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Multiple Choice Quiz
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1

In a sole proprietorship the stockholders are represented by:
A)no one; a sole proprietorships has no stockholders
B)the owner of the firm
C)the bank or lender to the firm
D)the owner and lender together
2

Which of these statements cannot be generally correct for investors who face unlimited liability on an investment?
A)The investor has no partners
B)The investor is responsible for management
C)The investor has incorporated
D)The investor is not subject to double taxation
3

A corporation is considered to be closely held when:
A)management also serves as the board of directors
B)there has been little change in the market value of the shares
C)only a few shareholders exist
D)it attempts to ward off a take over bid
4

To pay for a small investment project a firm plans to increase short-term bank loans $1 million. This is best described as an example of:
A)capital market decision
B)capital structure decision
C)capital budgeting decision
D)financing decision
5

Corporate management's primary goal should be:
A)maximize the number of shareholders
B)maximize the firm’s value
C)maximize the firm's profits
D)minimize the firm's costs
6

If a manger's compensation plan offers financial incentives based on increases in quarterly profitability, then there may be agency problems because:
A)short-term, not long-term profits become the focus
B)investors desire stable profits
C)the board of directors may claim the credit
D)the managers are not motivated by personal gain
7

The issues of agency problems are resolved in sole proprietorships by:
A)allowing owners to share the cost of their actions with others
B)forcing owners to bear the full cost of their actions
C)offering higher compensation than corporations
D)strict tax guidelines with substantial penalties
8

Typically a "corporate stakeholder" is:
A)anyone with a financial interest in the firm
B)a company's customers
C)those who own bonds, but not equity, of the company
D)those who own equity, but not bonds, of the company
9

Budget preparation in a large corporation would most likely be conducted by:
A)chief financial officer
B)financial manager
C)treasurer
D)controller
10

If a firm has a controller and a treasurer, then the controller would most likely handle:
A)banking relationships
B)insurance
C)internal auditing
D)credit management
11

Managers acting in ways that are not in the best interests of shareholders is an example of a/an
A)capital structure problem
B)agency problem
C)financing problem
D)profitability problem
12

Which of the following would be considered an advantage of the sole proprietorship form of organization?
A)Wide access to capital markets
B)Unlimited liability
C)A pool of expertise
D)Profits taxed at only one level
13

In the case of a professional corporation, ________ has/have limited liability.
A)only the professionals.
B)only the business.
C)both the professionals and the business.
D)neither the professionals nor the business.
14

A board of directors is elected as a representative of the corporation's:
A)top management.
B)stakeholders.
C)shareholders.
D)customers.
15

Which of the following would be considered a capital budgeting decision?
A)Planning to issue common stock rather than issuing preferred stock
B)A decision to expand into a new line of products, at a cost of $5 million
C)Repurchasing shares of common stock
D)Issuing debt in the form of long-term bonds





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