Question 1

Performance shares are dollar bonuses awarded to managers on the basis of corporate performance.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 4

Although firms have ethical responsibilities to their employees and customers, they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Accepted Answer

A) True 
 B)False

Question 5

The disadvantages associated with a proprietorship are similar to those under a partnership.One exception to this is due to the formal nature of the partnership agreement and the commitment of the partners' personal assets.As a result, partnerships do not have difficulty raising large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct?

Accepted Answer

A)  The optimal dividend policy is the one that satisfies the shareholders because they supply the firm's capital. 
B)  The use of debt financing has no effect on earnings per share (EPS) or stock price. 
C)  The riskiness of projected EPS depends upon how the firm is financed. 
D)  Stock price is dependent on the projected EPS and the use of debt but not on the timing of the earnings stream. 
E)  Dividend policy is one aspect of the firm's financial policy that is determined directly by the shareholders. 
A)  The optimal dividend policy is the one that satisfies the shareholders because they supply the firm's capital. 
B)  The use of debt financing has no effect on earnings per share (EPS) or stock price. 
C)  The riskiness of projected EPS depends upon how the firm is financed. 
D)  Stock price is dependent on the projected EPS and the use of debt but not on the timing of the earnings stream. 
E)  Dividend policy is one aspect of the firm's financial policy that is determined directly by the shareholders.

Question 7

Current tax laws have which of the following effects?

Accepted Answer

A)  Favor dividends because there are no capital gains taxes on dividends. 
B)  Do not favor capital gains because the tax must be paid as the value of the stock increases, whether or not the stock is sold. 
C)  Favor capital gains because the tax does not have to be paid until the stock is sold. 
D)  Do not favor dividends or capital gains for most people because different people are in different tax brackets. 
E)  Favor dividends since dividends are tax-deductible for the paying corporation whereas retained earnings, which produce capital gains, are not tax-deductible. 
A)  Favor dividends because there are no capital gains taxes on dividends. 
B)  Do not favor capital gains because the tax must be paid as the value of the stock increases, whether or not the stock is sold. 
C)  Favor capital gains because the tax does not have to be paid until the stock is sold. 
D)  Do not favor dividends or capital gains for most people because different people are in different tax brackets. 
E)  Favor dividends since dividends are tax-deductible for the paying corporation whereas retained earnings, which produce capital gains, are not tax-deductible.

Question 8

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Accepted Answer

A)  Attracting and sustaining new customers. 
B)  Hiring and keeping skilled employees. 
C)  Keeping up with competition. 
D)  Dealing with firms who use "questionable" ethics. 
E)  None of the above. 
A)  Attracting and sustaining new customers. 
B)  Hiring and keeping skilled employees. 
C)  Keeping up with competition. 
D)  Dealing with firms who use "questionable" ethics. 
E)  None of the above.

Question 9

Legal and economic differences among countries, although important, do not pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

Accepted Answer

A) True 
 B)False

Question 10

In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder wealth maximization, they risk being disciplined by the market.Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

Accepted Answer

A) True 
 B)False

Question 11

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 12

If a firm has a single owner, we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Managers can increase the value of a firm by making decisions that

Accepted Answer

A)  increase the future cash flows of the firm. 
B)  increase the amount of time required to generate future cash flows. 
C)  increase the riskiness of future cash flows. 
D)  decrease the liquidity of the firm's securities. 
A)  increase the future cash flows of the firm. 
B)  increase the amount of time required to generate future cash flows. 
C)  increase the riskiness of future cash flows. 
D)  decrease the liquidity of the firm's securities.

Question 15

By maximizing the earnings of the firm we will ensure that the price per share of common stock is maximized, hence shareholders' wealth also will be maximized.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is correct?

Accepted Answer

A)  A good goal for a corporate manager is maximization of expected EPS. 
B)  Most business in the U.S.is conducted by corporations; corporations' popularity results primarily from their favorable tax treatment. 
C)  A good example of an agency relationship is the one between stockholders and managers. 
D)  Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability, but investors in the other types of businesses are not. 
E)  Firms in highly competitive industries find it easier to exercise "social responsibility" than do firms in oligopolistic industries. 
A)  A good goal for a corporate manager is maximization of expected EPS. 
B)  Most business in the U.S.is conducted by corporations; corporations' popularity results primarily from their favorable tax treatment. 
C)  A good example of an agency relationship is the one between stockholders and managers. 
D)  Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability, but investors in the other types of businesses are not. 
E)  Firms in highly competitive industries find it easier to exercise "social responsibility" than do firms in oligopolistic industries.

Question 17

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Accepted Answer

A) True 
 B)False

Question 18

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 19

The fact that a proprietorship, as a business, pays no corporate income tax and that it is easily and inexpensively formed are often cited as key advantages to that form of business.

Accepted Answer

A) True 
 B)False

Question 20

Under our current tax laws, when investors pay taxes on their corporate dividend income, they are being subjected to a form of double taxation.

Accepted Answer

A) True 
 B)False

Performance shares are dollar bonuses awarded to managers on the basis of corporate performance.

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

Although firms have ethical responsibilities to their employees and customers, they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Which of the following statements is correct?

Current tax laws have which of the following effects?

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Legal and economic differences among countries, although important, do not pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

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

If a firm has a single owner, we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

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.

Managers can increase the value of a firm by making decisions that

By maximizing the earnings of the firm we will ensure that the price per share of common stock is maximized, hence shareholders' wealth also will be maximized.

Which of the following statements is correct?

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

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.

The fact that a proprietorship, as a business, pays no corporate income tax and that it is easily and inexpensively formed are often cited as key advantages to that form of business.

Under our current tax laws, when investors pay taxes on their corporate dividend income, they are being subjected to a form of double taxation.

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 Concepts

Security Valuation and Selection

Filters

Exam 6: Business Organizations and the Tax Environment

Performance shares are dollar bonuses awarded to managers on the basis of corporate performance.

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

Although firms have ethical responsibilities to their employees and customers, they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Which of the following statements is correct?

Current tax laws have which of the following effects?

Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Legal and economic differences among countries, although important, do not pose significant problems for most multinational corporations when they coordinate and control worldwide operations of subsidiaries.

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

If a firm has a single owner, we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

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.

Managers can increase the value of a firm by making decisions that

By maximizing the earnings of the firm we will ensure that the price per share of common stock is maximized, hence shareholders' wealth also will be maximized.

Which of the following statements is correct?

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

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.

The fact that a proprietorship, as a business, pays no corporate income tax and that it is easily and inexpensively formed are often cited as key advantages to that form of business.

Under our current tax laws, when investors pay taxes on their corporate dividend income, they are being subjected to a form of double taxation.

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 Concepts

Security Valuation and Selection

Filters