Corporate Finance Final Exam

Value maximization as a goal of the firm:

• Focuses on bondholders

• Takes a long-run perspective that focuses on the owners

• Focuses on quarterly changes in earnings

• is an accounting number

a business manager is an agent to the owners ( the principals) and has _______ to those principals

• No responsibility

• a fiduciary responsibility

• an obligation to the community only

• a legal obligation called "best practices"

The sole proprietor

• has unlimited liability

• is liable for obligations of the business equal to the amount of the investment in the firm

• has unlimited liability relating to the business

• has limited liability relating on the premises

The market where securities are sold for the first time

• Money Market

• Effective Market

• Secondary Market

• Primary Market

Examples of Primary Markets:

• Investment banks

• The Stock market

• IPOs

• Used Car Auctions

The market where previously issued securities are sold

• Capital Market

• Secondary Market

• Primary Market

• Money market

Examples of Secondary Markets

• Investment Banks

• IPOs

• The Stock Market

• Used Car Auctions

____________ own the securities that they buy or sell; when they engage in a financial transaction, they are trading from their own portfolio.

• Dealers

• