1. Ethics can be summarized as an organizations standard of conduct. The implications of being unethical can result in the termination of key relationships and the breakdown of various models in which individuals contract or work together. Therefore it is appropriate to be UNETHICAL in the following situations.
a. Attracting and sustaining new customers.
b. Hiring and keeping skilled employees.
c. Keeping up with competition.
d. Dealing with firms who use “questionable” ethics.
e. None of the statements above is correct.
2. Which of the following could explain why a business might choose to organize as a sole proprietorship rather than as a corporation or a partnership?
a. More regulations.
b. Easier to raise capital.
c. Fewer Agency Problems.
d. Unlimited liability.
e. Statements a and b are correct.
3. Intrinsic Value refers to
a. the current market price
b. the desired market price.
c. the estimated market price based on risk and return data.
d. the exact future price.
e. none of the above.
4. Which of the following statements are correct?
a. One advantage of forming a corporation is that you have limited liability.
b. Corporations face fewer regulations than sole proprietorships.
c. One disadvantage of being a sole proprietor is that you have to pay corporate taxes, even though you don’t realize the benefits of being a corporation.
d. Statements b and c are correct.
e. None of the statements above is correct.
5. The primary goal of a publicly-owned firm interested in serving its stockholders should be to
a. Maximize expected total corporate profit.
b. Maximize expected EPS.
c. Minimize the chances of losses.
d. Maximize shareholder wealth (value).
e. Maximize expected net income.
6. Which of the following actions are likely to reduce the agency problem between stockholders and managers?
a. Congress creates laws that restricts the ability of owners to remove managers and employees (i.e. owners no longer are able to apply various disincentives).
b. A manager receives a lower salary but receives additional shares of the company’s stock (i.e. an attempt by owners to align the incentives of owners and managers).
c. The board of directors has become more vigilant in its oversight of the company’s management (i.e. the board is beginning to monitor its management more).
d. Statements b and c are correct.
e. All of the statements above are correct.
7. Which of the following statements is most correct?
a. The ability of firms to engage in socially beneficial projects that involve voluntary costs is constrained by competition.
b. The actions that maximize a firm’s stock price are always inconsistent with maximizing social welfare.
c. The concepts of social responsibility and ethical responsibility on the part of corporations are completely different and neither is relevant in maximizing stock price.
d. If government did not mandate socially responsible corporate actions, such as those relating to product safety and fair hiring practices, firms in competitive markets would not pursue such policies voluntarily.
8. The value of an asset in the economy is determined by
a. investors that buy and sell an asset at a certain price
b. the marginal investor (i.e. the next or last investor that purchased and or sold the asset).
c. all owners of an asset
d. all of the above
e. a and b only.
9. When the intrinsic value (the price we believe to reflect the firms assets) is equal to the current market value the price is said to be at
a. Equilibrium.
b. a good selling price.
c. the short run price.
d. a good buying price
e. None of the above.
10. Finance can be defined as a
a. subset of accounting
b. discipline with elements of economics, accounting and quantitative analysis/statistics.
c. social science that is concerned with how people feel on a daily basis.
d. all of the above
e. None of the above