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business finance mcq all correct




Question;1. Which of the following statements is;correct?;A. a. It is generally more;expensive to form a proprietorship than a corporation because, with a;proprietorship, extensive legal documents are required.;B. b. Corporations face fewer;regulations than sole proprietorships.;C. c. One disadvantage of;operating a business as a sole proprietorship is that the firm is subject to;double taxation, at both the firm level and the owner level.;D. d. One advantage of forming a;corporation is that equity investors are usually exposed to less liability;than a regular partnership.;E. e. If a regular partnership;goes bankrupt, each partner is exposed to liabilities only up to the amount;of his or her investment in the business.;Question;2 of 20;Cheers Inc. operates as a;partnership. Now the parents have decided to convert the business into a;regular corporation. Which of the following statements is correct?;A. a. Assuming Cheers is;profitable, less of its income will be subject to federal income taxes.;B. b. Cheers will now be subject;to fewer regulations.;C. c. Cheers? shareholders (the;ex-partners) will now be exposed to less liability.;D. d. Cheers' investors will be;exposed to less liability, but they will find it more difficult to transfer;their ownership.;E. e. Cheers will find it more;difficult to raise additional capital.;Question;3 of 20;Which of the following statements is;correct?;A. a. It is usually easier to;transfer ownership in a corporation than it is to transfer ownership in a;sole proprietorship.;B. b. Corporate shareholders are;exposed to unlimited liability.;C. c. Corporations generally face;fewer regulations than sole proprietorships.;D. d. Corporate shareholders are;exposed to unlimited liability, and this factor may be compounded by the tax;advantage of incorporation.;E. e. There is a tax disadvantage;to incorporation, and there is no way any corporation can escape this;disadvantage, even if it is very small.;Question;4 of 20;Which of the following statements is;correct?;A. a. Hedge funds are legal in;Europe and Asia, but they are not permitted to operate in the United States.;B. b. Hedge funds have more in;common with commercial banks than with any other type of financial institution.;C. c. Hedge funds have more in;common with investment banks than with any other type of financial;institution.;D. d. Hedge funds are not;permitted to operate in the United States, Europe, and Asia.;E. e. The justification for the ?light?;regulation of hedge funds is that only ?sophisticated? investors with high;net worth and high income are permitted to invest in these funds, and such;investors supposedly can do the necessary ?due diligence? on their own rather;than have it done by the SEC or some other regulator.;Question;5 of 20;Money markets are markets for;A. a. Foreign stocks.;B. b. Consumer automobile loans.;C. c. U.S. stocks.;D. d. Short-term debt securities.;E. e. Long-term bonds.;Question;6 of 20;Which of the following is a primary;market transaction?;A. a. You sell 200 shares of IBM;stock on the NYSE through your broker.;B. b. IBM issues 2,000,000 shares;of new stock and sells them to the public through an investment banker.;C. c. You buy 200 shares of IBM;stock from your brother. The trade is not made through a broker ? you just;give him cash and he gives you the stock.;D. d. One financial institution;buys 200,000 shares of IBM stock from another institution. An investment;banker arranges the transaction.;E. e. You invest $10,000 in a;mutual fund, which then uses the money to buy $10,000 of IBM shares on the;NYSE.;Question;7 of 20;Which of the following statement is;correct?;A. a. If Disney issues additional;shares of common stock through an investment banker, this would be a;secondary market transaction.;B. b. If you purchased 100 shares;of Disney stock from your brother-in-law, this would be an example of a;primary market transaction.;C. c. The IPO market is a subset;of the secondary market.;D. d. Only institutions, and not;individuals, can participate in derivative market transactions.;E. e. As they are generally;defined, money market transactions involve debt securities with maturities of;less than one year.;Question;8 of 20;1.0 Points;You recently sold to your brother;200 shares of Disney stock, and the transfer was made through a broker, and the;trade occurred on the NYSE. This is an example of;A. a. A futures market;transaction.;B. b. A primary market;transaction.;C. c. A secondary market;transaction.;D. d. A money market transaction.;E. e. An over-the-counter market;transaction.;Question;9 of 20;Which of the following statements is;correct?;A. a. The New York Stock Exchange;is an auction market with a physical location.;B. b. Capital market transactions;involve only the purchase and sale of equity securities, i.e., common stocks.;C. c. If an investor sells shares;of stock through a broker, then this would be a primary market transaction.;D. d. Consumer automobile loans;are evidenced by legal documents called ?promissory notes,? and these;individual notes are traded in the money market.;E. e. While the distinctions are;blurring as investment banks are today buying commercial banks, and vice;versa, investment banks generally specialize in lending money, whereas;commercial banks generally help companies raise capital from other parties.;Question;10 of 20;Which of the following statements is;correct?;A. a. Capital market instruments;include both long-term debt and common stocks.;B. b. An example of a primary;market transaction would be your uncle transferring 100 shares of Wal-Mart;stock to you as a birthday gift.;C. c. The NYSE does not exist as a;physical location, rather, it represents a loose collection of dealers who;trade stocks electronically.;D. d. If your uncle in New York;sold 100 shares of Microsoft through his broker to an investor in Los;Angeles, this would be a primary market transaction.;E. e. While the two frequently;perform similar functions, investment banks generally specialize in lending;money, whereas commercial banks generally help companies raise blocks of;capital from investors.;Question;11 of 20;Which of the following statements is;correct?;A. a. While the distinctions are;blurring, investment banks generally specialize in lending money, whereas;commercial banks generally help companies raise capital from other parties.;B. b. A liquid security is a;security whose value is derived from the price of some other ?underlying?;asset.;C. c. Money market mutual funds;invest most of their money in a well-diversified portfolio of liquid common;stocks.;D. d. Money markets are markets;for long-term debt and common stocks.;E. e. The NYSE operates as an;auction market, whereas the Nasdaq is a dealer market.;12. of 20;One drawback of switching from a partnership to the corporate form of;organization is the following;A. a. It subjects the firm to;additional regulations.;B. b. It cannot affect the amount;of the firm?s operating income that goes to taxes.;C. c. It makes it more difficult;for the firm to raise additional capital.;D. d. It makes the firm?s;investors subject to greater potential personal liabilities.;E. e. It makes it more difficult;for the firm?s investors to transfer their ownership interests.;Question;13 of 20;Which of the following statements is;correct?;A. a. A hostile takeover is the;main method of transferring ownership interest in a corporation.;B. b. Unlimited liability and;limited life are two key advantages of the corporate form over other forms of;business organization.;C. c. A corporation is a legal;entity that is generally created by a state, and it has a life and existence;that is separate from the lives of its individual owners and mangers.;D. d. Limited liability of its;stockholders is an advantage of the corporate form of organization, but;corporations have more trouble raising money in financial markets because of;the complexity of this form of organization.;E. e. Although its stockholders;are insulated by limited legal liability, the legal status of the corporation;does not protect the firm?s managers in the same way, i.e., bondholders can;sue its managers if the firm defaults on its debt, even if the default is the;result of poor economic conditions.;Question;14 of 20;Which of the following statements is;correct?;A. a. In a regular partnership;liability for other partners? misdeeds is limited to the amount of a;particular partner?s investment in the business.;B. b. 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.;C. 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. d. In a limited partnership;the limited partners have voting control, while the general partner has;operating control over the business. Also, the limited partners are;individually responsible, on a pro rata basis, for the firm?s debts in the;event of bankruptcy.;E. e. A major disadvantage of all;partnerships relative to all corporations is the fact that federal income;taxes must be paid by the partners rather than by the firm itself.;Question;15 of 20;Which of the following statements is;correct?;A. a. Corporations are at a;disadvantage relative to partnerships because they have to file more reports;to state and federal agencies, including the Securities and Exchange;Administration, even if they are not publicly owned.;B. b. In a regular partnership, liability;for the firm?s debts is limited to the amount a particular partner has;invested in the business.;C. c. A fast-growth company would;be more likely to set up as a partnership for its business organization than;would a slow-growth company.;D. d. Partnerships have difficulty;attracting capital in part because of their unlimited liability, the lack of;permanence of the organization, and difficulty in transferring ownership.;E. e. A major disadvantage of a;partnership relative to a corporation as a form of business organization is;the high cost and practical difficulty of its formation.;Question;16 of 20;Which of the following statements is;correct?;A. a. Most businesses (by number;and total dollar sales) are organized as proprietorships or partnerships;because it is easier to set up and operate in one of these forms rather than;as a corporation. However, if the business gets very large, it becomes;advantageous to convert to a corporation, primarily because corporations have;important tax advantages over proprietorships and partnerships.;B. b. Due to limited liability;unlimited lives, and ease of ownership transfer, the vast majority of U.S.;businesses (in terms of number of businesses) are organized as corporations.;C. c. Due to legal considerations;related to ownership transfers and limited liability, most business (measured;by dollar sales) is conducted by corporations in spite of large corporations?;often less favorable tax treatment.;D. d. Large corporations are taxed;more favorably than sole proprietorships.;E. e. Corporate stockholders are;exposed to unlimited liability.;Question;17 of 20;The primary operating goal of a;publicly-owned firm interested in serving its stockholders should be to;A. a. Maximize the stock price per;share over the long run, which is the stock?s intrinsic value.;B. b. Maximize the firm?s expected;EPS.;C. c. Minimize the chances of;losses.;D. d. Maximize the firm?s expected;total income.;E. e. Maximize the stock price on;a specific target date.;Question;18 of 20;Which of the following would be most;likely to lead to higher interest rates on all debt securities in the economy?;A. a. Households start saving a;larger percentage of their income.;B. b. The economy moves from a;boom to a recession.;C. c. The level of inflation;begins to decline.;D. d. Corporations step up their;expansion plans and thus increase their demand for capital.;E. e. The Federal Reserve uses;monetary policy in an attempt to stimulate the economy.;Question;19 of 20;Which of the following statements is;correct?;A. a. If General Electric were to;issue new stock this year it would be considered a secondary market;transaction since the company already has stock outstanding.;B. b. Capital market transactions;only include preferred stock and common stock transactions.;C. c. The distinguishing feature;between spot markets versus futures markets transactions is the maturity of;the investments. That is, spot market transactions involve securities that;have maturities of less than one year, whereas futures markets transactions;involve securities with maturities greater than one year.;D. d. Both Nasdaq ?dealers? and;NYSE ?specialists? hold inventories of stocks.;E. e. An electronic communications;network (ENC) is a physical location exchange.;Question;20 of 20;Which of the following statements;is not correct?;A. a. When a corporation?s shares;are owned by a few individuals and are not traded on public markets, we say;that the firm is ?closely, or privately, held.?;B. b. ?Going public? establishes a;firm?s true intrinsic value, and it also insures that a highly liquid market;will always exist for the firm?s shares.;C. c. When stock in a closely held;corporation is offered to the public for the first time, the transaction is;called ?going public,? and the market for such stock is called the primary;market.;D. d. Publicly owned companies;have shares owned by investors who are not associated with management, and;public companies must register with and report to a regulatory agency such as;the SEC.;E. e. It is possible for a firm to;go public and yet not raise any additional new capital at the time.;="msolistparagraph">


Paper#50262 | Written in 18-Jul-2015

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