Question 1

A disadvantage of a sole proprietorship is that:

Accepted Answer

A)  partners may not agree on decision making. 
B)  profits are taxed only once. 
C)  profits are taxed at a personal income level. 
D)  there is limited ability for expansion. 
A)  partners may not agree on decision making. 
B)  profits are taxed only once. 
C)  profits are taxed at a personal income level. 
D)  there is limited ability for expansion.

Question 2

_____ can raise money by issuing stock.

Accepted Answer

A)  Sole proprietorships 
B)  Partnerships 
C)  Dual partnerships 
D)  Corporations 
A)  Sole proprietorships 
B)  Partnerships 
C)  Dual partnerships 
D)  Corporations

Question 3

A _____ is a purchased right to operate under an established brand name.

Accepted Answer

A)  sole proprietorship 
B)  partnership 
C)  franchise 
D)  limited liability company 
A)  sole proprietorship 
B)  partnership 
C)  franchise 
D)  limited liability company

Question 4

A corporation has 2 million shares of stock outstanding. It decides to buy back 500,000 shares. The market price is $8. Assuming that the total market value of the company does not change, what is the new share price?

Accepted Answer

A)  less than $6 
B)  $6 to $8 
C)  $8 
D)  more than $8 
A)  less than $6 
B)  $6 to $8 
C)  $8 
D)  more than $8

Question 5

What is the principal-agent problem, and why is it a problem?

Accepted Answer

The principal-agent problem is the diffi

Question 6

A _____ is a tradable, legally binding obligation to repay borrowed money and interest.

Accepted Answer

A)  dividend 
B)  stock 
C)  bond 
D)  buyback 
A)  dividend 
B)  stock 
C)  bond 
D)  buyback

Question 7

Corporate _____ is the study of financial activities of a firm.

Accepted Answer

A)  finance 
B)  monetary policy 
C)  accounting 
D)  budgeting 
A)  finance 
B)  monetary policy 
C)  accounting 
D)  budgeting

Question 8

_____ is a tax on imports.

Accepted Answer

A)  An excise tax 
B)  A sales tax 
C)  A tariff 
D)  An export duty 
A)  An excise tax 
B)  A sales tax 
C)  A tariff 
D)  An export duty

Question 9

Define and discuss dividends, stock buybacks, and retained earnings.

Accepted Answer

Dividends are a portion of profits that

Question 10

A disadvantage of a partnership is that:

Accepted Answer

A)  issuing stocks is expensive. 
B)  profits are taxed only once. 
C)  profits are taxed at a personal income level. 
D)  each partner is at risk for the actions of other partners. 
A)  issuing stocks is expensive. 
B)  profits are taxed only once. 
C)  profits are taxed at a personal income level. 
D)  each partner is at risk for the actions of other partners.

Question 11

A _____ is owned by more than one person and is not incorporated.

Accepted Answer

A)  sole proprietorship 
B)  partnership 
C)  limited liability company 
D)  corporation 
A)  sole proprietorship 
B)  partnership 
C)  limited liability company 
D)  corporation

Question 12

A disadvantage of a sole proprietorship is that:

Accepted Answer

A)  there is flexibility in decision making. 
B)  profits are taxed only once. 
C)  issuing stocks is expensive. 
D)  the business ends when the owner dies. 
A)  there is flexibility in decision making. 
B)  profits are taxed only once. 
C)  issuing stocks is expensive. 
D)  the business ends when the owner dies.

Question 13

GHI Corporation is concerned that its competitor, RST Corporation, is dominating the Japanese market, so GHI decides to enter the Japanese market, too. GHI Corporation is attempting to:

Accepted Answer

A)  minimize currency risk. 
B)  outsource. 
C)  expand business opportunities. 
D)  increase production. 
A)  minimize currency risk. 
B)  outsource. 
C)  expand business opportunities. 
D)  increase production.

Question 14

A multinational firm that has poor sales in one region of the world but good sales in another, which allows it to remain profitable, is an example of:

Accepted Answer

A)  diversification. 
B)  sustaining product quality. 
C)  increasing sales to reach production capacity. 
D)  increasing risk. 
A)  diversification. 
B)  sustaining product quality. 
C)  increasing sales to reach production capacity. 
D)  increasing risk.

Question 15

Identify and explain the three legal structures of business and how they differ.

