Stock Market, Corporate Governance

Question 1

A corporation is the type of business that has ________ government rules and regulations affecting it.

Answer 1

the most

Question 2

Assume 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 a sole proprietorship faces_______________ liability.

Answer 2

unlimited

Question 3

Which of the following is an advantage of starting a new business as a proprietorship?

• Business profits are not taxed at all.
• A proprietorship has few government rules and regulations to comply with.
• A proprietorship can easily attain additional funding.
• The owner has limited personal liability.

Answer 3

A proprietorship has few government rules and regulations to comply with.

Question 4

Which is the least common type of business?

1. corporation
2. impossible to determine without further information
3. sole proprietorship
4. partnership

Answer 4

partnership

Question 5

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

• sole proprietorships
• partnership
• corporations

Answer 5

corporations

Question 6

Corporate governance

Answer 6

involves the way in which a corporation is structured.

Question 7

By tying the salaries of top corporate managers to the price of the corporation’s stock, corporations hope to avoid

Answer 7

the principal-agent problem.

Question 8

corporation’s management :

Answer 8

operates and controls a corporation in its day-to-day activities.

Question 9

In many corporations, there is “separation of ownership from control.” What does this mean?

Answer 9

The managers of the corporation run the corporation, although the shareholders own the corporation.

Question 10

Included on the board of directors of Microsoft are Dina Dublon, former chief financial officer of JP Morgan Chase , the president of Harvey Mudd college Maria M. Klawe, and the 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 _______ directors.

Answer 10

outside

Question 11

An explicit cost is

Answer 11

a cost that involves spending money.

Question 12

Which of the following is an example of an implicit cost a firm might incur?

1. the rental value of the office space the company owns and uses for itself
2. the out-of-pocket expense to hire resources
3. taxes owed to the state and Federal governments
4. the revenue a firm generates in using its resources

Answer 12

the rental value of the office space the company owns and uses for itself

Question 13

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

1. A firm’s net income is less than its accounting profit.
2. A firm’s net income is greater than its accounting profit.
3. A firm has implicit costs as well as explicit costs.
4. A firm has only explicit costs.

Answer 13

A firm has implicit costs as well as explicit costs.

Question 14

An implicit cost is

Answer 14

a nonmonetary opportunity cost.

Question 15

How can a proprietorship or partnership raise funds for expansion?

• reinvest profit back into the business
• borrow from someone or an institution willing to lend the funds
• take on a partner or more partners
• Any of these would generate funds for expansion.

Answer 15

Any of these would generate funds for expansion.

Question 16

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

Answer 16

indirect finance.

Question 17

When an investor buys a corporate bond the principal of the bond is a _____ to the corporation.

Answer 17

loan

Question 18

If a corporation earns a profit, how do owners of the firm share in the profit?

Answer 18

through dividend payments on shares of that firm’s stock

Question 19

If a corporation goes bankrupt, which of the following has first claim on the firm’s assets?

Answer 19

bondholders