Chapter 6 Questions Pearson
Economic profit is equal to a firm's revenues minus its costs, both_________. Accounting profit is________economic profit.
both explicit and implicit; larger than
A flow of funds from savers to borrowers through financial intermediaries such as banks is_________finance, while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is________finance.
indirect; direct
Money that you receive at some future date is worth_______than the money that you receive today. If the interest rate rises, the present value of payments that you will receive in the future will ______.
less; fall
ExxonMobil is a large corporation. Who owns this company? ExxonMobil is owned by
stockholders
Stockholders' equity is
the difference between the value of a corporation's assets and the value of its liabilities; also known as net worth.
The owners of sole proprietorships and partnerships have
unlimited liability
Although only_______percent of all firms are corporations, corporations account for______of revenue and profits earned by all firms.
20; the majority
An income statement shows a firm's A. profits. B. costs. C. revenues. D. all of the above.
D. All of the above
A partnership is
a firm owned jointly by two or more persons and not organized as a corporation
The principal-agent problem occurs when
an agent pursues his own interests rather than the interests of the principal who hired him.
The Securities and Exchange Commission requires publicly owned firms to report their performance in financial statements. Do these statements eliminate information costs? Financial statements mandated by the Securities and Exchange Commission
do not eliminate information costs because some firms may be too new to have much information.
Changes in the value of a firm's stocks and bonds offer important information for a firm's managers. If the price is decreasing investors are _______ and are providing information that indicates the firm's managers might want to _________ the business.
more pessimistic; contract
Subtracting the value of a firm's liabilities from the value of its assets leaves its
net worth.
A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.
stock, bond
