FIN 420 Chapter 1 Quiz

Both because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest and because of the separation of ownership and control in a corporation

The Principal-Agent Problem arises:

it is a legally defined, artificial being, separate from its owners.

The distinguishing feature of a corporation is that:

the chief executive officer.

The person charged with running the corporation by instituting the rules and policies set by the board of directors is called:

sell their shares.

If shareholders are unhappy with a CEO's performance, they are most likely to:

Coca-Cola receives the money because the company has issued new shares.

If you buy shares of Coca-Cola on the primary market:

you buy the shares from another investor who decided to sell the shares.

If you buy shares of Coca-Cola on the secondary market:

the Board of Directors.

In a corporation, the ultimate decisions regarding business matters are made by:

Sole proprietorship

Which of the following organization forms accounts for the greatest number of firms? "C" corporation Sole proprietorship "S" corporation Limited partnership

Bid prices exceed ask prices.

Which of the following statements is FALSE? Because customers always buy at the ask and sell at the bid, the bid-ask spread is a transaction cost investors have to pay in order to trade. Bid prices exceed ask prices. On the floor of the NYSE, prior to 2005 market makers (known on the NYSE as specialists) matched buyers and sellers. On Nasdaq, stocks can and do have multiple market makers who compete with each other. Each market maker must post bid and ask prices in the Nasdaq network where they can be viewed by all participants.

Corporations face more regulations when compared to partnerships.

Which of the following statements is most correct? Unlike a partnership, a disadvantage of a corporation is that has limited liability. Corporations face more regulations when compared to partnerships. An advantage to incorporation is that it allows for less regulation of the business. An advantage of a corporation is that it is subject to double taxation.