Question 1

On a balance sheet,

Accepted Answer

A) total assets must equal total liabilities plus equity. 
B) total assets plus equity must equal total liabilities. 
C) total assets plus total liabilities must equal zero. 
D) total assets plus total liabilities plus equity must equal zero.

Question 2

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

Accepted Answer

The answer of Explain what potential conflict exists between shareholders...

Question 3

Generally with bond ratings, the higher the rating, the ________ the interest rate an investor will receive and 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

Question 4

Which of the following takes place in the direct finance market?

Accepted Answer

A) Firms borrow funds from banks. 
B) Deposits from savers are accumulated and loans made to borrowers. 
C) Ownership in corporations is sold in the form of preferred stock. 
D) Banks offer savings accounts to customers.

Question 5

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

Accepted Answer

A) Coupon payments on newly-issued bonds fall to $40 per year. 
B) The likelihood that the firm issuing your bond will default on debt decreases. 
C) The price of a share of stock in the company rises. 
D) Coupon payments on newly-issued bonds rise to $75 per year.

Question 6

Which of the following is not an advantage of starting a new business as a proprietorship?

Accepted Answer

A) The owner has complete control over the business. 
B) A proprietorship has few government rules and regulations to comply with. 
C) Business profits are only taxed once, not twice. 
D) A proprietorship can easily attain additional funding.

Question 7

What happens in the primary market?

Accepted Answer

A) Primary inputs like electricity are sold. 
B) A corporate financial manager will resell previously issued shares of stock. 
C) Newly issued claims are sold by the borrowing firm to the initial buyer. 
D) Already issued claims are sold from one investor to another.

Question 8

Payments by a corporation to its shareholders are known as

Accepted Answer

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

Question 9

Over ninety-five percent of all new businesses that open each year in the United States employ ________ workers.

Accepted Answer

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

Question 10

If you want to know the present value of $10,000 received a year from today, and the interest rate is 4 percent, what formula can you use?

Accepted Answer

A) Present value equals $10,000 times 0.04. 
B) Present value equals $10,000 divided by 1.04 
C) Present value equals 1.04 divided by $10,000. 
D) Present value equals $10,000 times 1.04.

Question 11

What is shown on a firm's income statement?

Accepted Answer

A) costs 
B) profits 
C) revenues 
D) All of these are shown on a firm's income statement.

Question 12

A firm in a market economy must do all of the following to succeed except

Accepted Answer

A) produce the goods and services that consumers want at a lower cost than consumers themselves can produce. 
B) organize the factors of production into a functioning, efficient unit. 
C) have access to sufficient funds. 
D) be organized as a corporation.

Question 13

Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs.The bakery earns $800,000 in revenues and has $2 million in net worth.Based on this information, what is the economic profit for Donnie's Donuts?

Accepted Answer

A) $150,000 
B) $350,000 
C) $600,000 
D) $1.2 million

Question 14

In a typical year, ________ new firms open in the United States.

Accepted Answer

A) more than 400,000 
B) more than 1 million 
C) less than 200,000 
D) approximately 125,000

Question 15

Unlike firms that sell stock in financial markets, which are known as ________ firms, companies which do not sell stock in financial markets are known as ________ firms.

Accepted Answer

A) public; private 
B) open; closed 
C) corporate; proprietary 
D) stock market; bond market

Question 16

Assume that you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt.This means that a sole proprietorship

Accepted Answer

A) faces limited liability. 
B) faces unlimited liability. 
C) has little chance of succeeding. 
D) is not a good type of business to set up.

Question 17

If you own a bond with a seven percent coupon rate and new bonds are paying five percent, what will happen to your bond's market price?

Accepted Answer

The answer of If you own a bond with a...

Question 18

What is a firm's balance sheet?

Accepted Answer

The answer of What is a firm's balance sheet?...

Question 19

Included on the board of directors of Microsoft are John W.Stanton, the chairman of Trilogy Equity Partners, the executive president and chief financial officer of Gap, Inc.Teri L.List-Stoll, and the former vice chairman of Bank of America Charles H.Noski.These three board members do not have a direct management role with Microsoft and are therefore referred to as

Accepted Answer

A) inside directors. 
B) outside directors. 
C) competitive directors. 
D) honorary directors.

Question 20

Seth's grandmother gave him a $50 savings bond for his birthday.The bond pays $50 at maturity, which is in five years.If the interest rate is 5%, the bond has a present value of $43.19.

Accepted Answer

A) True 
 B)False

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