Question 1

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

Accepted Answer

A) Coupon payments on newly-issued bonds rise to $80 per year. 
B) The likelihood that the firm issuing your bond will default on debt increases. 
C) The price of a share of stock in the company falls. 
D) Coupon payments on newly-issued bonds fall to $50 per year. 
A) Coupon payments on newly-issued bonds rise to $80 per year. 
B) The likelihood that the firm issuing your bond will default on debt increases. 
C) The price of a share of stock in the company falls. 
D) Coupon payments on newly-issued bonds fall to $50 per year.

Question 2

A decrease in liabilities will reduce a firm's net worth.

Accepted Answer

A) True 
 B)False

Question 3

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 4

The existence of the principal-agent problem

Accepted Answer

A) increases the risk of buying stock in a corporation. 
B) increases the risk of becoming the sole proprietor of a business. 
C) implies that managers that have the same incentives as the board of directors. 
D) does all of the above. 
A) increases the risk of buying stock in a corporation. 
B) increases the risk of becoming the sole proprietor of a business. 
C) implies that managers that have the same incentives as the board of directors. 
D) does all of the above.

Question 5

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 6

Payments by a corporation to its shareholders are known as

Accepted Answer

A) stocks. 
B) bonds. 
C) coupons. 
D) dividends. 
A) stocks. 
B) bonds. 
C) coupons. 
D) dividends.

Question 7

What does limited liability mean?

Accepted Answer

A) The owners of the business are personally responsible for paying expenses incurred by the business. 
B) Only employees can have a claim on the assets of the business. 
C) The personal assets of the owners cannot be claimed if the business is bankrupt. 
D) Anybody with a liability against a firm can claim only what their liability refers to. 
A) The owners of the business are personally responsible for paying expenses incurred by the business. 
B) Only employees can have a claim on the assets of the business. 
C) The personal assets of the owners cannot be claimed if the business is bankrupt. 
D) Anybody with a liability against a firm can claim only what their liability refers to.

Question 8

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?

Accepted Answer

A) $200,000 
B) $400,000 
C) $500,000 
D) $900,000 
A) $200,000 
B) $400,000 
C) $500,000 
D) $900,000

Question 9

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices,this is an example of

Accepted Answer

A) a bond market transaction. 
B) indirect finance. 
C) a stock market transaction. 
D) direct finance. 
A) a bond market transaction. 
B) indirect finance. 
C) a stock market transaction. 
D) direct finance.

Question 10

Eighty-five percent of all firms employ ________ workers.

Accepted Answer

A) only one or two 
B) fewer than 20 
C) 50 or more 
D) over 100 
A) only one or two 
B) fewer than 20 
C) 50 or more 
D) over 100

Question 11

Organizing a successful firm in a market economy has become ________ over the last century.

Accepted Answer

A) legally impossible 
B) politically impossible 
C) less difficult 
D) more difficult 
A) legally impossible 
B) politically impossible 
C) less difficult 
D) more difficult

Question 12

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 13

Generally with bond ratings,the higher the rating,the ________ the interest rate an investor will receive and the ________ the the risk that the issuer of the bond will default.

Accepted Answer

A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower 
A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower

Question 14

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

Accepted Answer

A) As a sole proprietor,Jeremy would be taxed twice. 
B) As a sole proprietor,Jeremy would not have control of the business. 
C) As a sole proprietor,Jeremy would face unlimited liability. 
D) As a sole proprietor,Jeremy would be subject to significant rules and regulations. 
A) As a sole proprietor,Jeremy would be taxed twice. 
B) As a sole proprietor,Jeremy would not have control of the business. 
C) As a sole proprietor,Jeremy would face unlimited liability. 
D) As a sole proprietor,Jeremy would be subject to significant rules and regulations.

Question 15

Why do corporations want to keep the price of their stock high?

Accepted Answer

A) A higher stock price increases the funds the firm can raise when it sells a given amount of stock. 
B) Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher. 
C) Higher stock prices are correlated with lower expected profitability. 
D) All of the above provide incentive for corporations to keep the price of their stock high. 
A) A higher stock price increases the funds the firm can raise when it sells a given amount of stock. 
B) Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher. 
C) Higher stock prices are correlated with lower expected profitability. 
D) All of the above provide incentive for corporations to keep the price of their stock high.

Question 16

Scott is a manager at a pool cleaning business.He has hired 10 workers to clean pools for him and is considering what type of payment scheme he should set up for his workers.He can pay each of his workers $10 per hour to clean pools,or he can pay his workers $20 for each pool a worker cleans.(It takes 2 hours,on average,for an employee to clean a pool thoroughly. )If Scott wants to maximize the number of pools his workers clean in one day,which payment scheme should he use? Explain.

Accepted Answer

If Scott wants to maximize the number of

Question 17

How do a sole proprietorship and a corporation differ?

Accepted Answer

A) Proprietorships have unlimited liability while corporations have limited liability. 
B) Corporations can issue stocks and bonds,while proprietorships cannot. 
C) Corporations face more taxes than do proprietorships. 
D) All of these are differences between the two types of businesses. 
A) Proprietorships have unlimited liability while corporations have limited liability. 
B) Corporations can issue stocks and bonds,while proprietorships cannot. 
C) Corporations face more taxes than do proprietorships. 
D) All of these are differences between the two types of businesses.

Question 18

How is accounting profit found?

Accepted Answer

Accounting profit eq

Question 19

What type of business has the potential for double taxation of profits and why?

Accepted Answer

Corporations earn profits that

Question 20

Which type of businesses earns the majority of profits in the United States?

Accepted Answer

A) corporations 
B) partnerships 
C) sole proprietorships 
D) none of these 
A) corporations 
B) partnerships 
C) sole proprietorships 
D) none of these

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

A decrease in liabilities will reduce a firm's net worth.

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.

The existence of the principal-agent problem

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

Payments by a corporation to its shareholders are known as

What does limited liability mean?

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices,this is an example of

Eighty-five percent of all firms employ ________ workers.

Organizing a successful firm in a market economy has become ________ over the last century.

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

Generally with bond ratings,the higher the rating,the the interest rate an investor will receive and the the the risk that the issuer of the bond will default.

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

Why do corporations want to keep the price of their stock high?

How do a sole proprietorship and a corporation differ?

How is accounting profit found?

What type of business has the potential for double taxation of profits and why?

Which type of businesses earns the majority of profits in the United States?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Exam 6: Firms, the Stock Market, and Corporate Governance

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

A decrease in liabilities will reduce a firm's net worth.

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.

The existence of the principal-agent problem

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

Payments by a corporation to its shareholders are known as

What does limited liability mean?

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues.Based on this information,what is accounting profit for Laura's Pizza Place?

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices,this is an example of

Eighty-five percent of all firms employ ________ workers.

Organizing a successful firm in a market economy has become ________ over the last century.

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

Generally with bond ratings,the higher the rating,the ________ the interest rate an investor will receive and the ________ the the risk that the issuer of the bond will default.

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

Why do corporations want to keep the price of their stock high?

How do a sole proprietorship and a corporation differ?

How is accounting profit found?

What type of business has the potential for double taxation of profits and why?

Which type of businesses earns the majority of profits in the United States?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Generally with bond ratings,the higher the rating,the the interest rate an investor will receive and the the the risk that the issuer of the bond will default.