Question 1

The three primary sources of corporate funds are

Accepted Answer

A)  banks, friends, and family. 
B)  government, other corporations, and the central bank. 
C)  investment banks, brokerages, and insurance companies. 
D)  stocks, bonds, and reinvestment of profits. 
A)  banks, friends, and family. 
B)  government, other corporations, and the central bank. 
C)  investment banks, brokerages, and insurance companies. 
D)  stocks, bonds, and reinvestment of profits.

Question 2

The most commonly accepted objective for a firm is

Accepted Answer

A)  to stay in business at all cost. 
B)  to maximize total revenue. 
C)  to maximize economic profit. 
D)  to minimize the variable cost outlay. 
A)  to stay in business at all cost. 
B)  to maximize total revenue. 
C)  to maximize economic profit. 
D)  to minimize the variable cost outlay.

Question 3

Larger loans, other things constant, have lower interest rates because

Accepted Answer

A)  only large, financially sound corporations obtain such loans. 
B)  large loans always have collateral. 
C)  large loans are always for short time periods. 
D)  the fixed costs associated with the handling charges as a percent of the total loan are less. 
A)  only large, financially sound corporations obtain such loans. 
B)  large loans always have collateral. 
C)  large loans are always for short time periods. 
D)  the fixed costs associated with the handling charges as a percent of the total loan are less.

Question 4

Amber has opened a coffee shop for many years on a piece of land that she has also owned. She has also made accounting profits from the coffee shop. This year, rents in the area rose considerably, and Amber responded by deciding to sell the land and the coffee shop to an apartment builder. How can you explain Amber's decision to sell her business?

Accepted Answer

Even though Amber has been making accoun

Question 5

A legal organization of a firm where the business is owned by one individual who makes the business decisions, receives all the profits, and is legally responsible for the debts of the firm is a(n)

Accepted Answer

A)  corporation. 
B)  entrepreneur. 
C)  proprietorship. 
D)  partnership. 
A)  corporation. 
B)  entrepreneur. 
C)  proprietorship. 
D)  partnership.

Question 6

The normal rate of return is the

Accepted Answer

A)  average rate of return earned in an industry at a given point in time. 
B)  opportunity cost of capital. 
C)  return on capital associated with zero accounting profits. 
D)  the amount paid to an investor when the firm is an on-going concern. 
A)  average rate of return earned in an industry at a given point in time. 
B)  opportunity cost of capital. 
C)  return on capital associated with zero accounting profits. 
D)  the amount paid to an investor when the firm is an on-going concern.

Question 7

When the anticipated rate of inflation is 2 percent and the real rate of interest is 4 percent, the nominal rate of interest is

Accepted Answer

A)  0 percent. 
B)  1 percent. 
C)  2 percent. 
D)  6 percent. 
A)  0 percent. 
B)  1 percent. 
C)  2 percent. 
D)  6 percent.

Question 8

The rate of interest that you pay on a home loan depends upon all of the following EXCEPT

Accepted Answer

A)  the supply of houses in the real estate market. 
B)  the length of the loan. 
C)  your credit rating. 
D)  handling charges or loan fees. 
A)  the supply of houses in the real estate market. 
B)  the length of the loan. 
C)  your credit rating. 
D)  handling charges or loan fees.

Question 9

If a corporation fails, the first recipients of funds that may remain are

Accepted Answer

A)  preferred stockholders. 
B)  common stockholders. 
C)  bond holders. 
D)  no one. 
A)  preferred stockholders. 
B)  common stockholders. 
C)  bond holders. 
D)  no one.

Question 10

If the annual interest rate remains unchanged over the next two years, and the present value of $120 to be received one year from now is $100, what will $100 be worth two years from now?

Accepted Answer

A)  $120 
B)  $140 
C)  $144 
D)  Uncertain. We need to know the interest rate. 
A)  $120 
B)  $140 
C)  $144 
D)  Uncertain. We need to know the interest rate.

Question 11

Joanne left her last job, in which she was earning $60,000, in order to form her own consulting business. Her revenues for the first year of consulting were $210,000. During that year, she hired two assistants for $25,000 each and spent $25,000 on office equipment. In addition, she incurred $75,000 in miscellaneous expenses. Her accounting profit that first year was

Accepted Answer

A)  $0. 
B)  $60,000. 
C)  $210,000. 
D)  $50,000. 
A)  $0. 
B)  $60,000. 
C)  $210,000. 
D)  $50,000.

