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In the past, the study of finance has included
A. mergers and acquisitions.
B. raising capital.
C. bankruptcy.
D. all of these.

30. Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their
contributions to the
A. options pricing model.
B. theories of working capital management.
C. theories of risk-return and portfolio theory.
D. theories of international capital budgeting.

31. One of the major disadvantages of a sole proprietorship is
A. that there is unlimited liability to the owner.
B. the simplicity of decision making.
C. low organizational costs.
D. low operating costs.

32. The partnership form of an organization
A. avoids the double taxation of earnings and dividends found in the corporate form of organization.
B. usually provides limited liability to the partners.
C. has unlimited life.
D. simplifies decision making.

33. With a Subchapter S corporation
A. income is taxed as direct income to stockholders.
B. stockholders have the same liability as members of a partnership.
C. the number of stockholders is unlimited.
D. life of the corporation is limited.

34. Corporate governance is the
A. relationship and exercise of oversight by the board of directors of the company.
B. relationship between the chief financial officer and institutional investors.
C. operation of a company by the chief executive officer (CEO) and other senior executives on the
management team.
D. governance of the company by the board of directors with a focus on social responsibility.

35. Agency theory examines the relationship between the
A. shareholders of the firm and the firm’s investment banker.
B. owners of the firm and the managers of the firm.
C. board of directors and large institutional investors.
D. shareholders and the firm’s transfer agent.

36. Agency theory deals with the issue of
A. when to hire an agent to represent the firm in negotiations.
B. the legal liabilities of a firm if an employee, acting as the firm’s agent, injures someone.
C. the limitations placed on an employee acting as the firm’s agent to obligate or bind the firm.

D. the conflicts that can arise between the viewpoints and motivations of a firm’s owners and

37. Institutional investors are important in today’s business world because
A. as large investors they have more say in how businesses are managed.
B. they have a fiduciary responsibility to the workers and investors that they represent to see that
the firms they own are managed in an ethical way.
C. as a group they can vote large blocks of stock for the election of board members.
D. all of these.

38. The Sarbanes-Oxley Act was passed in an effort to
A. protect small business from large corporations dominating the market.
B. ensure that partnerships divide profits among partners in a fair manner.
C. guarantee outside auditors can control corporate accounting practices.
D. control corrupt corporate behavior.

39. A financial manager’s goal of maximizing current or short-term earnings may not be appropriate
A. it fails to consider the timing of the benefits.
B. increased earnings may be accompanied by unacceptably higher levels of risk.
C. earnings are subjective; they can be defined in various ways such as accounting or economic
D. all of these.

40. Which of the following is not a true statement about the goal of maximizing shareholder wealth?
A. It takes into account the timing of cash-flows.
B. It is a short-run point of view which takes risk into account.
C. It considers risk as a factor.
D. None of these.

41. Insider trading occurs when
A. someone has information not available to the public which they use to profit from trading in
B. corporate officers buy stock in their company.
C. lawyers, investment bankers, and others buy common stock in companies represented by their
D. any stock transactions occur in violation of the Federal Trade Commissions restrictions on

42. Money markets would include which of the following securities?
A. common stock and corporate bonds.
B. treasury bills and commercial paper.
C. certificates of deposit and preferred stock.
D. all of these.

43. When a corporation uses the financial markets to raise new funds, the sale of securities is made in
A. primary market.
B. secondary market.
C. on-line market

D. third market.

44. The financial markets allocate capital to corporations by
A. reflecting expectations of the market participants in the prices of the corporations.
B. requiring higher returns from companies with lower risk than their competitors.
C. rewarding companies with expected high returns with lower relative stock prices.
D. relying on the opinion of investment bankers.

45. A corporate buy-back, or the repurchasing of shares, is
A. an example of balance sheet restructuring.
B. an excellent source of profits when the firm’s stock is over-priced.
C. a method of reducing the debt-to-equity ratio.
D. all of these.

46. Which of the following is not an example of restructuring as discussed in the text?
A. repurchase of common stock
B. creating a new organizational chart
C. merging with companies in related industries
D. divesting of an unprofitable division

47. The increase in the internationalization of financial markets has led to
A. companies searching the global financial markets for low cost funds.
B. an increase in American Depository Receipts (ADRs) on the New York Stock Exchange.
C. an increase in debt obligations denominated in foreign currency on U.S. corporate balance
D. all of these.

48. The Internet has affected the financial markets by
A. creating more competition between markets.
B. pushing the cost of trading down.
C. forcing brokerage companies to consolidate.
D. all of these.

49. Companies that perform well
A. can sell their stock for a lower price
B. can minimize dilution when issuing new shares
C. can issue debt at a lower interest rate
D. two of the above

50. Benefits of social responsibility often include
A. Better reputation
B. Higher short-term earnings
C. Lower expenses
D. Two of the above


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