Question 1

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is correct?

Accepted Answer

A)  The ability of firms to engage in socially beneficial projects that involve voluntary costs is constrained by competition and the need of firms to attract capital at low cost. 
B)  The actions that maximize a firm's stock price are inconsistent with maximizing social welfare. 
C)  The concepts of social responsibility and ethical responsibility on the part of corporations are completely different and neither is relevant in maximizing stock price. 
D)  In a competitive market,if a group of firms do not spend resources making social welfare improvements,but another group does,in general,this will not affect the second group's ability to attract capital. 
E)  If government did not mandate socially responsible corporate actions,such as those relating to product safety and fair hiring practices,most firms in competitive markets would still pursue such policies voluntarily. 
A)  The ability of firms to engage in socially beneficial projects that involve voluntary costs is constrained by competition and the need of firms to attract capital at low cost. 
B)  The actions that maximize a firm's stock price are inconsistent with maximizing social welfare. 
C)  The concepts of social responsibility and ethical responsibility on the part of corporations are completely different and neither is relevant in maximizing stock price. 
D)  In a competitive market,if a group of firms do not spend resources making social welfare improvements,but another group does,in general,this will not affect the second group's ability to attract capital. 
E)  If government did not mandate socially responsible corporate actions,such as those relating to product safety and fair hiring practices,most firms in competitive markets would still pursue such policies voluntarily.

Question 3

Because political risk is seldom negotiable,it cannot be explicitly addressed in multinational corporate financial analysis.

Accepted Answer

A) True 
 B)False

Question 4

In a limited partnership,the liability of the limited partners generally is restricted to the amount of funds that they have invested in the company but the general partners have unlimited liability.

Accepted Answer

A) True 
 B)False

Question 5

If a firm's managers want to maximize stock price it is in their best interests to operate efficient,low-cost plants,develop new and safe products that consumers want,and maintain good relationships with customers,suppliers,creditors,and the communities in which they operate.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a reason why companies move into international operations?

Accepted Answer

A)  To take advantage of lower production costs in regions of inexpensive labor. 
B)  To develop new markets for their finished products. 
C)  To better serve their primary customers. 
D)  Because important raw materials are located abroad. 
E)  All of the above. 
A)  To take advantage of lower production costs in regions of inexpensive labor. 
B)  To develop new markets for their finished products. 
C)  To better serve their primary customers. 
D)  Because important raw materials are located abroad. 
E)  All of the above.

Question 7

The goal of maximizing stock price is a detriment to society in that few of the actions that result in maximization of stock price also benefit society.

Accepted Answer

A) True 
 B)False

Question 8

In order to avoid double taxation and to escape the frequently higher tax rate applied to capital gains,stockholders generally prefer to have corporations pay dividends rather than to retain their earnings and reinvest the money in the business.Thus,earnings should be retained only if the firm needs capital very badly and would have difficulty raising it from external sources.

Accepted Answer

A) True 
 B)False

Question 9

No firm can take cost-increasing,socially responsible actions in a competitive marketplace and expect to continue to compete,even if those cost-increasing actions yield significant benefits to the firm.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not an advantage of a proprietorship?

Accepted Answer

A)  Inexpensive to form 
B)  Not regulated heavily 
C)  Unlimited liability 
D)  Taxed like an individual 
A)  Inexpensive to form 
B)  Not regulated heavily 
C)  Unlimited liability 
D)  Taxed like an individual

Question 11

Most legal experts would recommend that partnership agreements should be written formal agreements filed with the secretary of state in which the partnership does business.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct?

Accepted Answer

A)  The major disadvantage of organizing as a corporation is that it does not provide its owners with limited liability. 
B)  Bond covenants,or restrictions on debt,are an important device to reduce agency conflicts between stockholders and bondholders. 
C)  The threat of a hostile takeover serves to reduce agency conflicts between stockholders and bondholders. 
D)  Compensation packages are designed,in part,to reduce agency conflicts between shareholders and managers. 
E)  Both answers b and d are correct. 
A)  The major disadvantage of organizing as a corporation is that it does not provide its owners with limited liability. 
B)  Bond covenants,or restrictions on debt,are an important device to reduce agency conflicts between stockholders and bondholders. 
C)  The threat of a hostile takeover serves to reduce agency conflicts between stockholders and bondholders. 
D)  Compensation packages are designed,in part,to reduce agency conflicts between shareholders and managers. 
E)  Both answers b and d are correct.

Question 13

____ decisions are decisions as to what types of assets should be purchased to help generate cash flows.

Accepted Answer

A)  Capital structure 
B)  Capital budgeting 
C)  Dividend policy 
D)  Repurchase 
A)  Capital structure 
B)  Capital budgeting 
C)  Dividend policy 
D)  Repurchase

Question 14

The two major advantages of a limited liability company are flexibility of ownership structure and the ability to elect to be taxed either as a corporation or as a partnership while maintaining limited liability for the owners.

Accepted Answer

A) True 
 B)False

Question 15

The U.S.corporate tax rate is lower than most industrialized nations.

Accepted Answer

A) True 
 B)False

Question 16

Weston Corporation has some money to invest,and its treasurer is choosing between General Motors bonds and State of Illinois bonds.Both have the same maturity,and they are equally risky and liquid.If the Illinois bonds,which are tax-exempt,yield 6 percent,and Weston's marginal income tax rate is 40 percent,what yield on GM bonds would make Weston's treasurer indifferent between the two?