Question 12

The owners of preferred stock

Accepted Answer

A)  receive preferential treatment in the payment of dividends. 
B)  have the same voting rights as owners of common stock. 
C)  are the original owners of the corporation. 
D)  have the same rights as bondholders. 
A)  receive preferential treatment in the payment of dividends. 
B)  have the same voting rights as owners of common stock. 
C)  are the original owners of the corporation. 
D)  have the same rights as bondholders.

Question 13

Which method of corporate finance is used the most? Why?

Accepted Answer

Reinvestment accounts for about 75 perce

Question 14

What is the present value of $100 two years from now at an interest rate of 6%?

Accepted Answer

A)  $6 
B)  $89 
C)  $94.34 
D)  $106 
A)  $6 
B)  $89 
C)  $94.34 
D)  $106

Question 15

Creditors require collateral in many cases, because

Accepted Answer

A)  it helps offset the risks of lending the funds. 
B)  the borrower is a low risk. 
C)  the loan is small. 
D)  none of the above. 
A)  it helps offset the risks of lending the funds. 
B)  the borrower is a low risk. 
C)  the loan is small. 
D)  none of the above.

Question 16

The problem with the separation of ownership from control is that

Accepted Answer

A)  the owner in a proprietorship may not always act in the profit-maximizing fashion because he or she may not have the experience or expertise that professional managers have. 
B)  the managing partner of a firm may not always behave in the way that other managers would if they were the managing partners. 
C)  the managers of the firm can make decisions that reduce the wealth of the owners while not reducing their own wealth. 
D)  the owners of firms may not always know the best way to run a firm, yet they are the ones who elect the managers of the firm. 
A)  the owner in a proprietorship may not always act in the profit-maximizing fashion because he or she may not have the experience or expertise that professional managers have. 
B)  the managing partner of a firm may not always behave in the way that other managers would if they were the managing partners. 
C)  the managers of the firm can make decisions that reduce the wealth of the owners while not reducing their own wealth. 
D)  the owners of firms may not always know the best way to run a firm, yet they are the ones who elect the managers of the firm.

Question 17

A legal claim against a firm that usually entitles the owner of the claim to receive a fixed annual coupon payment, plus a lump-sum payment at some future date, is known as

Accepted Answer

A)  a bond. 
B)  a share of common stock. 
C)  a share of preferred stock. 
D)  a reinvestment coupon. 
A)  a bond. 
B)  a share of common stock. 
C)  a share of preferred stock. 
D)  a reinvestment coupon.

Question 18

Which of the following is NOT an advantage of a partnership?

Accepted Answer

A)  limited liability 
B)  easy to form 
C)  Profits are subject to only personal taxation. 
D)  permits more effective specialization in occupations 
A)  limited liability 
B)  easy to form 
C)  Profits are subject to only personal taxation. 
D)  permits more effective specialization in occupations

Question 19

Which legal claim comes with voting rights?

Accepted Answer

A)  common stock 
B)  preferred stock 
C)  bond 
D)  reinvestment 
A)  common stock 
B)  preferred stock 
C)  bond 
D)  reinvestment

Question 20

"Stocks and bonds" are collectively known as

Accepted Answer

A)  securities. 
B)  equities. 
C)  real property. 
D)  shares. 
A)  securities. 
B)  equities. 
C)  real property. 
D)  shares.

Exam 21: Rents, Profits, and the Financial Environment of Business

The three primary sources of corporate funds are

The most commonly accepted objective for a firm is

Larger loans, other things constant, have lower interest rates because

A legal organization of a firm where the business is owned by one individual who makes the business decisions, receives all the profits, and is legally responsible for the debts of the firm is a(n)

The normal rate of return is the

When the anticipated rate of inflation is 2 percent and the real rate of interest is 4 percent, the nominal rate of interest is

The rate of interest that you pay on a home loan depends upon all of the following EXCEPT

If a corporation fails, the first recipients of funds that may remain are

If the annual interest rate remains unchanged over the next two years, and the present value of $120 to be received one year from now is $100, what will $100 be worth two years from now?

The owners of preferred stock

Which method of corporate finance is used the most? Why?

What is the present value of $100 two years from now at an interest rate of 6%?

Creditors require collateral in many cases, because

The problem with the separation of ownership from control is that

A legal claim against a firm that usually entitles the owner of the claim to receive a fixed annual coupon payment, plus a lump-sum payment at some future date, is known as

Which of the following is NOT an advantage of a partnership?

Which legal claim comes with voting rights?

"Stocks and bonds" are collectively known as

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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