Question 1

There are many types of unethical business behavior.One example is where executives provide information that they know is incorrect to banks and to stockholders.It is illegal to provide such information to banks,but it is not illegal to provide it to stockholders because they are the owners of the firm,not outsiders.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers?

Accepted Answer

A)   Congress passes a law that severely restricts hostile takeovers.
B)   A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock.
C)   The company changes the way executive stock options are handled,with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period.
D)   The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company.
E)   The composition of the board of directors is changed from all inside directors to all outside directors,and the directors are compensated with stock rather than cash.F) C) and D)
G) A) and E)

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   Corporations are taxed more favorably than proprietorships.
B)   Corporations have unlimited liability.
C)   Because of their size,large corporations face fewer regulations than smaller corporations and proprietorships.
D)   Reducing the threat of corporate takeover increases the likelihood that managers will act in shareholders' interests.
E)   Bond covenants are designed to protect bondholders and to reduce potential conflicts between stockholders and bondholders.F) B) and E)
G) A) and E)

Question 4

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

Accepted Answer

A) True 
 B)False

Question 5

As a result of financial scandals occurring during the past decade,there has been a strong push to improve business ethics.

Accepted Answer

A) True 
 B)False

Question 6

It is generally less expensive to form a corporation than a proprietorship because,with a proprietorship,extensive legal documents are required.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   Corporations generally face fewer regulations than proprietorships.
B)   Corporate shareholders are exposed to unlimited liability.
C)   It is usually easier to transfer ownership in a corporation than in a partnership.
D)   Corporate shareholders are exposed to unlimited liability,but this factor is offset by the tax advantages of incorporation.
E)   There is a tax disadvantage to incorporation,and there is no way any corporation can escape this disadvantage,even if it is very small.F) D) and E)
G) None of the above

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)   A good goal for a firm's management is the maximization of expected EPS.
B)   Most business in the U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment.
C)   Conflicts can exist between stockholders and managers,but potential conflicts are reduced by the possibility of hostile takeovers.
D)   Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability,but the liability of all investors in the other types of businesses is more limited.
E)   For a stock to be in equilibrium,its intrinsic value must be greater than the actual market price.F) A) and E)
G) C) and D)

Question 9

A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock.In this case the stock's market price would equal its intrinsic value.

Accepted Answer

A) True 
 B)False

Question 10

For a stock to be in equilibrium as the book defines it,its market price should exceed its intrinsic value.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
B)   Corporations face fewer regulations than proprietorships.
C)   One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation,because taxes are levied at both the firm level and the owner level.
D)   It is generally less expensive to form a corporation than a proprietorship because,with a proprietorship,extensive legal documents are required.
E)   If a partnership goes bankrupt,each partner is exposed to liabilities only up to the amount of his or her investment in the business.F) None of the above
G) A) and D)

Question 12

Charleston Corporation (CC) now operates as a "regular" corporation,but it is considering a switch to S Corporation status.CC is owned by 100 stockholders who each hold 1% of the stock,and each faces a personal tax rate of 35%.The firm earns $3,700,000 per year before taxes,and since it has no need for retained earnings,it pays out all of its earnings as dividends.Assume that the corporate tax rate is 34% and the personal tax rate is 35%.How much more (or less) spendable income would each stockholder have if the firm elected S Corporation status?

Accepted Answer

A)   $10,139
B)   $7,605
C)   $8,177
D)   $8,749
E)   $6,787F) A) and B)
G) C) and D)

Question 13

Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?

Accepted Answer

A)   Decrease the use of restrictive covenants in bond agreements.
B)   Take actions that reduce the possibility of a hostile takeover.
C)   Elect a board of directors that allows managers greater freedom of action.
D)   Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.
E)   Eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock.F) A) and D)
G) All of the above

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)   One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the firm's capital structure.
B)   The threat of takeover generally increases potential conflicts between stockholders and managers.
C)   Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers.
D)   The threat of takeovers tends to reduce potential conflicts between stockholders and managers.
E)   The creation of the Securities and Exchange Commission (SE
C)  has eliminated conflicts between managers and stockholders.F) C) and E)
G) C) and D)

Question 15

If a stock's market price is above its intrinsic value,then the stock can be thought of as being undervalued,and it would be a good buy.

