.1. Which of the following statements is CORRECT?
a. One of the disadvantages of a sole proprietorship is that
the proprietor is exposed to unlimited liability.
b. It is generally easier to transfer one’s ownership
interest in a partnership than in a corporation.
c. One of the advantages of the corporate form of
organization is that it avoids double taxation.
d. One of the advantages of a corporation from a social
standpoint is that every stockholder has equal voting rights, i.e., “one
person, one vote.”
e. Corporations of all types are subject to the corporate
income tax.
2. Which of the following would be most likely to lead to
higher interest rates on all debt securities in the economy?
a. Households start saving a larger percentage of their
income.
b. The economy moves from a boom to a recession.
c. The level of inflation begins to decline.
d. Corporations step up their expansion plans and thus
increase their demand for capital.
e. The Federal Reserve uses monetary policy in an attempt to
stimulate the economy.
3. Which of the following statements is CORRECT?
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. Capital market transactions only include preferred stock
and common stock transactions.
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. Both Nasdaq "dealers" and NYSE “specialists”
hold inventories of stocks.
e. An electronic communications network (ECN) is a physical
location exchange.
4. Which of the following statements is CORRECT?
a. A good goal for a firm’s management is maximization of
expected EPS.
b. Most business in the U.S. is conducted by corporations,
and corporations’ popularity results primarily from their favorable tax
treatment.
c. Because most stock ownership is concentrated in the hands
of a relatively small segment of society, firms' actions to maximize their
stock prices have little benefit to society.
d. Corporations and partnerships have an advantage over
proprietorships because a sole proprietor is exposed to unlimited liability,
but the liability of all investors in the other types of businesses is more
limited.
e. The potential exists for agency conflicts between
stockholders and managers.
5. Which of the following statements is NOT CORRECT?
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. “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. 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 new issue market.
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. It is possible for a firm to go public and yet not raise
any additional new capital at the time.
