3020 EXAM #1 Flashcards
(37 cards)
Which one of the following business structures does not have limited liability?
A) limited partnership
B) corporation
C) sole proprietorship
D) limited liability company
sole proprietorship
The overall goal of capital budgeting projects should be to:
A) increase shareholder wealth.
B) diversify the firm’s operations.
C) increase the firm’s sales.
D) decrease the firm’s costs.
increase shareholder wealth
Which of the following statements best distinguishes the difference between real and financial assets?
A) real assets are tangible; financial assets are not.
B) real assets have less value than financial assets.
C) financial assets appreciate in value; real assets depreciate in value.
D) financial assets represent claims to income that is generated by real assets.
financial assets represent claims to income that is generated by real assets.
One way a corporation can alter its capital structure by:
A) becoming a limited liability company.
B) issuing stock to repay debt.
C) investing in intangible assets.
D) not accepting any new capital budgeting projects.
issuing stock to repay debt.
The legal “life” of a corporation is:
A) equal to the life of its board of directors.
B) determined by the chief executive officer (CEO). C) permanent, regardless of current ownership.
D) permanent, as long as shareholders don’t change.
permanent, regardless of current ownership.
Which of the following is true regarding real assets?
A) real assets must be tangible
B) real assets are associated with land and buildings only
C) real assets are used to produce the goods and services of the company D) real assets determine a company’s capital structure
real assets are used to produce the goods and services of the company
Success in a capital budgeting decision is measured by how it: A) maximizes the number of capital budgeting projects.
B) maximizes the value added to the firm.
C) minimizes the cost of the investment.
D) minimizes project risk.
maximizes the value added to the firm
Which of the following business organization types exposes the owner to the greatest level of personal risk?
A) limited liability company
B) s-corporation
C) limited partnership
D) sole proprietorship
sole proprietorship
Which one of the following can best be characterized as an agency problem?
A) differing opinions among directors as to the merits of paying a higher dividend. B) persistently late delivery times by a major supplier.
C) geological problems in the company’s new gold mine.
D) differing incentives between managers and owners.
differing incentives between managers and owners.
The primary goal of corporate management should be to: A) maximize employee satisfaction.
B) maximize shareholder wealth.
C) minimize corporate risk.
D) maximize corporate profits.
maximize shareholder wealth
When a corporation fails, the maximum that can be lost by an individual shareholder is:
A) his or her proportionate share required to pay the corporation’s debts.
B) the amount of his or her personal wealth.
C) the amount of his or her initial investment.
D) the amount of his or her share of the profits.
the amount of his or her initial investment.
A corporation is considered a public company when its:
A) stock is publicly traded.
B) shares are held by the federal or state government. C) shareholders have no tax liability.
D) products or services are available to the public.
stock is publicly traded.
Which one of the following is a real asset?
A) a personal check
B) a patent
C) a share of stock
D) US currency
a patent
Which of the following best describes the concept of limited liability?
A) it limits the type of offenses that a company can be sued for
B) it allows the owners of a company to sue its managers
C) it prevents creditors from suing top management
D) it protects the personal property and wealth of the company owners
it protects the personal property and wealth of the company owners
Which one of the following gives a corporation its permanence?
A) limited liability
B) separation of ownership and control
C) multiple owners
D) corporation taxation
separation of ownership and control
Which of the following is an example of an investing decision?
A) implementing an employee education fund
B) purchasing new equipment to expand production capacity
C) selecting a destination and theme for the annual shareholder meeting
D) issuing shares of stock to repay corporate debt
purchasing new equipment to expand production capacity
In which of the following organizations would agency problems be least likely to occur?
A) sole proprietorship
B) limited liability company (LLC)
C) corporation
D) general partnership
sole proprietorship
Which of the following is false regarding a c-corporation?
A) owner liability is limited to the amount of his or her initial investment
B) the life of the corporation is limited by federal regulation
C) stock can be owned by an unlimited number of shareholders
D) corporate earnings are double taxed
the life of the corporation is limited by federal regulation
A board of directors is elected as a representative of the corporation’s:
A) stakeholders.
B) top management.
C) customers.
D) shareholders.
shareholders
Which one of the following is a financial asset?
A) a corporate bond
B) a factory
C) a machine
D) a trademark
a corporate bond
Which one of the following would be considered a capital budgeting decision?
A) repurchasing shares of common stock
B) issuing common stock rather than preferred stock
C) issuing debt in the form of long-term bonds
D) spending $2 million on a new product line
spending $2 million on a new product line
Which of the following is a disadvantage of establishing a business as a public corporation? A) becoming a permanent legal entity
B) having to rely on public financial markets for funding
C) an increase in the personal liability of ownership
D) profits being taxed at the corporate level and the shareholder level
profits being taxed at the corporate level and the shareholder level
Which of the following will most likely help to reduce agency problems?
A) requiring that top managers be shareholders
B) tying management compensation to the value of the company
C) paying management bonuses on profit growth
D) holding annual reviews to measure employee satisfaction
tying management compensation to the value of the company
A company’s opportunity cost of capital is best described as:
A) an annual fee charged to a corporation by the securities and exchange commission (SEC).
B) fees incurred by a company to issue new stocks or bonds.
C) special taxes paid by a corporation on foreign earnings.
D) the expected return investors require to invest money with a specific company.
the expected return investors require to invest money with a specific company.
