Financial Management Exam 1

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An employee stock option plan is ________________.
A way to align the interests of employees with those of the owners
The practice generally known as double taxation is due to
corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.
Methods to minimize agency problem include all except ________________.
a. Allow the CEO to purchase stock via an employee stock option plan
b. Award the CEO stock options
incorrect
c. Offer the managers an equity stake in the firm
d. Allow the CEO to purchase bonds via an employee bond option pla
Allow the CEO to purchase bonds via an employee bond option plan
These individuals follow a firm, conduct their own evaluations of the company's business activities, and report to the investment community.
Investment analysts
The most common type of business in the United States is the __________.
Sole Proprietorship
Which of the following statements is incorrect?
a. All of these statements are correct.
b. Shareholders are responsible for paying off the corporate bonds in the event of a bankruptcy.
c. Both angel investors and venture capitalists exchange capital for ownership.
d. Sole proprietorships are subject to less regulation.
Shareholders are responsible for paying off the corporate bonds in the event of a bankruptcy.
Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors?
a.taxes
b. None of these will reduce the amount of capital returned to the investors.
c. dividends
d. retained earnings
Dividends
This group is elected by stockholders to oversee management in a corporation.
Board of Directors
This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.
corporate governance
The financial crisis that started in 2006 was magnified by which of the following:
a. Public concern over the war in Afghanistan
b. Consistently increasing oil and gas prices
c. Ethical issues affecting high value investment
correct
d. Mortgage lenders securitizing large quantities of their loans
Mortgage lenders securitizing large quantities of their loans
Individuals who provide small amounts of capital and expert business advice to small firms in exchange for an ownership stake in the firm are referred to as ___________________.
angel investors
Hybrid organizations are:
1. Limited Liability Partnership
2. Limited Partnership
3. All of these are considered hybrid organizations.
4. S Corporation
5. Limited Liability Company
For corporations, maximizing the value of owner's equity can also be stated as
maximizing the stock price.
he overall goal of the financial manager is to _________________.
Maximize shareholder wealth
The biggest disadvantage of the sole proprietorship is
Unlimited liability
Outside parties that monitor the firm include all of the following except _______.
a. Analysts
b. New York Stock Exchange
c. Bankers
d. Credit Agencies
New York Stock Exchange
The board of directors are elected by
shareholders
Advantages to organizing as a corporation? and disadvantage?
Advantages:
-Limited liability
-Easy to tranfer ownership
-Easy access to capital

Disadvantage:
-Double taxation
Which of the following is an example of aligning managers' personal interests with those of the owners?
a. Offer the managers an equity stake in the firm.
b. Trust the managers' actions as they will always act in the owners' best interest.
c. Pay the managers high salaries.
d. Allow the managers to have as many perks as they request.
Offer the managers an equity stake in the firm.
From the perspective of access to capital, the best form of business organization is the _______.
Corporation
In 2006, a significant indicator of the U.S. economic decline was:
a. a large increase in loan default due to unemployment
b. rising defaults by subprime mortgage borrowers
c. a significant drop in interest rates
d. a sharp increase in unregulated Ponzi-type security sales
Rising defaults by subprime mortgage borrowers
This type of business organization is relatively easy to start, and it is subject to much lighter regulatory and paperwork burden than other business forms.
Sole proprietorship