Accepted Answer

A)  6.0% 
B)  7.5% 
C)  10.0% 
D)  12.5% 
E)  15.0% 
A)  6.0% 
B)  7.5% 
C)  10.0% 
D)  12.5% 
E)  15.0%

Question 17

If the tax laws stated that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,it would probably encourage companies to use more debt financing than they presently do,other things held constant.

Accepted Answer

A) True 
 B)False

Question 18

A firm's current value is related to its future growth opportunities,and corporations can attract funds more easily than unincorporated businesses to take advantage of growth opportunities.

Accepted Answer

A) True 
 B)False

Question 19

Taking poison pills and offering greenmail are

Accepted Answer

A)  Ways stockholders protect themselves and their interest from management's conflicting interests. 
B)  Tactics used by creditors to make their position more favorable when resolving agency problems between stockholders and creditors. 
C)  Two actions managers might take to ward off hostile takeovers. 
D)  Both commonly practiced methods used by firms' managers to increase stockholders' wealth. 
A)  Ways stockholders protect themselves and their interest from management's conflicting interests. 
B)  Tactics used by creditors to make their position more favorable when resolving agency problems between stockholders and creditors. 
C)  Two actions managers might take to ward off hostile takeovers. 
D)  Both commonly practiced methods used by firms' managers to increase stockholders' wealth.

Question 20

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Accepted Answer

A)  Investing in a smokestack "scrubber" to reduce the firm's air pollution as mandated by law. 
B)  Voluntarily installing expensive machinery to treat effluent discharge which currently is being dumped into a river where it is ruining the drinking water of the community where the plant is located. 
C)  Investing in a smokestack filter to reduce sulphur-dioxide emissions in order to reduce the current tax being levied on the firm by the state for its pollution. 
D)  Making a large corporate donation to the local community in order to fund a recreation complex that will be used by the community and the firm's employees. 
E)  Each of the above actions is consistent with social responsibility and none is necessarily inconsistent with stockholder wealth maximization. 
A)  Investing in a smokestack "scrubber" to reduce the firm's air pollution as mandated by law. 
B)  Voluntarily installing expensive machinery to treat effluent discharge which currently is being dumped into a river where it is ruining the drinking water of the community where the plant is located. 
C)  Investing in a smokestack filter to reduce sulphur-dioxide emissions in order to reduce the current tax being levied on the firm by the state for its pollution. 
D)  Making a large corporate donation to the local community in order to fund a recreation complex that will be used by the community and the firm's employees. 
E)  Each of the above actions is consistent with social responsibility and none is necessarily inconsistent with stockholder wealth maximization.

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.

Which of the following statements is correct?

Because political risk is seldom negotiable,it cannot be explicitly addressed in multinational corporate financial analysis.

In a limited partnership,the liability of the limited partners generally is restricted to the amount of funds that they have invested in the company but the general partners have unlimited liability.

If a firm's managers want to maximize stock price it is in their best interests to operate efficient,low-cost plants,develop new and safe products that consumers want,and maintain good relationships with customers,suppliers,creditors,and the communities in which they operate.

Which of the following is a reason why companies move into international operations?

The goal of maximizing stock price is a detriment to society in that few of the actions that result in maximization of stock price also benefit society.

No firm can take cost-increasing,socially responsible actions in a competitive marketplace and expect to continue to compete,even if those cost-increasing actions yield significant benefits to the firm.

Which of the following is not an advantage of a proprietorship?

Most legal experts would recommend that partnership agreements should be written formal agreements filed with the secretary of state in which the partnership does business.

Which of the following statements is correct?

____ decisions are decisions as to what types of assets should be purchased to help generate cash flows.

The two major advantages of a limited liability company are flexibility of ownership structure and the ability to elect to be taxed either as a corporation or as a partnership while maintaining limited liability for the owners.

The U.S.corporate tax rate is lower than most industrialized nations.

If the tax laws stated that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,it would probably encourage companies to use more debt financing than they presently do,other things held constant.

A firm's current value is related to its future growth opportunities,and corporations can attract funds more easily than unincorporated businesses to take advantage of growth opportunities.

Taking poison pills and offering greenmail are

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

Exam 6: Business Organizations and the Tax Environment

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.

Which of the following statements is correct?

Because political risk is seldom negotiable,it cannot be explicitly addressed in multinational corporate financial analysis.

In a limited partnership,the liability of the limited partners generally is restricted to the amount of funds that they have invested in the company but the general partners have unlimited liability.

If a firm's managers want to maximize stock price it is in their best interests to operate efficient,low-cost plants,develop new and safe products that consumers want,and maintain good relationships with customers,suppliers,creditors,and the communities in which they operate.

Which of the following is a reason why companies move into international operations?

The goal of maximizing stock price is a detriment to society in that few of the actions that result in maximization of stock price also benefit society.

No firm can take cost-increasing,socially responsible actions in a competitive marketplace and expect to continue to compete,even if those cost-increasing actions yield significant benefits to the firm.

Which of the following is not an advantage of a proprietorship?

Most legal experts would recommend that partnership agreements should be written formal agreements filed with the secretary of state in which the partnership does business.

Which of the following statements is correct?

____ decisions are decisions as to what types of assets should be purchased to help generate cash flows.

The two major advantages of a limited liability company are flexibility of ownership structure and the ability to elect to be taxed either as a corporation or as a partnership while maintaining limited liability for the owners.

The U.S.corporate tax rate is lower than most industrialized nations.

If the tax laws stated that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense,it would probably encourage companies to use more debt financing than they presently do,other things held constant.

A firm's current value is related to its future growth opportunities,and corporations can attract funds more easily than unincorporated businesses to take advantage of growth opportunities.

Taking poison pills and offering greenmail are

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters