Which of the following statements is CORRECT? One of the advantages of the corporate form of organiz

Which of the following statements is CORRECT? One of the advantages of the corporate form of organization isthat it avoids double taxation. It is easier to transfer one’s ownership interest in apartnership than in a corporation. One of the disadvantages of a sole proprietorship is that theproprietor is exposed to unlimited liability. One of the advantages of a corporation from a social standpointis that every stockholder has equal voting rights, i.e., “oneperson, one vote.” Corporations of all types are subject to the corporate incometax. Which of the following statements is CORRECT? Corporations generally face fewer regulations than soleproprietorships. Corporate shareholders are exposed to unlimited liability. It is usually easier to transfer ownership in a corporation thanin a partnership. Corporate shareholders are exposed to unlimited liability, butthis factor is offset by the tax advantages of incorporation. There is a tax disadvantage to incorporation, and there is noway any corporation can escape this disadvantage, even if it isvery small. Which of the following could explain why a business might chooseto operate as a corporation rather than as a sole proprietorship ora partnership? Corporations generally face fewer regulations. Less of a corporation’s income is generally subject to federaltaxes. Corporate shareholders are exposed to unlimited liability, butthis factor is offset by the tax advantages of incorporation. Corporate investors are exposed to unlimited liability. Corporations generally find it easier to raise large amounts ofcapital. The primary operating goal of a publicly-owned firm interestedin serving its stockholders should be to Maximize its expected total corporate income. Maximize its expected EPS. Minimize the chances of losses. Maximize the stock price per share over the long run, which isthe stock’s intrinsic value. Maximize the stock price on a specific target date. Which of the following statements is CORRECT? Compensating managers with stock options can do nothing to helpeliminate potential conflicts between stockholders andmanagers. Restrictions can be included in credit agreements, but theserestrictions can do nothing to protect bondholders from conflictsof interest between them and the firm’s managers andstockholders. The threat of takeovers reduces conflict of interest problems,but only between bondholders and stockholders. Compensating managers with stock options can help reduceconflicts of interest between stockholders and managers, but if theoptions are all exercisable on a specific date in the near future,this can motivate managers to do something other than try tomaximize the stock’s intrinsic value. Conflicts would not exist if the Security and ExchangeCommission were abolished. Which of the following statements would most people in businessagree with? A corporation’s short-run profits will almost always increase ifthe firm takes actions that the government has determined are inthe best interests of the nation. Firms and government agencies almost always agree with oneanother regarding the restrictions that should be placed on hiringand firing employees. “Whistle blowers,” because of the courage it takes to blow thewhistle, are generally promoted more rapidly than otheremployees. It is not useful for large corporations to develop a formal setof rules defining ethical and unethical behavior. Although people’s moral characters are probably developed beforethey are admitted to a business school, it is still useful forbusiness schools to cover ethics, if only to give students an ideaabout the adverse consequences of unethical behavior to themselves,their firms, and the nation. Which of the following mechanisms would be most likely to helpmotivate managers to act in the best interests of shareholders? Decrease the use of restrictive covenants in bondagreements. Take actions that reduce the possibility of a hostiletakeover. Elect a board of directors that allows managers greater freedomof action. Increase the proportion of executive compensation that comesfrom stock options and reduce the proportion that is paid as cashsalaries. Eliminate a requirement that members of the board of directorshave a substantial investment in the firm’s stock. Chapter 2— Which of the following is a primary markettransaction? You sell 200 shares of stock on the NYSE through yourbroker. You buy 200 shares of stock from your brother.The trade is notmade through a broker–you just give him cash and he gives you thestock. IBM issues 2,000,000 of new stock and sells them to the publicthrough an investment banker. One financial buys 200,000 shares of IBM stock from anotherinstitution.An investment banker arranges the transaction. IBM sells 2,000,000 of treasury stock to its employees when theyexercise options that were granted in prior years. Money markets are for Foreign . Consumer loans. Common . Long-term bonds. Short-term debt securities such as Treasury bills and commercialpaper. < >ou recently sold 200 shares of Disney stock, and thetransfer was made through a broker. This is an example of: A money market . A primary market . A secondary market . A futures market . An over-the-counter transaction. Which of the statements is CORRECT? Hedge funds are legal Europe and Asia, but they are notpermitted to operate in the United States. Hedge funds are legal in the United States, but they are notpermitted to operate in Europe or Asia. Hedge funds have more in common with investment banks than withany other type of financial institution. Hedge funds have more in common with commercial banks than withany other type of financial institution. Hedge funds are not as regulated as most other types offinancial institutions.The justification for this light regulationis that only “sophisticated” investors (i.e., those with high networths and high incomes) are permitted to invest in these funds,and such investors supposedly can do any necessary “due diligence”on their own rather than have it done by the SEC or some otherregulator. Other things held constant, which of the following actions wouldincrease the amount of cash on a company’s balance sheet? The company repurchases common stock. The company pays a dividend. The company issues new common stock. The company gives customers more time to pay their bills. The company purchases a new piece of equipment. Which of the following items is NOT normally considered to be acurrent asset? Accounts receivable. Inventory. Bonds. Cash. Short-term, highly-liquid, marketable securities. Which of the following statements is CORRECT? The focal point of the income statement is the cash account,because that account cannot be manipulated by “accountingtricks.” The reported income of two otherwise identical firms cannot bemanipulated by different