Question 1

Which of the following statements is CORRECT?

Accepted Answer

A) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. 
B) There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes. 
C) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
D) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
E) Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations. 
A) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. 
B) There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes. 
C) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
D) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. 
E) Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations.

Question 2

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 3

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.

Question 4

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 5

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 6

Two 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 7

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 8

Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

Accepted Answer

A) Households reduce their consumption and increase their savings. 
B) The Federal Reserve decides to try to stimulate the economy. 
C) There is a decrease in expected inflation. 
D) The economy falls into a recession. 
E) Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. 
A) Households reduce their consumption and increase their savings. 
B) The Federal Reserve decides to try to stimulate the economy. 
C) There is a decrease in expected inflation. 
D) The economy falls into a recession. 
E) Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs.

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

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 11

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 12

The 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

Question 13

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.

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

Which of the following statements is CORRECT?

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

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Two 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.

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 factors would be most likely to lead to an increase in interest rates in the economy?

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.

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

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?

The 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?

Risk and Return: Part I

Risk and Return: Part Ii

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Rules

Cash Flow Estimation and Risk Analysis

Real Options

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings, investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Basic Financial Tools: a Review

Pension Plan Management

Financial Management in Not-For-Profit Businesses

a Values of the Areas Under the Standard Normal

Filters