Finance 313 Practice Exam #1

What is the goal of the firm?

• Maximizing the wealth of stockholders
• Overtake  competitors
• Make a lot of profit.

Limited liability while allowing the business owners to be taxed as if they were a partnership, that is, distributions back to the owners are not taxed twice as is the case with dividends paid by corporations.  

• LLC
• S-Corporation 
• Sole Proprietorship
• Paternership

Agency costs refer to

• The costs associated with managing the demands of federal agencies
• The costs involved when converting an entity from a proprietorship to a corporation
• The costs that arise due to conflicts of interest between shareholders and mangers.
• None of the above

Which of the following is a valid criticism concerning the goal of firms to maximize profits?

• Profit maximization ignores expenses
• Profit maximization is completely unrelated to shareholder wealth
• Profit maximization may ignore the timing of those profits
• There are no valid criticisms of profit maximizing firms

Which of the following parties have the proper incentives to make risky, value increasing investments for the firm?

• Suppliers
• Creditors
• Shareholders
• Managers who are only compensated with a salary

Why might a business choose to operate as a sole proprietorship instead of as a corporation?

• Sole proprietors are exposed to limited liability.
  
• Sole proprietorships enjoy a tax advantage over corporations.
  
• Sole proprietorships face less regulation than corporations.
• B & C

True or False: In a private placement of securities, only a limited number of investors have the opportunity to purchase a portion of the issue.

• True
• False

True or False: The CFO is a financial specialist who acts as an intermediary in the selling of securities. He or she works for an investment banking firm (house).

• True
• False

Fisher Effect:
Real rate is 5% and the expected inflation rate is 4% what is the nominal rate?

• 5.6%
• 9.9%
• 7.2%
• 9.2%

Tags

CCSS.7.RP.A.3

What is net working capital?

• Current Assets - Current Liabilities
• Current Assets + Current Liabilities
• Current Assets / Current Liabilities
• Current Assets x Current Liabilities

Tags

CCSS.HSN.VM.C.8