Question 1

Which one of the following forms of compensation is most apt to align the interests of managers and shareholders?

Accepted Answer

A)  A fixed salary 
B)  A salary that is linked to current company profits 
C)  A salary that is paid partly in the form of the company's shares 
D) A salary that is linked to the company's market share 
A)  A fixed salary 
B)  A salary that is linked to current company profits 
C)  A salary that is paid partly in the form of the company's shares 
D) A salary that is linked to the company's market share C

Question 2

A common problem for closely held corporations is:

Accepted Answer

A)  the lack of access to substantial amounts of capital. 
B)  the restriction that shareholders receive only one vote each. 
C)  the separation of ownership and management. 
D) an abundance of agency problems. 
A)  the lack of access to substantial amounts of capital. 
B)  the restriction that shareholders receive only one vote each. 
C)  the separation of ownership and management. 
D) an abundance of agency problems. A

Question 3

Facebook's decision to spend $700 million to acquire Instagram is an investment decision.

Accepted Answer

A) True 
 B)False  True

Question 4

"Double taxation" refers to:

Accepted Answer

A)  all partners paying equal taxes on profits. 
B)  corporations paying taxes on both dividends and retained earnings. 
C)  paying taxes on profits at the corporate level and dividends at the personal level. 
D) the fact that marginal tax rates are doubled for corporations. 
A)  all partners paying equal taxes on profits. 
B)  corporations paying taxes on both dividends and retained earnings. 
C)  paying taxes on profits at the corporate level and dividends at the personal level. 
D) the fact that marginal tax rates are doubled for corporations.

Question 5

A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

Accepted Answer

A)  the managers are not motivated by personal gain. 
B)  the board of directors may claim the credit. 
C)  short-term, not long-term profits become the focus. 
D) investors desire stable profits. 
A)  the managers are not motivated by personal gain. 
B)  the board of directors may claim the credit. 
C)  short-term, not long-term profits become the focus. 
D) investors desire stable profits.

Question 6

Distinguish between a firm's capital budgeting decisions and its financing decisions by giving examples of each.

Accepted Answer

Examples of a firm's capital budgeting d

Question 7

Boards of directors are generally appointed by the firm's senior officers.

Accepted Answer

A) True 
 B)False

Question 8

Sole proprietorships face the same agency problems as those associated with corporations.

Accepted Answer

A) True 
 B)False

Question 9

One continuing problem with managerial incentive compensation plans is that:

Accepted Answer

A)  the plans increase agency problems. 
B)  managers prefer guaranteed salaries. 
C)  their effectiveness is difficult to evaluate. 
D) the plans do not reward shareholders. 
A)  the plans increase agency problems. 
B)  managers prefer guaranteed salaries. 
C)  their effectiveness is difficult to evaluate. 
D) the plans do not reward shareholders.

Question 10

How do corporations ensure that managers' and stockholders' interests coincide?

Accepted Answer

Conflicts of interest between managers a

Question 11

Which one of the following is a real asset?

Accepted Answer

A)  A patent 
B)  A personal IOU 
C)  A checking account balance 
D) A share of stock 
A)  A patent 
B)  A personal IOU 
C)  A checking account balance 
D) A share of stock

Question 12

In a partnership form of organization, income tax liability, if any, is incurred by:

Accepted Answer

A)  the partnership itself. 
B)  the partners individually. 
C)  both the partnership and the partners. 
D) neither the partnership nor the partners. 
A)  the partnership itself. 
B)  the partners individually. 
C)  both the partnership and the partners. 
D) neither the partnership nor the partners.

Question 13

In the case of a limited liability partnership, ________ has/have limited liability.

Accepted Answer

A)  only some of partners 
B)  only the managing partner 
C)  all of the partners 
D) none of the partners 
A)  only some of partners 
B)  only the managing partner 
C)  all of the partners 
D) none of the partners

Question 14

Is value maximization always ethical?

Accepted Answer

Modern finance does not condone attempts

Question 15

A board of directors is elected as a representative of the corporation's:

Accepted Answer

A)  top management. 
B)  stakeholders. 
C)  shareholders. 
D) customers. 
A)  top management. 
B)  stakeholders. 
C)  shareholders. 
D) customers.

Question 16

Corporate raiders will be looked upon most favorably if they:

Accepted Answer

A)  divide up large profitable entities. 
B)  take actions that increase current shareholder wealth. 
C)  create value for themselves through their actions. 
D) change the capital structure of a firm by increasing its debt. 
A)  divide up large profitable entities. 
B)  take actions that increase current shareholder wealth. 
C)  create value for themselves through their actions. 
D) change the capital structure of a firm by increasing its debt.

Question 17

Which of the following is a disadvantage to incorporating a business?

Accepted Answer

A)  Easier access to financial markets 
B)  Limited liability 
C)  Becoming a permanent legal entity 
D) Profits taxed at the corporate level and the shareholder level 
A)  Easier access to financial markets 
B)  Limited liability 
C)  Becoming a permanent legal entity 
D) Profits taxed at the corporate level and the shareholder level

Question 18

Complete the table below that compares the differences among corporations, sole proprietorships, and general partnerships.

Accepted Answer

The answer of Complete the table below that compares the...

Question 19

Capital budgeting decisions are used to determine how to raise the cash necessary for investments.

Accepted Answer

A) True 
 B)False

Question 20

A block holder is commonly defined as an investor who:

Accepted Answer

A)  owns 5 percent or more of a firm's outstanding shares. 
B)  invests in more than one firm within the same industry. 
C)  is another corporation. 
D) is also one of the firm's managers or directors. 
A)  owns 5 percent or more of a firm's outstanding shares. 
B)  invests in more than one firm within the same industry. 
C)  is another corporation. 
D) is also one of the firm's managers or directors.

Exam 1: Goals and Governance of the Corporation

Which one of the following forms of compensation is most apt to align the interests of managers and shareholders?

A common problem for closely held corporations is:

Facebook's decision to spend $700 million to acquire Instagram is an investment decision.

"Double taxation" refers to:

A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

Distinguish between a firm's capital budgeting decisions and its financing decisions by giving examples of each.

Boards of directors are generally appointed by the firm's senior officers.

Sole proprietorships face the same agency problems as those associated with corporations.

One continuing problem with managerial incentive compensation plans is that:

How do corporations ensure that managers' and stockholders' interests coincide?

Which one of the following is a real asset?

In a partnership form of organization, income tax liability, if any, is incurred by:

In the case of a limited liability partnership, ________ has/have limited liability.

Is value maximization always ethical?

A board of directors is elected as a representative of the corporation's:

Corporate raiders will be looked upon most favorably if they:

Which of the following is a disadvantage to incorporating a business?

Complete the table below that compares the differences among corporations, sole proprietorships, and general partnerships.

Capital budgeting decisions are used to determine how to raise the cash necessary for investments.

A block holder is commonly defined as an investor who:

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters