QUIZ-1 CORP. FINANCE
An agent has _____ to the principals. A) an obligation to act contrary to the interests B) a fiduciary responsibility C) no responsibility D) no relationship
B) a fiduciary responsibility
One of the most important disadvantages of the corporate form of business is: A) limited owner liability B) double taxation C) ease of transferring ownership D) unlimited owner liability
B) Double Taxation
Which one of the following statements about a limited partnership is correct? A) The partnership is managed on a daily basis by its limited partners. B) Each limited partnership must have at least one general partner. C) Partnership profits are taxed the same as corporate profits. D) All partners have limited liability for partnership debts. E) The partnership has an unlimited life.
B) Each limited partnership must have at least one general partner.
The majority of the dollar value of the US household net wealth is derived from nonfinancial assets (around 72%). A) True B) False
B) FALSE
An example of a principal of a firm is: A) the chairman of the board B) the owner C) the CEO D) the agent
B) The Owner
Wealth maximization as the goal of the firm implies enhancing the wealth of A) the Board of Directors. B) the firm's stockholders. C) the firm's employees. D) the federal government.
B) The firms stockholders
The advantage of being a limited partner in a limited partnership is the ability to: A) actively manage the firm without losing more than you invested. B) earn a profit without risking your investment in the firm. C) limit your losses to the amount invested in the firm. D) avoid taxes on your partnership earnings. E) control the daily operations of the firm while limiting your losses to your initial investment.
C) limit your losses to the amount invested in the firm.
Hillary Rotteneggs wishes to form a company that will specialize in toxic waste removal and storage. Which type of business form would be most advantageous? A) A sole proprietorship due to its low cost and ease of formation. B) A partnership due to its low cost and diversification of ownership. C) A corporation due to its limited liability. D) Any of the above would be equally acceptable.
C) A corporation due to its limited liability.
The process of managing a firm's long-term investments is called A) working capital management. B) asset allocation. C) capital budgeting. D) risk management. E) capital structure management.
C) Capital budgeting
In the US, double taxation exists in the income of a A) general partnership B) limited partnership. C) corporation. D) sole proprietorship. E) limited liability company.
C) Corporation
Which one of the following transactions occurred in the primary market? A) Alpha, Inc., a publicly owned company, bought shares of New Town Press, also a publicly owned company. B) Pete purchased shares of GPT from his friend, George. C) Valerie purchased newly issued shares of Velcro, Inc. D) Prudoe Mfg. sold shares of Plastics Tech on NASDAQ. E) Connie bought her first shares in a public company.
C) Valerie purchased newly issued shares of Velcro, Inc.
Limited liability really took hold in ________ with a corporate law in the state of ________ and represented a significant invention. A) 1945, California B) 1796, New York C) 1814, Massachusetts D) 1811, New York E) 1867, Massachusetts
D) 1811, New York
An example of a capital market security would be A) a Treasury bill B) a banker's acceptance C) commercial paper D) a long-term bond
D) A long term bond
Which of the following are considered to be significant financial innovations? A) Patent law B) Insurance C) Limited liability D) All of the above
D) ALL OF THE ABOVE
Money market securities include A) commercial paper B) Treasury bills C) negotiable certificates of deposit D) All of the above
D) All of the above
The capital structure of a firm refers to the firm's A) current assets and liabilities. B) combination of assets. C) buildings and equipment. D) long-term debt and equity. E) available cash.
D) Long-term debt and equity
Who is entitled to the "residual income" of the firm? A) workers B) bondholders C) the IRS D) the owners
D) The owners
Which of the following claimants is paid last? A) Common stockholders B) U.S. government's claim on income taxes C) Preferred Stockholders D) Workers
A) COMMON STOCKHOLDERS
A firm created as a separate and distinct legal entity that may be owned by one or more individuals or entities is called a A) corporation. B) public company. C) limited partnership. D) sole proprietorship. E) general partnership.
A) Corporation
Almost all financial transactions involve information asymmetries. A) True B) False
A) True
Finance can be defined as the study of the valuation and management of risk. A) True B) False
A) True
From a finance viewpoint, the firm is a bundle of risky cash flows. A) True B) False
A) True
Unethical behavior eliminates trust, and without trust businesses cannot interact. A) True B) False
A) True
The daily financial operations of a firm are primarily controlled by managing the A) working capital. B) long-term liabilities. C) capital structure. D) total debt level. E) capital budget.
A) Working Capital
The sole proprietor: A) has unlimited liability relating to the business B) has limited liability relating to injuries on the premises C) has unlimited liability but avoids federal taxation D) is liable for all obligations of the business equal to the amount of the investment in the firm
A) has unlimited liability relating to the business
Approximately, what was the dollar value of the US household net worth as of 2020? A) $85 trillion B) $140 trillion C) $105 billion D) $124 trillion E) $195 trillion
D) $124 trillion
An agency problem is prone to exist in public corporations because A) of the size of the operations. B) operations are frequently spread over various geographic locations. C) managers tend to be long-term employees. D) some owners are also company employees. E) management is frequently separated from ownership.
E) management is frequently separated from ownership.
The major topics in corporate finance are A) capital budgeting. B) capital structure. C) working capital management. D) only (a) and (b). E) all (a), (b), and (c).
E) ALL
Stakeholders include which of the following? A) employees B) suppliers C) creditors D) owners E) all of the above
E) All of the above
Which of the following statement(s) is (are) true? A) The financial system consists of a network of financial markets and institutions to bring savers and borrowers together and provide key services. B) Financial markets are markets for buying and selling bonds, stocks, foreign exchange, and other financial assets. C) Financial intermediaries are go-betweens for savers and borrowers. D) Services provided by the financial system include risk-sharing, liquidity, and information services. E) All of the above.
E) All of the above
A business organization owned by two or more individuals or entities, each of whom has unlimited liability for the firm's debts, is called a A) joint stock company. B) limited partnership. C) dual company. D) limited liability company. E) general partnership.
E) General Partnership
If you accept a job as a portfolio manager, you are working in which one of the following financial areas? A) financial institutions B) corporate finance C) capital management D) international finance E) investments
E) Investments
__________ consists of the institutions and procedures that provide for transactions in short-term debt instruments. A) Secondary markets B) Organized markets C) Capital markets D) Primary markets E) Money markets
E) Money Markets
A sole proprietorship is defined as a business A) engaged in a single operation. B) that is unincorporated. C) that produces only one product. D) that employs a single employee. E) owned by a single individual.
E) Owned by a single individual
Theresa sold 300 shares of MNO stock on the NYSE today. This transaction occurred in: A) the over-the-counter market. B) a dealer market. C) the primary market. D) a private placement. E) the secondary market.
E) Secondary Market