Ch1 Assignment

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Question #1

Who among the following is the “principal” in the agency relationship of a corporation?

A A company engineer

B The board of directors

C The CEO of the firm

D A stockholder holding 10% or more of any class of voting stock

Question #2

Executives that repeatedly put their own interests before that of the firm may find that they have difficulty in finding another job after their current one. This is an example of:

A none of these

B the managerial labor market disciplining managers.

C the board of directors affecting the prospects of a manager.

D the market for corporate control.

Question #3

Which of the following statements is CORRECT?

A An example of a primary market transaction would be inheriting 1000 shares of GE from your grandfather.

B Capital market instruments include both long-term debt and common stocks.

C If your uncle in New York sold 100 shares of Apple through his broker to an investor in New York, this would be a primary market transaction.

D Money market instruments are illiquid and have high default risk.

Question #4

The most common reason that corporate firms use the futures and options markets is:

A to hedge risk.

B to make deposits.

C none of these

D to take risk.

Question #5

If a firm needs to adjust its liquidity position, then it would participate in:

A the money market.

B the auction market.

C the bond market.

D the stock market.

Question #6

If you just purchased a share of IBM through a New York Stock Exchange-based transaction, you participated in:

A none of these

B a primary market transaction.

C a secondary market transaction.

D a futures market transaction.

Question #7

Identify whether the following transactions are primary market or secondary market transactions.
Hathaway Insurance Company bought 500,000 shares of Trigen Corp. when the company issued stock.

A Secondary

B Primary

Question #8

Identify whether the following transactions are primary market or secondary market transactions.
Peggy Jones bought $5,000 of General Motors bonds from another investor.

A Secondary

B Primary

Question #9

Identify whether the following transactions are primary market or secondary market transactions.
Jim Hendry bought 300 shares of IBM through his brokerage account.

A Secondary

B Primary

Question #10

Which of the following business organizational forms subject(s) the owner(s) to unlimited liability?

A Sole proprietorship

B Both Sole proprietorship and General partnership

C General partnership

D Corporation

Question #11

C-Corporations do not have their income subject to double taxation.

A False

B True

Question #12

Net working capital is the:

A difference between total assets and total liabilities.

B difference between current assets and current liabilities.

C difference between shareholders’ equity and long-term debt.

D difference between total assets and current assets.

Question #13

A benefit of the corporate form of business is the

A flow-through taxation.

B tax exemption of dividends.

C limited liability of owners.

D easiness to start.

Question #14

Which of the following is an example of frivolous agency costs?

A Investment in Land & Buildings.

B Providing lunch for the employees.

C Hiring external auditors to certify accounting statements despite having internal auditors.

D Excessive perks.

Question #15

One of the best ways to reduce agency conflict is by

A instituting severe penalties for bad decisions.

B having managers report to the board of directors.

C hiring outside monitors to keep track of the managers’ decisions.

D designing an effective compensation package.

Question #16

_____ has (have) a legal responsibility to represent stockholders’ interests.

A A corporation’s board of directors

B A CEO

C All of these

D A chairman

Question #17

One reason for the existence of agency problems between managers and stockholders is that:

A None of these

B managers know how to manage the firm better than stockholders.

C management is separate from ownership.

D stockholders have unreasonable expectations about managerial performance.

Question #18

From the owner’s perspective, which of the following should be the goal of a firm?

A Profit maximization

B Tax minimization

C Stockholders’ wealth maximization

D Revenue maximization

Question #19

Which of the following is considered a hybrid organizational form?

A Partnership

B Sole proprietorship

C Corporation

D Limited liability partnership

Question #20

Which of the following organizational forms is subject to the Securities and Exchange Commission (SEC) regulations?

A Sole proprietorship

B Partnership

C Private corporation

D Public corporation

Question #21

Which of the following business organizational forms is/are the easiest one(s) to raise capital?

A Both Sole proprietorship and Partnership

B Corporation

C Partnership

D Sole proprietorship

Question #22

What is NOT a characteristic of a shareholder?

A Expects to receive interest.

B Expects to receive a capital gain on their investment.

C Expects to have rights as defined in the corporation’s charter and bylaws.

D Expects to receive dividends.

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