Question 1

What is the difference between retained earnings and dividends?

Accepted Answer

Retained earnings are profits

Question 2

What do economists call the situation where a hired manager does not have the same interests as the owners of the business?

Accepted Answer

A)  conquest and control 
B)  a financial problem 
C)  a principal-agent problem 
D)  a financial intermediary problem 
A)  conquest and control 
B)  a financial problem 
C)  a principal-agent problem 
D)  a financial intermediary problem

Question 3

What must balance on a balance sheet?

Accepted Answer

A)  Total assets must equal total liabilities plus equity. 
B)  Revenues must equal costs. 
C)  Retained earnings plus dividends paid must equal earnings per share. 
D)  All of these must balance. 
A)  Total assets must equal total liabilities plus equity. 
B)  Revenues must equal costs. 
C)  Retained earnings plus dividends paid must equal earnings per share. 
D)  All of these must balance.

Question 4

When Internet coupon site Groupon sold stock to the public for the first time following its IPO in November 2011,it did so through the NASDAQ market.This was an example of Groupon raising funds through

Accepted Answer

A)  reinvesting retained earnings. 
B)  a financial intermediary. 
C)  dividend reinvestment. 
D)  a financial market. 
A)  reinvesting retained earnings. 
B)  a financial intermediary. 
C)  dividend reinvestment. 
D)  a financial market.

Question 5

What is an inside director?

Accepted Answer

A)  a movie director who also appears in the movie 
B)  a member of a corporate board of directors that is also a manager of the business 
C)  the CEO that is selected by the corporation's board of directors 
D)  a board of director chair who has been in the job for at least three years 
A)  a movie director who also appears in the movie 
B)  a member of a corporate board of directors that is also a manager of the business 
C)  the CEO that is selected by the corporation's board of directors 
D)  a board of director chair who has been in the job for at least three years

Question 6

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 advantage to Jeremy of setting up his business as a sole proprietorship?

Accepted Answer

A)  As a sole proprietor, Jeremy would face limited liability. 
B)  As a sole proprietor, Jeremy would have the ability to share risk with shareholders. 
C)  As a sole proprietor, Jeremy would have both ownership and control over the business. 
D)  All of the above would be advantages of setting up his business as a sole proprietorship. 
A)  As a sole proprietor, Jeremy would face limited liability. 
B)  As a sole proprietor, Jeremy would have the ability to share risk with shareholders. 
C)  As a sole proprietor, Jeremy would have both ownership and control over the business. 
D)  All of the above would be advantages of setting up his business as a sole proprietorship.

Question 7

In the United States,corporate profits are taxed at the corporate level and then are taxed again as personal income in the form of dividend payments.

Accepted Answer

A) True 
 B)False

Question 8

Total dividend payments plus retained earnings divided by outstanding stock shares equals

Accepted Answer

A)  the price-earnings ratio. 
B)  earnings per share. 
C)  the dividend yield. 
D)  the year-to-date percentage change. 
A)  the price-earnings ratio. 
B)  earnings per share. 
C)  the dividend yield. 
D)  the year-to-date percentage change.

Question 9

Which of the following would explain why accounting profit might be greater than economic profit?

Accepted Answer

A)  A firm has implicit costs as well as explicit costs. 
B)  A firm has only explicit costs. 
C)  A firm's net income is greater than its accounting profit. 
D)  A firm's net income is less than its accounting profit. 
A)  A firm has implicit costs as well as explicit costs. 
B)  A firm has only explicit costs. 
C)  A firm's net income is greater than its accounting profit. 
D)  A firm's net income is less than its accounting profit.

Question 10

Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.

Accepted Answer

A)  catastrophic 
B)  variable rate 
C)  subprime 
D)  Alt-A 
A)  catastrophic 
B)  variable rate 
C)  subprime 
D)  Alt-A

Question 11

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share,and you have an alternative investment of equal risk that will earn a 9 percent rate of return,what would you be willing to pay per share for this stock?

Accepted Answer

A)  $9 
B)  $20 
C)  $45 
D)  $106 
A)  $9 
B)  $20 
C)  $45 
D)  $106

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

When Internet coupon site Groupon sold stock to the public for the first time following its IPO in November 2011,it did so through the NASDAQ market.This was an example of Groupon using ________ to raise funds.

Accepted Answer

A)  indirect finance 
B)  direct finance 
C)  bonds 
D)  corporate governance 
A)  indirect finance 
B)  direct finance 
C)  bonds 
D)  corporate governance

Question 14

According to the article in the "An Inside Look" feature,Facebook is a

Accepted Answer

A)  publicly traded company. 
B)  privately held company. 
C)  government owned company 
D)  sole proprietorship. 
A)  publicly traded company. 
B)  privately held company. 
C)  government owned company 
D)  sole proprietorship.

Question 15

What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?

Accepted Answer

Corporations have li

Question 16

Who controls a partnership?

Accepted Answer

A)  the owners 
B)  stockholders 
C)  bondholders 
D)  employees 
A)  the owners 
B)  stockholders 
C)  bondholders 
D)  employees

Question 17

Which of the following is operating income?

Accepted Answer

A)  explicit plus implicit costs 
B)  stockholders' equity 
C)  revenue minus operating expenses 
D)  net profit 
A)  explicit plus implicit costs 
B)  stockholders' equity 
C)  revenue minus operating expenses 
D)  net profit

Question 18

Dividing the dividend payment by the stock's closing market price determines the

Accepted Answer

A)  coupon payment. 
B)  dividend yield. 
C)  price-earnings ratio. 
D)  selling price of the stock. 
A)  coupon payment. 
B)  dividend yield. 
C)  price-earnings ratio. 
D)  selling price of the stock.

Question 19

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

Accepted Answer

The "principal-agent problem" exists any

Question 20

A corporation's board of directors

Accepted Answer

A)  hire the managers of the corporation. 
B)  control the day-to-day activities of the corporation. 
C)  are personally liable for the debts of the corporation. 
D)  are the sole owners of the corporation. 
A)  hire the managers of the corporation. 
B)  control the day-to-day activities of the corporation. 
C)  are personally liable for the debts of the corporation. 
D)  are the sole owners of the corporation.

Exam 8: Firms, the Stock Market, and Corporate Governance

What is the difference between retained earnings and dividends?

What do economists call the situation where a hired manager does not have the same interests as the owners of the business?

What must balance on a balance sheet?

When Internet coupon site Groupon sold stock to the public for the first time following its IPO in November 2011,it did so through the NASDAQ market.This was an example of Groupon raising funds through

What is an inside director?

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 advantage to Jeremy of setting up his business as a sole proprietorship?

In the United States,corporate profits are taxed at the corporate level and then are taxed again as personal income in the form of dividend payments.

Total dividend payments plus retained earnings divided by outstanding stock shares equals

Which of the following would explain why accounting profit might be greater than economic profit?

Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages.

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share,and you have an alternative investment of equal risk that will earn a 9 percent rate of return,what would you be willing to pay per share for this stock?

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

When Internet coupon site Groupon sold stock to the public for the first time following its IPO in November 2011,it did so through the NASDAQ market.This was an example of Groupon using ________ to raise funds.

According to the article in the "An Inside Look" feature,Facebook is a

What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?

Who controls a partnership?

Which of the following is operating income?

Dividing the dividend payment by the stock's closing market price determines the

Explain what potential conflict exists between shareholders in a corporation and the corporation's managers.

A corporation's board of directors

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: The Responsiveness of Demand and Supply

The Economics of Health Care

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: The Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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