Quiz 1

A  a hybrid between a partnership and a corporation

B  a legal entity created by a state, separate and distinct from its owners and managers

C  often established easily and inexpensively

D  an unincorporated business owned by one individual

E  a legal arrangement between two or more people who decide to do business together

A  None of these answers is correct.

B  Accounting

C  Management

D  Marketing

E  Human Resources

A  Basing managers’ compensation on intrinsic value, not market price, will lead to constant increases in stock price.

B  High salaries motivate managers to increase stockholders’ wealth.

C  Awarding managers stock options on a monthly basis instead of yearly keeps stock prices high.

D  Rewarding managers for stock performance over the long run gives them an incentive to keep the stock price high over time.

E  Yearly changes in compensation policies keep managers alert to differences in stock prices.

A  disobey and include the test results anyhow.

B  There is no clear answer but staying quiet may be the worst choice.

C  not say anything because she’s not in charge of development.

D  anonymously tip off the local news team.

E  obey the order but talk to other members of her team about the issue.

A  based on how they affect the stock price.

B  in terms of financial consequences and how they affect society at large.

C  consistent with management goals.

D  to prioritize the broader needs of society .

E  for transparency and corporate governance.

A  All of these answer choices are correct.

B  covenants are included in the bond agreements.

C  the amount of common stock in a firm exceeds the amount of bonds.

D  they believe that a company will pursue risky projects.

E  there are more than two bondholders.

A  causes the stock price to remain close to the intrinsic value over time.

B  avoids shareholder activism.

C  makes it less likely that corporate raiders will undervalue a firm’s stock.

D  allows managers to persuade stockholders that the firm is socially responsible.

E  ensures that underperforming firms will be able to change course and recover.

A  Stockholders get paid first.

B  Additional debt gives stockholders an advantage in the market.

C  Stockholders do better when the company does better because the stock price is higher.

D  When the market is bad, stockholders don’t lose as much.

E  Stockholders protect themselves with covenants.

A  S corporations

B  Partnerships

C  Proprietorships

D  LLCs and LLPs

E  C corporations

A  employees decide how individual retirement funds are invested and how much risk they are willing to assume.

B  employers make investment decisions in “defined contribution” pension plans.

C  all jobs require some level of financial knowledge .

D  most employees are not willing to take financial risks.

E  decision-making skills improve over time .

A  the intrinsic value of the stock exceeds the market price.

B  the firm’s intrinsic value is maximized.

C  the actual stock price exceeds the intrinsic value of the stock.

D  investors are pessimistic about a stock.

E  there is an R&D breakthrough.

A  Holding managers accountable for poor performance

B  Rules and practices to ensure that managers balance the needs of customers, employees, and affected citizens with shareholder interests

C  Focus on short-run profits that add up in the long run

D  Use of stock-based compensation for key employees

E  Having a strong, independent board of directors

A  All of these answer choices are correct.

B  undergo an annual audit to review practices regarding social responsibility, corporate governance, and transparency.

C  are committed to putting other stakeholders on an equal footing with shareholders.

D  are a fairly small but rapidly growing number of companies.

E  still focus on making a profit.

A  The COO is in charge of accounting and finance in most businesses.

B  Finance, economics, and accounting are not related.

C  Accounting developed from finance and economics.

D  Economics developed from accounting and finance.

E  Finance developed from economics and accounting.

A  ensure that the company’s reputation is not damaged.

B  investigate the situation.

C  avoid damage to the company’s culture and long-term performance.

D  All of these answer choices are correct.

E  take proactive steps to ensure the situation is dealt with.

A  Capital markets

B  Accounting

C  Financial management

D  All of these are considered areas of a finance discipline

E  Investments