Question 1

When Potbelly sold stock to the public in its IPO,it did so through the NASDAQ market.This was an example of Potbelly raising funds through

Accepted Answer

A)   reinvesting retained earnings.
B)   a financial intermediary.
C)   dividend reinvestment.
D)   a financial market.E) A) and D)
F) C) and D)

Question 2

Who controls a sole proprietorship?

Accepted Answer

A)   owner
B)   stockholders
C)   bondholders
D)   employeesE) A) and C)
F) A) and B)

Question 3

A sole proprietorship is

Accepted Answer

A)   the easiest type of business to set up.
B)   the most difficult type of business to set up.
C)   the most expensive type of business to set up.
D)   the least profitable type of business to set up.E) None of the above
F) C) and D)

Question 4

All of the following represent differences between stocks and bonds except

Accepted Answer

A)   a stock can possibly pay dividends forever, but bonds have a fixed number of payments.
B)   differences of opinion about a stock's future may vary considerably but there is less difference about a bond's future.
C)   the future growth of a stock is more uncertain than the payments of a bond.
D)   bonds represent partial ownership in a firm but stocks do not.E) None of the above
F) A) and D)

Question 5

Economic profit is the difference between a firm's revenue and its opportunity costs.

Accepted Answer

A) True 
 B)False

Question 6

What does limited liability mean?

Accepted Answer

A)   The owners of the business are personally responsible for paying expenses incurred by the business.
B)   Only employees can have a claim on the assets of the business.
C)   The personal assets of the owners cannot be claimed if the business is bankrupt.
D)   Anybody with a liability against a firm can claim only what their liability refers to.E) A) and C)
F) C) and D)

Question 7

If the personal assets of the owners cannot be claimed if the business is bankrupt,the owners are said to have

Accepted Answer

A)   unlimited liability.
B)   a proprietorship type of business.
C)   limited liability.
D)   a partnership type of business.E) B) and C)
F) B) and D)

Question 8

Dividing the dividend payment by the stock's closing market price determines the

Accepted Answer

A)   coupon payment.
B)   dividend yield.
C)   price-earnings ratio.
D)   selling price of the stock.E) B) and D)
F) All of the above

Question 9

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share,and you have an alternative investment of equal risk that will earn a 9 percent rate of return,what would you be willing to pay per share for this stock?

Accepted Answer

A)   $9
B)   $20
C)   $45
D)   $106E) A) and B)
F) All of the above

Question 10

David Myers,former controller for WorldCom,pleaded guilty to falsely reported costs for WorldCom that were ________ than they actually were,resulting in reported accounting profits for WorldCom that were ________ than their actual level.

Accepted Answer

A)   higher; higher
B)   lower; higher
C)   lower; lower
D)   higher; lowerE) None of the above
F) C) and D)

Question 11

Who controls a partnership?

Accepted Answer

A)   stockholders
B)   bondholders
C)   the owners
D)   all of theseE) A) and B)
F) A) and D)

Question 12

Stockholders

Accepted Answer

A)   select the board of directors of a corporation.
B)   select the employees of a corporation.
C)   select the managers of a corporation.
D)   all of the above.E) B) and C)
F) A) and C)

Question 13

The difference between a firm's assets and liabilities is its

Accepted Answer

A)   accounting profit.
B)   economic profit.
C)   net worth.
D)   implicit costs.E) All of the above
F) B) and D)

Question 14

How does a firm raise external funds through direct finance?

Accepted Answer

With direct finance,funds flow...

Question 15

Which of the following is not an advantage of starting a new business as a proprietorship?

Accepted Answer

A)   The owner has complete control over the business.
B)   A proprietorship has few government rules and regulations to comply with.
C)   Business profits are only taxed once, not twice.
D)   A proprietorship can easily attain additional funding.E) A) and B)
F) All of the above

Question 16

The principal-agent problem that exists between shareholders and managers also exists between managers and workers.

Accepted Answer

A) True 
 B)False

Question 17

An explicit cost is

Accepted Answer

A)   a nonmonetary opportunity cost.
B)   a cost specifically related to government rules and regulations.
C)   a cost that involves spending money.
D)   a cost unique to corporations.E) A) and B)
F) A) and C)

Question 18

Anything owed by a person or a firm is

Accepted Answer

A)   an asset.
B)   a liability.
C)   a bond.
D)   equity.E) None of the above
F) All of the above

Question 19

What is a secondary market?

Accepted Answer

A)   a market where factory seconds and damaged merchandise are sold
B)   a market where newly issued bonds are sold to initial buyers by the borrowing firm
C)   a market where a newly issued stocks are sold to initial buyers by the borrowing firm
D)   a market where you can sell any stocks you own as a private investorE) B) and C)
F) None of the above

Question 20

The coupon rate of a bond is equal to

Accepted Answer

A)   the coupon payment.
B)   the interest payment.
C)   the interest rate.
D)   the face value.E) All of the above
F) A) and D)

Exam 8: Firms, the Stock Market, and Corporate Governance

Anything owed by a person or a firm is

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What does limited liability mean?

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Economic profit is the difference between a firm's revenue and its opportunity costs.

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When Potbelly sold stock to the public in its IPO,it did so through the NASDAQ market.This was an example of Potbelly raising funds through

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The difference between a firm's assets and liabilities is its

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Dividing the dividend payment by the stock's closing market price determines the

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Stockholders

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What is a secondary market?

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How does a firm raise external funds through direct finance?

Correct AnswerverifiedWith direct finance,funds flow...View AnswerShow Answer

The coupon rate of a bond is equal to

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A sole proprietorship is

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Which of the following is not an advantage of starting a new business as a proprietorship?

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If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share,and you have an alternative investment of equal risk that will earn a 9 percent rate of return,what would you be willing to pay per share for this stock?

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Who controls a sole proprietorship?

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The principal-agent problem that exists between shareholders and managers also exists between managers and workers.

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David Myers,former controller for WorldCom,pleaded guilty to falsely reported costs for WorldCom that were ________ than they actually were,resulting in reported accounting profits for WorldCom that were ________ than their actual level.

Correct AnswerverifiedShow Answer

All of the following represent differences between stocks and bonds except

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An explicit cost is

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Who controls a partnership?

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If the personal assets of the owners cannot be claimed if the business is bankrupt,the owners are said to have

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With direct finance,funds flow...
View Answer

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David Myers,former controller for WorldCom,pleaded guilty to falsely reported costs for WorldCom that were than they actually were,resulting in reported accounting profits for WorldCom that were than their actual level.

Correct Answer
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