Unit 1 Questions

Question 1

One of the most important disadvantages of the corporate form of business is

Answer 1

Double taxation

Question 2

An agent has ___ to the principlas

Answer 2

A fiduciary responsibility

Question 3

Which of the following claimant is paid last

Answer 3

Common stockholders

Question 4

An example of a principal of a firm is

Answer 4

the owner

Question 5

The sole proprietor

Answer 5

has unlimited liability relating to the business

Question 6

Stakeholders include which of the following

Answer 6

employees, suppliers, creditors and owners

Question 7

Hillary Rotteneggs wishes to form a company that will specialize in toxic waste removal and storage. Which type of business form would be most advantageous?

Answer 7

A corporation due to its limited liability

Question 8

Who is entitled to the “residual income” of the firm

Answer 8

the owners

Question 9

An example of a capital market security would be

Answer 9

A long-term bond

Question 10

Money market securites include

Answer 10

commercial paper, treasury bills and negotiable certificates of deposit

Question 11

The process of managing a firms long-term investments is called

Answer 11

capital budgeting

Question 12

A sole proprietorship is defined as a business

Answer 12

owned by a single individual

Question 13

A business organization owned by two or more individuals or entities, each of whom has unlimited liability for the firms debts, is called a

Answer 13

general parnternship

Question 14

A firm created as a separate and distinct legal entity that may be owned by one or more individuals or entities is called a

Answer 14

corporation

Question 15

If you accept a job as a portfolio manager, you are working in which one of the following financial areas?

Answer 15

investments

Question 16

The capital structure of a firm refers to the firms

Answer 16

long term debt and equity

Question 17

the daily financial operations of a firm are primarily controlled by managing the

Answer 17

working capital

Question 18

Which of the following statements about a limited partnership is correct

Answer 18

each limited partnership must have at least one general partner

Question 19

The advantage of being a limited partner in a limited partnership is the ability to

Answer 19

limit your losses to the amount invested in the firm

Question 20

An agency problem is prone to exist in public corporations because

Answer 20

management is frequently separated from ownership

Question 21

Which one of the following transactions occurred in the primary market

Answer 21

Valerie purchased newly issued shares of Velcro, Inc.

Question 22

Theresa sold 300 shares of MNO stock on the NYSE today, this transaction occurred in

Answer 22

the secondary market

Question 23

The major topics in corporate finance are

Answer 23

capital budgeting, capital structure and working capital management

Question 24

From a finance viewpoint, the firm is

Answer 24

a bundle of risky cash flows

Question 25

Wealth maximization as the goal of the firm implies enhancing the wealth of

Answer 25

the firms stockholers

Question 26

The financial system consists of

Answer 26

financial markets and institutions to bring savers and borrowers together and provide key services

Question 27

Financial markets are markets for

Answer 27

buying and selling bonds, stocks, foreign exchange, and other financial assets

Question 28

T/F, Finacial intermediaries are go-between for savers and borrowers

Answer 28

True

Question 29

Services provided by the financial system include

Answer 29

risk sharing, liquidity and information services

Question 30

______ consists of the institutions and procedures that provide for transactions in short term debt instruments

Answer 30

Money markets

Question 31

Finance

Answer 31

the study of the valuation and management of risk

Question 32

Unethical behavior eliminates trust, and without trust businesses cannot interact T/F

Answer 32

True

Question 33

Which of the following are considered to be significant financial innovations

Answer 33

Patent law, insurance and limited liability