Accepted Answer

A) True 
 B)False

Question 16

​The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose,barring any new information coming out about the stock.It is the "marginal investor" who determines the actual stock price.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)   If a lower level person in a firm does something illegal,like "cooking the books" to understate costs and thereby artificially increase profits because he or she was ordered to do so by a superior,the lower level person cannot be prosecuted but the superior can be prosecuted.
B)   There are many types of unethical business behavior.One example is where executives provide information that they know is incorrect to outsiders.It is illegal to provide such information to federally regulated banks,but it is not illegal to provide it to stockholders because they are the owners of the firm.
C)   If someone deliberately understates costs and thereby causes reported profits to increase,this can cause the stock price to rise above its intrinsic value.The stock will probably fall in the future.Both those who participated in the fraud and the firm itself can be prosecuted.
D)   Ethical behavior is not influenced by training and auditing procedures.People are either ethical or they are not,and this is what determines ethical behavior in business.
E)   ​Ethics is not an important consideration in business and in business schools.F) B) and E)
G) A) and E)

Question 18

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Accepted Answer

A) True 
 B)False

Question 19

Relaxant Inc.operates as a partnership.Now the partners have decided to convert the business into a corporation.Which of the following statements is CORRECT?

Accepted Answer

A)   Relaxant's shareholders (the ex-partners) will now be exposed to less liability.
B)   The company will probably be subject to fewer regulations and required disclosures.
C)   Assuming the firm is profitable,none of its income will be subject to federal income taxes.
D)   The firm's investors will be exposed to less liability,but they will find it more difficult to transfer their ownership.
E)   The firm will find it more difficult to raise additional capital to support its growth.F) B) and D)
G) C) and E)

Question 20

Some partners in a partnership may have different rights,privileges,and responsibilities than other partners.

Accepted Answer

A) True 
 B)False

Exam 1: An Overview of Financial Management

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Relaxant Inc.operates as a partnership.Now the partners have decided to convert the business into a corporation.Which of the following statements is CORRECT?

Correct Answer
verified

As a result of financial scandals occurring during the past decade,there has been a strong push to improve business ethics.

Correct Answer
verified

For a stock to be in equilibrium as the book defines it,its market price should exceed its intrinsic value.

Correct Answer
verified

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Correct Answer
verified

Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers?

Correct Answer
verified

Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

It is generally less expensive to form a corporation than a proprietorship because,with a proprietorship,extensive legal documents are required.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose,barring any new information coming out about the stock.It is the "marginal investor" who determines the actual stock price.

Correct Answer
verified

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock.In this case the stock's market price would equal its intrinsic value.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

If a stock's market price is above its intrinsic value,then the stock can be thought of as being undervalued,and it would be a good buy.

Correct Answer
verified

Some partners in a partnership may have different rights,privileges,and responsibilities than other partners.

Correct Answer
verified

Correct Answer
verified

Exam 1: An Overview of Financial Management

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Relaxant Inc.operates as a partnership.Now the partners have decided to convert the business into a corporation.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

As a result of financial scandals occurring during the past decade,there has been a strong push to improve business ethics.

Correct AnswerverifiedShow Answer

For a stock to be in equilibrium as the book defines it,its market price should exceed its intrinsic value.

Correct AnswerverifiedShow Answer

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Correct AnswerverifiedShow Answer

Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers?

Correct AnswerverifiedShow Answer

Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

It is generally less expensive to form a corporation than a proprietorship because,with a proprietorship,extensive legal documents are required.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

​The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose,barring any new information coming out about the stock.It is the "marginal investor" who determines the actual stock price.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock.In this case the stock's market price would equal its intrinsic value.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If a stock's market price is above its intrinsic value,then the stock can be thought of as being undervalued,and it would be a good buy.

Correct AnswerverifiedShow Answer

Some partners in a partnership may have different rights,privileges,and responsibilities than other partners.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose,barring any new information coming out about the stock.It is the "marginal investor" who determines the actual stock price.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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