview of Financial Management

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.

Money markets are markets for

The NYSE is defined as a "spot" market purely and simply because it has a physical location. The NASDAQ, on the other hand, is not a spot market because it has no one central location.

If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the NASDAQ Index.

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

The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor" who determines the actual stock price.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

The Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

Financial and Operating Leverage: Analysis and Calculation

Filters