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| 1 | |
The purchase and sale of securities after the original issuance occurs in the: |
| | A) | primary market. |
| | B) | auction market. |
| | C) | dealer market. |
| | D) | secondary market. |
| | E) | liquidation market. |
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| 2 | |
Which of the following is an advantage of ownership of a corporation over that of a sole proprietorship? |
| | A) | The owners of the corporation have unlimited liability for the firm's debts |
| | B) | It is the simplest to start |
| | C) | The corporation has an unlimited life |
| | D) | Dividends received by the corporation's shareholders are tax-exempt |
| | E) | It is more difficult to transfer ownership in a corporation |
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| 3 | |
Which of the following is/are considered a "primary market" transaction?
I. You buy shares in the public offering by the latest start-up company in the computer industry
II. Your mother sells you the shares she purchased in your uncle's latest business venture
III. You buy shares in Bombardier from your closest friend. |
| | A) | II only |
| | B) | I only |
| | C) | I and III only |
| | D) | I and II only |
| | E) | I, II, and III |
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| 4 | |
Which of the following is NOT considered one of the basic questions of corporate finance? |
| | A) | Where will the firm get the long-term financing to pay for its investments |
| | B) | At what rate of interest should a firm borrow |
| | C) | What long-term investments should the firm take |
| | D) | What mixture of debt and equity should the firm use to fund its operations |
| | E) | How should the firm manage its working capital, i.e., its everyday financial activities |
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| 5 | |
The management of the firm's short-term assets and liabilities is called: |
| | A) | capital structure. |
| | B) | financial depreciation. |
| | C) | agency cost analysis. |
| | D) | capital budgeting. |
| | E) | working capital management. |
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| 6 | |
The Board of Directors of Beeline, Inc. have decided to base the salary of its financial manager entirely upon the market share of the firm. Accordingly, |
| | A) | the firm may incur some agency costs since the manager will be focused on the market share of the firm rather than acting to maximize earnings |
| | B) | the financial manager will always act in the best interest of the shareholders since all agency costs have been eliminated through salary incentives |
| | C) | this arrangement may be unnecessary, since the goal of the firm is to maximize earnings for shareholders, and that is most likely accomplished through larger market share |
| | D) | the firm will incur some agency costs only if the manager does not act to maximize market share |
| | E) | the manager may not act to maximize the current value of the firm's stock, resulting in agency costs for the firm's stockholders |
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| 7 | |
Which of the following is/are correct regarding agency costs?
I. Indirect costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take
II. Direct costs occur when shareholders must incur costs to monitor their manager's actions
III. Direct costs occur when managers buy assets considered unnecessary by the firm's owners |
| | A) | I, II, and III are all correct |
| | B) | Only I and II are correct |
| | C) | Only II is correct |
| | D) | Only II and III are correct |
| | E) | Only I is correct |
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| 8 | |
When does the double taxation problem faced by corporations exist? |
| | A) | Whenever a corporation earns a profit, pays taxes on that profit, and then pays interest to its bondholders who are taxed |
| | B) | Whenever a corporation earns a profit, pays taxes on that profit, and then pays dividends to its stockholders who are taxed |
| | C) | Whenever a corporation earns a profit and pays taxes on that profit |
| | D) | Whenever a corporation earns a profit, pays taxes on that profit, and then pays dividends to its shareholders |
| | E) | Whenever stockholders are paid a dividend and are taxed on that dividend income |
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| 9 | |
The total market value of the firm's equity is determined by ______________ . |
| | A) | the corporate treasurer |
| | B) | the firm's financial manager |
| | C) | the firm's stakeholders |
| | D) | the firm's stockholders |
| | E) | regulatory authorities |
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| 10 | |
A(n)____________________ can lose, at most, what s/he has already invested in a firm.
I. common stockholder
II. limited partner
III. general partner
IV. sole proprietor |
| | A) | I and II only |
| | B) | I only |
| | C) | I, II, and IV only |
| | D) | II, III, and IV only |
| | E) | II and III only |
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