Answer Choices:
a. True
b. False
Answer:
b. False
Question: Which of the following statements would most people in business agree?
Answer Choices:
a. A corporation’s short-run profits will always increase if the firm takes actions that the government has determined are in the best interests of the nation.
b. Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees.
c. “Whistle blowers,” because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees.
d. It is not useful for large corporations to develop a formal set of rules defining ethical and unethical behavior.
e. Although people’s moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation.
Answer:
e
Question: Which of the following statements is CORRECT?
Answer Choices:
a. In a typical partnership, liability for other partners’ misdeeds is limited to the amount of a particular partner’s investment in the business.
b. In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business, and the limited partners are individually responsible, on a pro rata basis, for the firm’s debts in the event of bankruptcy.
c. A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company.
d. Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests.
e. A major disadvantage of a partnership relative to a corporation is the fact that federal income taxes must be paid by the partners rather than by the firm itself.
Answer:
d
Question: You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?
Answer Choices:
a. This is an example of a direct transfer of capital.
b. This is an example of a primary market transaction.
c. This is an example of an exchange of physical assets.
d. This is an example of a money market transaction.
e. This is an example of a derivative market transaction.
Answer:
a. This is an example of a direct transfer of capital.
Question: The Chairman of the Board must also be the CEO.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: When a corporation’s shares are owned by a few individuals who are associated with the firm’s management, we say that the stock is closely held.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Which of the following statements is CORRECT?
Answer Choices:
a. If a lower level person in a firm does something illegal, like “cooking the books,” to understate costs and thereby artificially increase profits because he or she was ordered to do so by a superior, the lower level person cannot be prosecuted but the superior can be prosecuted.
b. There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to outsiders. It is illegal to provide such information to federally regulated banks, but it is not illegal to provide it to stockholders because they are the owners of the firm.
Answer:
b
Question: The fact that 70% of the interest income received by corporations is excluded from its taxable income encourages firms to finance with more debt than they would in the absence of this tax law provision.
Answer:
Options:
Question: The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: The term IPO stands for “individual purchase order,” as when an individual (as opposed to an institution) places an order to buy a stock.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: Financial institutions are more diversified today than they were in the past, when federal laws kept investment banks, commercial banks, insurance companies, and similar organizations quite separate. Today the larger financial services corporations offer a variety of services, ranging from checking accounts, to insurance, to underwriting securities, to stock brokerage.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Hedge funds are somewhat similar to mutual funds. The primary differences are that hedge funds are less highly regulated, have more flexibility regarding what they can buy, and restrict their investors to wealthy, sophisticated individuals and institutions.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm’s investors to transfer their ownership interests.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: The fact that 70% of the interest income received by corporations is excluded from its taxable income encourages firms to finance with more debt than they would in the absence of this tax law provision.
Answer:
Options:
Question: In order to maximize its shareholders’ value, a firm’s management must attempt to maximize the stock price on a specific target date.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant.
Answer:
Options:
Question: In most corporations, the CFO ranks under the CEO.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?
Answer Choices:
a. Relaxant’s shareholders (the ex-partners) will now be exposed to less liability.
b. The company will probably be subject to fewer regulations and required disclosures.
c. Assuming the firm is profitable, none of its income will be subject to federal income taxes.
d. The firm’s investors will be exposed to less liability, but they will find it more difficult to transfer their ownership.
e. The firm will find it more difficult to raise additional capital to support its growth.
Answer:
a