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 CEO of the firm

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

D The board of directors

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 the market for corporate control.

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

C the managerial labor market disciplining managers.

D none of these

Question #3

Which of the following statements is CORRECT?

A 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.

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

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

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

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 to take risk.

D none of these

Question #5

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

A the auction market.

B the stock market.

C the bond market.

D the money 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 secondary market transaction.

C a primary 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 Primary

B Secondary

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 Primary

B Secondary

Question #10

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

A General partnership

B Both Sole proprietorship and General partnership

C Sole proprietorship

D Corporation

Question #11

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

A True

B False

Question #12

Net working capital is the:

A difference between total assets and current assets.

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

C difference between current assets and current liabilities.

D difference between total assets and total liabilities.

Question #13

A benefit of the corporate form of business is the

A flow-through taxation.

B easiness to start.

C tax exemption of dividends.

D limited liability of owners.

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

B having managers report to the board of directors.

C designing an effective compensation package.

D instituting severe penalties for bad decisions.

Question #16

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

A A chairman

B All of these

C A corporation’s board of directors

D A CEO

Question #17

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

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

B management is separate from ownership.

C None of these

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 Revenue maximization

B Profit maximization

C Tax minimization

D Stockholders’ wealth maximization

Question #19

Which of the following is considered a hybrid organizational form?

A Partnership

B Sole proprietorship

C Limited liability partnership

D Corporation

Question #20

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

A Sole proprietorship

B Private corporation

C Partnership

D Public corporation

Question #21

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

A Partnership

B Corporation

C Both Sole proprietorship and Partnership

D Sole proprietorship

Question #22

What is NOT a characteristic of a shareholder?

A Expects to receive a capital gain on their investment.

B Expects to receive interest.

C Expects to receive dividends.

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

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