Accepted Answer

The three structures are sole proprietor

Question 16

A U.S. automotive company purchases brake linings from a firm in Germany and promises to pay in euros in 30 days. Before the payment is made, the euro depreciates relative to the dollar. The U.S. firm:

Accepted Answer

A)  is not affected. 
B)  will need fewer U.S. dollars. 
C)  will need more U.S. dollars. 
D)  will pay in U.S. dollars. 
A)  is not affected. 
B)  will need fewer U.S. dollars. 
C)  will need more U.S. dollars. 
D)  will pay in U.S. dollars.

Question 17

A country unexpectedly nationalizes a foreign firm. This is an example of _____ risk.

Accepted Answer

A)  currency 
B)  foreign 
C)  domestic 
D)  country 
A)  currency 
B)  foreign 
C)  domestic 
D)  country

Question 18

One method that businesses use to overcome the principal-agent problem is to:

Accepted Answer

A)  remove the board of directors' oversight of management. 
B)  reward management regardless of performance. 
C)  offer management stock options. 
D)  not give employees a stake in the business. 
A)  remove the board of directors' oversight of management. 
B)  reward management regardless of performance. 
C)  offer management stock options. 
D)  not give employees a stake in the business.

Question 19

Skeptics of corporate social responsibility argue that corporations do the most amount of good when operating:

Accepted Answer

A)  without restrictions. 
B)  on a voluntary basis. 
C)  within the rules established by society. 
D)  without oversight. 
A)  without restrictions. 
B)  on a voluntary basis. 
C)  within the rules established by society. 
D)  without oversight.

Question 20

Enoch is applying for a personal loan. He tells the loan officer that it is to do home improvements. However, Enoch plans on taking a vacation with the money. This is an example of:

Accepted Answer

A)  the principal problem. 
B)  the agent problem. 
C)  asymmetric information. 
D)  skin-in-the-game. 
A)  the principal problem. 
B)  the agent problem. 
C)  asymmetric information. 
D)  skin-in-the-game.

Exam 9: Organizing a Business

A disadvantage of a sole proprietorship is that:

_____ can raise money by issuing stock.

A _____ is a purchased right to operate under an established brand name.

A corporation has 2 million shares of stock outstanding. It decides to buy back 500,000 shares. The market price is $8. Assuming that the total market value of the company does not change, what is the new share price?

What is the principal-agent problem, and why is it a problem?

A _____ is a tradable, legally binding obligation to repay borrowed money and interest.

Corporate _____ is the study of financial activities of a firm.

_____ is a tax on imports.

Define and discuss dividends, stock buybacks, and retained earnings.

A disadvantage of a partnership is that:

A _____ is owned by more than one person and is not incorporated.

A disadvantage of a sole proprietorship is that:

GHI Corporation is concerned that its competitor, RST Corporation, is dominating the Japanese market, so GHI decides to enter the Japanese market, too. GHI Corporation is attempting to:

A multinational firm that has poor sales in one region of the world but good sales in another, which allows it to remain profitable, is an example of:

Identify and explain the three legal structures of business and how they differ.

A U.S. automotive company purchases brake linings from a firm in Germany and promises to pay in euros in 30 days. Before the payment is made, the euro depreciates relative to the dollar. The U.S. firm:

A country unexpectedly nationalizes a foreign firm. This is an example of _____ risk.

One method that businesses use to overcome the principal-agent problem is to:

Skeptics of corporate social responsibility argue that corporations do the most amount of good when operating:

Enoch is applying for a personal loan. He tells the loan officer that it is to do home improvements. However, Enoch plans on taking a vacation with the money. This is an example of:

The Basics of Economics

Why We Trade

The Supply and Demand Model

Elasticity

Consumer Choice

The Economic Efficiency of Markets

Taxation: An Economic Analysis

Externalities, the Environment, and Public Goods

Stocks and Bonds

The Cost of Doing Business

Perfect Competition

Monopoly and Antitrust Laws

Monopolistic Competition and Price Discrimination

Oligopoly

Behavioral Economics and Strategy

Labor and Other Resources

The Distribution of Income

Information and Health Economics

GDP and the Price Level

Unemployment and the Business Cycle

Long Run Economic Growth

Saving, Investment, and the Federal Budget Deficit

The Monetary System

Money and the Price Level in the Long Run

Aggregate Supply and Aggregate Demand

Monetary Policy and Interest Rates

Fiscal Policy and the Business Cycle

The Aggregate Expenditure Model

Inflation Expectations and Stabilization Policies

International Trade

Foreign Exchange Markets

International Finance

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