Chapters 1-2

Question 1

1. Institutional investors are important in today’s business world because

Answer 1

as a group they can vote large blocks of stock for the election of board members.

Question 2

4. Who is accountable for social responsibility within a firm?

Answer 2

The board of directors

Question 3

3. Companies that perform well

Answer 3

can minimize dilution when issuing new shares and can issue debt at a lower interest rate.

Question 4

4. Capital markets do not include which of the following securities?

Answer 4

Commercial paper

Question 5

5. One of the major advantages of a sole proprietorship is

Answer 5

low operating costs

Question 6

The internationalization of the financial markets has

Answer 6

allowed firms such as McDonald’s to raise capital around the world.

Question 7

1. Agency problems are least likely to arise in which organizational form?

Answer 7

Sole proprietorship

Question 8

2. Increased productivity due to technology has?

Answer 8

helped to keep corporate costs in check.

Question 9

3. The Internet has affected the financial markets by?

Answer 9

creating more competition between markets.
pushing the cost of trading down.
forcing brokerage companies to consolidate.

Question 10

1. A corporation is

Answer 10

owned by stockholders who enjoy the privilege of limited liability.
easily divisible between owners.
a separate legal entity with unlimited life.

Question 11

3. Agency theory examines the relationship between the

Answer 11

owners of the firm and the managers of the firm.

Question 12

4. Future financial managers will need to understand

Answer 12

international cash flows.
computerized funds transfers.
international currency hedging strategies.

Question 13

5. Which of the following is not a true statement about the goal of maximizing shareholder wealth?

Answer 13

It is a short-run point of view

Question 14

5. With an S corporation

Answer 14

income is taxed as direct income to stockholders.

Question 15

6. Credit default swaps are

Answer 15

an insurance product designed to protect financial institutions from customers who default on their loans.

Question 16

Which of the following did not contribute to the financial crisis?

Answer 16

Extension of credit to high-risk borrowers
Solid credit ratings from the ratings agencies
The merger of JPMorgan Chase and Bear Stearns
All of the options contributed to the financial crisis.

Question 17

What is financial capital as defined in the financial industry?

Answer 17

Money

Question 18

The Dodd-Frank Act is also known as the Wall Street Reform and Consumer Protection Act of 2010.

Answer 18

True

Question 19

During times of inflation consumer prices decrease gradually over time.

Answer 19

False

Question 20

The largest percentage of businesses in the U.S. are corporations.

Answer 20

false

Question 21

The major focus of the Sarbanes-Oxley Act is to make sure publicly-traded corporations accurately only present the assets of a company.

Answer 21

False

Question 22

Corporate finance is any decision that impacts the finances of a business.

Answer 22

True