Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)   One disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability.
B)   Using restrictive covenants in debt agreements is an effective way to reduce conflicts between stockholders and managers.
C)   Managers generally welcome hostile takeovers since the "raider" generally offers a price for the stock that is higher than the price before the takeover action started.
D)   The managers of established,stable companies sometimes attempt to get their state legislatures to ​impose rules that make it more difficult for raiders to succeed with hostile takeovers.
E)   Most business in U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment.F) B) and E)
G) A) and E)

Question 2

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Accepted Answer

A)   Compensating managers with stock options.
B)   Financing risky projects with additional debt.
C)   The threat of hostile takeovers.
D)   The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions.
E)   Abolishing the Security and Exchange Commission.F) C) and D)
G) A) and C)

Question 3

New Business is just being formed by 10 investors,each of whom will own 10% of the business.The firm is expected to earn $1,200,000 before taxes each year.The corporate tax rate is 34% and the personal tax rate for the firm's investors is 35%.The firm does not need to retain any earnings,so all of its after-tax income will be paid out as dividends to its investors.The investors will have to pay personal taxes on whatever they receive.How much additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation?

Accepted Answer

A)   $26,520
B)   $32,620
C)   $22,277
D)   $31,824
E)   $32,885F) A) and C)
G) A) and E)

Question 4

A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers.If the old managers were managing the firm inefficiently,then hostile takeovers can improve the economy.However,hostile takeovers are controversial,and legislative actions have been taken to make them more difficult to undertake.

Accepted Answer

A) True 
 B)False

Question 5

If someone deliberately understates costs and thereby increases profits,this can cause the stock price to rise above its intrinsic value.The stock price will probably fall in the future.Also,those who participated in the fraud can be prosecuted,and the firm itself can be penalized.

Accepted Answer

A) True 
 B)False

Exam 1: An Overview of Financial Management

If someone deliberately understates costs and thereby increases profits,this can cause the stock price to rise above its intrinsic value.The stock price will probably fall in the future.Also,those who participated in the fraud can be prosecuted,and the firm itself can be penalized.

Correct Answer
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Correct Answer
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Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Exam 1: An Overview of Financial Management

If someone deliberately understates costs and thereby increases profits,this can cause the stock price to rise above its intrinsic value.The stock price will probably fall in the future.Also,those who participated in the fraud can be prosecuted,and the firm itself can be penalized.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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