considers the time value of the money Student Help 1. Maximization of shareholder wealth as a goal is superior to profit maximization because:
a. it considers the time value of the money.
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b. following the goal of shareholder wealth maximization will ensure high stock prices.
c. it considers uncertainty.
d. A and C
2) Which of the following is NOT true for a limited partnership?
a. Limited partners may sell their interest in the company.
b. Limited partners can only manage the business.
c. One general partner must exist who has unlimited liability.
d. Only the name of general partners can appear in the name of the fi rm.
3) Revenues are taxed
a. to achieve socially desirable goals.
b. to provide revenues for government expenditures.
c. for economic stabilization.
d. all of the above
4) Which of the following categories of owners have unlimited liability?
a. general partners in a limited partnership
b. sole proprietors
c. shareholders of a corporation
d. both A and B
5) Emery Inc. had $5 million of gross income, operating expenses of $1 million, paid $1 million of interest on borrowing of $10 million, and paid a dividend of $0.50 million. Emery Inc.’s taxable income is
a. $4 million.
b. $3 million.
c. $3.5 million.
d. $2.5 million.
6) Given the following tax rate schedule, what is the tax liability for a corporation with taxable income of $8 million?
Corporate Tax Rates Taxable Income
15% $0 – $50,000
25% $50,001 – $75,000
34% $75,001 – $10,000,000
35% over $10,000,000
Additional surtax of 5% on income between $100,000 and $335,000
Additional surtax of 3% on income between $15,000,000 and $18,333,333
7) Company A reports sales of $100,000 and net income of $15,000. Company B reports sales of $100,000 and net income of $10,000. Therefore:
a. Company A’s cash flow may be higher or lower than Company B’s cash flow
even though A’s net income is higher.
b. Company B is creating less value for its shareholders than Company A.
c. Company B’s accounts receivable must be higher than Company A’s accounts
d. Company A’s cash flow is $5,000 more than Company B’s cash flow.
8) The CEO of High Tech International decides to change an accounting method at the end of the current year. The change results in reported profits increasing by 5%, but the company’s cash flows are not changed. If capital markets are efficient, then:
a. The stock price will increase due to higher profits.
b. The stock price will not be affected by the accounting change.
c. The stock price will decrease because accounting method changes are not
permitted under generally accepted accounting principles.
d. The stock price will increase only if the accounting change will also result in
higher profits in the next year.
9) The curse of competitive markets
a. May be lessened by obtaining patents for new ideas that protect companies
b. Implies that profitable industries will become smaller as companies drop out
to avoid competition.
c. Means that money spent on innovation is wasted because competitors will
rush in and eliminate any excess profits.
d. Means that companies cannot earn exceptional profits.
10) Which of the following statements best represents the “Agency Problem”?
a. The agency problem results from the separation of management and the ownership
of the firm.
b. The agency problem may interfere with the implementation of maximizing
c. Managers might attempt to benefi t themselves in terms of salary and perquisites
at the expense of shareholders.
d. all of the above
11) U.S. corporations finance their activities
a. mainly with equity because equity does not expire or need to be paid back.
b. mainly with equity because the U.S. tax system favors equity over debt.
c. mainly with corporate debt, partially because the U.S. tax system favors debt over equity.
d. equally with debt and equity.
12) All of the following securities are sold in money markets except:
a. 6-month certificates of deposit
b. common stock
c. commercial paper
d. 3-month U.S. Treasury Bills
13) Which of the following is an advantage of organized stock exchanges?
a. Only profitable companies may issue new securities on an organized exchange.
b. screening companies to ensure only low risk stocks are sold
c. providing a continuous market
d. increased stock price volatility
14) An example of a secondary market transaction involving a capital market security is:
a. The transfer of a previously-issued security with a very long maturity.
b. The transfer of a previously-issued security with a very short maturity.
c. A new issue of a security with a very short maturity.
d. A new issue of a security with a very long maturity.
15) Money market transactions include which of the following?
a. Securities that have a maturity of less than one year
b. All securities paid for with the proceeds of a money market account
c. 30-year U.S. Treasury bonds
d. Any security that is paid for with cash
16) Private placements are
a. especially appealing to new, small, and medium-sized companies.
b. limited to equity securities.
c. available for both debt and equity securities, but the market is dominated by
d. limited to debt securities.
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