accounting procedures provided the firmsfollow generally accepted accounting principles (GAAP). The reported income of two otherwise identical firms must beidentical if the firms are publicly owned, provided they followprocedures that are permitted by the Securities and ExchangeCommission (SEC). If a firm follows generally accepted accounting principles(GAAP), then its reported net income will be identical to itsreported cash flow. The income statement for a given year, say 2008, is designed togive us an idea of how much the firm earned during that year. Which of the following statements is most correct? Corporations are allowed to exclude 70% of their interest incomefrom corporate taxes. Corporations are allowed to exclude 70% of their dividend incomefrom corporate taxes. Individuals pay taxes on only 30% of the income realized frommunicipal bonds. Individuals are allowed to exclude 70% of their interest incomefrom their taxes. Individuals are allowed to exclude 70% of their dividend incomefrom their taxes Which of the following statements is CORRECT? Typically, a firm’s DPS should exceed its EPS. Typically, a firm’s net income should exceed its EBIT. If a firm is more profitable than average (e.g., Google), wewould normally expect to see its stock price exceed its book valueper share. If a firm is more profitable than most other firms, we wouldnormally expect to see its book value per share exceed its stockprice, especially after several years of high inflation. The more depreciation a firm has in a given year, the higher itsEPS, other things held constant. Which of the following statements is CORRECT? Dividends are always paid by a corporation. EBIT has already been taxed. One way of using the excess cash is to pay the shareholders adividend. Another way might be a firm buying its own stockback. If a firm is more profitable than most other firms, we wouldnormally expect to see its book value per share exceed its stockprice, especially after several years of high inflation. For profit firms write large checks for depreciationexpense. Analysts who follow Howe Industries recently noted that,relative to the previous year, the company’s net cash provided fromoperations increased, yet cash as reported on the balance sheetdecreased.Which of the following factors could explain thissituation? The company cut its dividend. The company made large investments in fixed assets. The company sold a division and received cash in return. The company issued new common stock. The company issued new long-term debt. The Nantell Corporation just purchased an expensive piece ofequipment.Assume that the firm planned to depreciate the equipmentover 5 years on a straight-line basis, but Congress then passed aprovision that requires the company to depreciate the equipment ona straight-line basis over 7 years.Other things held constant,which of the following will occur as a result of this Congressionalaction?Assume that the company uses the same depreciation methodfor tax and stockholder reporting purposes. Nantell’s taxable income will be lower. Nantell’s operating income (EBIT) will increase. Nantell’s cash position will improve (increase). Nantell’s reported net income for the year will be lower. Nantell’s tax liability for the year will be lower. 20).      Considered alone, which ofthe following would increase a company’s current ratio? a.   An increase in net fixed assets. b.   An increase in accrued liabilities. c.   An increase in notes payable. d.   An increase in accounts receivable. e.   An increase in accounts payable. 21).      A firm wants to strengthenits financial position. Which of the following actions wouldincrease its quick ratio? a.   Offer price reductions along with generous creditterms that would (1) enable the firm to sell some of its excessinventory and (2) lead to an increase in accounts receivable. b.   Issue new common stock and use the proceeds toincrease inventories. c.   Speed up the collection of receivables and usethe cash generated to increase inventories. d.   Use some of its cash to purchase additionalinventories. e.   Issue new common stock and use the proceeds toacquire additional fixed assets. 22).      You plan to analyze the valueof a potential investment by calculating the sum of the presentvalues of its expected cash flows. Which of the following wouldlower the calculated value of the investment? a.   The cash flows are in the form of a deferredannuity, and they total to $100,000. You learn that the annuitylasts for only 5 rather than 10 years, hence that each payment isfor $20,000 rather than for $10,000. b.   The discount rate increases. c.   The riskiness of the investment’s cash flowsdecreases. d.   The total amount of cash flows remains the same,but more of the cash flows are received in the earlier years andless are received in the later years. e.   The discount rate decreases. 23).      Which of the followingstatements is CORRECT? a.   The cash flows for an ordinary (or deferred)annuity all occur at the beginning of the periods. b.   If a series of unequal cash flows occurs atregular intervals, such as once a year, then the series is bydefinition an annuity. c.   The cash flows for an annuity due must all occurat the ends of the periods. d.   The cash flows for an annuity must all be equal,and they must occur at regular intervals, such as once a year oronce a month. e.   If some cash flows occur at the beginning of theperiods while others occur at the ends, then we have what thetextbook defines as a variable annuity. 24).      Your bank account pays an 8%nominal rate of interest. The interest is compounded quarterly.Which of the following statements is CORRECT? a.   The periodic rate of interest is 2% and theeffective rate of interest is 4%. b.   The periodic rate of interest is 8% and theeffective rate of interest is greater than 8%. c.   The periodic rate of interest is 4% and theeffective rate of interest is less than 8%. d.   The periodic rate of interest is 2% and theeffective rate of interest is greater than 8%. e.   The periodic rate of interest is 8% and theeffective rate of interest is also 8%. 25)       A $50,000 loan is to beamortized over 7 years, with annual end-of-year payments. Which ofthese statements is CORRECT? a.   The annual payments would be larger if theinterest rate were lower. b.   If the loan were amortized over 10 years ratherthan 7 years, and if the interest rate were the same in eithercase, the first payment would include more dollars of interestunder the 7-year amortization plan. c.   The proportion of each payment that representsinterest as opposed to repayment of principal would be lower if theinterest rate were lower. d.   The last payment would have a higher proportionof interest than the first payment. e.   The proportion of interest versus principalrepayment would be the same for each of the 7 payments. . . .