FIN 320 MyFinanceLab Practice Quiz (Chp. 1-B) – Flashcards

What does the phrase limited liability mean in a corporate​ context? ​Owners' liability 1. (is/is not) limited to the amount they invested in the firm. Stockholders 2. (are not/are) responsible for any encumbrances of the​ firm; in​ particular, they 3. (cannot/can) be required to pay back any debts incurred by the firm.

How do financial institutions help with​ risk-bearing? ​(Select all the choices that​ apply.) A. Insurance companies spread out risk by pooling premiums together from policy holders and pay the claims of those who have an​ accident, fire, medical need or die. This process spreads the financial risk of these events out across a large pool of policyholders and the investors in the insurance company. B. Mutual funds and pension funds take your savings and spread them out among the stocks and bonds of many different​ companies, limiting your exposure to any one company. C. Investment companies will deny any attempt by an investor to concentrate their investment in one single company as this would violate their role in spreading out risk. D. Financial institutions not only assist with the​ risk-bearing of savers and​ investors, but must also be concerned about their own​ risk, spreading their loans out among a variety of clientele.

You are a shareholder in a C corporation. The corporation earns $1.82 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. Assume the corporate tax rate is 35% and the personal tax rate on​ (both dividend and​ non-dividend) income is 30%. How much is left for you after all taxes are​ paid? The amount that remains is ​______ per share. ​(Round to the nearest​ cent.)

What is the difference between a public and private​ corporation? ​(Select from the​ drop-down menus.) The shares of a 1. (private/public) corporation are traded on an exchange​ (or "over the​ counter" in an electronic trading​ system) while the shares of a 2. (private/public) corporation are not traded on a public exchange.

Suppose you are considering renting an apartment.​ You, the​ renter, can be viewed as an agent while the company that owns the apartment can be viewed as the principal. What agency conflicts do you​ anticipate? Suppose,​ instead, that you work for the apartment company. What features would you put into the lease that would give the renter incentives to take good care of the​ apartment? ​(Select from the​ drop-down menus.) The 1. (agent/principal) 2. (owner/renter​) will not take the same care of the apartment as the 3. (principal/agent) ​4.(owner/renter​), because the 5. (owner/renter) does not share in the costs of fixing damages to the apartment. To mitigate this​ problem, having the 6. (renter/owner) pay a deposit should motivate the 7. (owner/renter) to keep damages to a minimum. The deposit forces the 8. (renter/owner) to share in the costs of fixing any problems that are caused by the 9. (renter/owner). In​ addition, the provision in the lease for 10.(monthly/annual) renewals allows an incentive for a​ long-term 11. (owner/renter) to maintain the leased apartment.

Corporate managers work for the owners of the corporation.​ Consequently, they should make decisions that are in the interests of the​ owners, rather than in their own interests. What strategies are available to shareholders to help ensure that managers are motivated to act this​ way? Shareholders can do the​ following: ​(Select all the choices that​ apply.) A. Ensure that employees are paid with company stock​ and/or stock options. B. Write contracts that ensure that the interests of the managers and shareholders are closely aligned. C. Mount hostile takeovers. D.Ensure that underperforming managers are fired. E. Ensure that employees are paid a percentage of the​ company's net income.

What is the most important type of decision that the financial manager​ makes? ​(Select the best choice​ below.) A. The financial​ manager's most important job is to make the​ firm's dividend decisions. B. The financial​ manager's most important job is to make the​ firm's investment decisions. C. The financial​ manager's most important job is to make the​ firm's financing decisions. D. The financial​ manager's most important job is to make the​ firm's payment decisions.

What are some of the differences between the NYSE and the​ NASDAQ? ​(Select from the​ drop-down menus.) The 1. (NASDAQ/NYSE) is an example of a physical market. It is located at 11 Wall Street in New York City. On the floor of the 2. (NYSE/NASDAQ)​, market makers​ (known on the 3. (NYSE/NASDAQ) as​ specialists) match buyers and sellers.​ Nevertheless, in​ today's technology-driven​ economy, a stock market does not need to have a physical location. Stock transactions can be made over the phone or by computer network.​ Consequently, stock markets such as 4. (NASDAQ/NYSE)​, which are called​ over-the-counter (OTC)​ markets, are a collection of dealers or market makers connected by computer networks and telephones. An important difference between the NYSE and NASDAQ is that on the 5. (NYSE/NASDAQ)​, each stock has only one market maker. Each exchange has its own listing​ standards, outlines of the requirements a company must meet to be traded on the exchange. These standards usually require that the company has enough shares outstanding for shareholders to have a liquid market and to be of interest to a broad set of investors. The 6.(NASDAQ's/NYSE's) standards are more stringent than those of 7. (NYSE/NASDAQ)​; ​traditionally, there has been a certain pride in being listed on the 8. (NYSE/NASDAQ). Many companies would start on the 9. (NYSE/NASDAQ) and then move to the 10. (NYSE/NASDAQ) as they grew.​ However, 11. (NYSE/ NASDAQ) has retained many​ big, successful companies such as​ Starbucks, Apple, and Microsoft.

What are the main advantages and disadvantages of organizing a firm as a​ corporation? The advantages​ are: (Select all the choices that​ apply.) A. There is no limit on the number of owners a corporation may​ have, thus allowing the corporation to raise substantial amounts of capital. B. The life of the business can continue beyond the death of any of the owners. C. The corporation can use the assets of the owners to pay for corporate liabilities. This attracts smaller investors to the corporation. D. The liability of the owners is limited to the amount of their investment in the firm. The disadvantages​ are: ​(Select all the choices that​ apply.) A. Income to a corporation is subject to double​ taxation, once at the corporate level and again when received by the owners in the form of a dividend. B. The life of the business usually ends with the death of any of the owners. C. The corporation is more complicated and more expensive to set up than other business entities. D. Corporate liabilities can be passed on to the​ shareholders, thus making stock ownership primarily the realm of wealthy investors.

Partnerships are the most common type of business firms in the world. True False

Which of the following is NOT a role of financial​ institutions? A. moving funds though time B. moving funds from savers to borrowers C. printing money for borrowers D. spreading out risk−bearing

What is the process of double taxation for the stockholders in a C​ corporation? A. The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. B. Their shares are taxed when they are both bought and sold. C. The corporation must pay taxes on any profits it​ makes, and the capital raised by the sale of shares is also subject to taxation. D. The corporation is taxed on the profits it​ makes, and the owners are taxed when this profit is distributed to them.

A factory owner wants his workers to produce as many widgets as they can so he pays his workers based on how many widgets they produce.​ However, in order to make sure that the workers do not rush and produce a large number of poorly made​ widgets, he checks the widgets at random at various stages of their manufacture. If a defect is found in a​ widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the agency conflict problem in this​ case? A. by maximizing the information that the principal obtains about the behavior of the agents B. by supplying incentives so the agents act in the way principal desires C. by making the agents into principals themselves D. by ensuring that all workers co −operate to maximize the gains of their section

A​ ________ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO. A. hostile takeover B. shareholder proposal C. leveraged buyout D. shareholder action