Exam 6: Firms, the Stock Market, and Corporate Governance

When Internet coupon site Groupon sold stock to the public for the first time,funds were being raised in a ________ market,and when those newly issued shares are resold to other buyers,the sales take place in a ________ market.

Jeremy is thinking of starting up a small business selling NASCAR memorabilia.He is considering setting up his business as a sole proprietorship.What is one disadvantage to Jeremy of setting up his business as a sole proprietorship?

In addition to requiring that CEO's personally certify the accuracy of financial statements,the Sarbanes-Oxley Act of 2002 also requires that

In response to accounting scandals in 2002,the federal government passed legislation requiring that corporate directors have a certain level of expertise with financial information and mandating that chief executive officers personally certify the accuracy of financial statements.What is the name of this legislation?

Which of the following is an example of an implicit cost a firm might incur?

How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?

A normal rate of return refers to the ________ that investors must earn on the funds they invest in a firm,expressed as a percentage of the amount invested.

Explain the relationships between a corporation's shareholders,its board of directors,and its top managers.

The difference between a firm's assets and liabilities is its

When the coupon rate on newly issued bonds decreases relative to older,outstanding bonds,what happens?

If a dollar a year from now will likely have less purchasing power because of inflation,then a dollar today ________ a dollar a year from now.

Which of the following takes place in the direct finance market?

Stockholders

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?

What does limited liability mean?

A decrease in liabilities will reduce a firm's net worth.

Southwest Airlines wants to raise $20 million to finance the renovation of their corporate offices,and the company wishes to raise the funds through direct finance.Which of the following methods could it use?

Direct finance includes the sale by a corporation of stocks or bonds,but does not include borrowing money from a bank.

When an investor buys a corporate bond,

Tanesha sells homemade candles over the Internet.Her annual revenue is $64,000 per year,the explicit costs of her business are $17,000,and the opportunity costs of her business are $22,000.What is her economic profit?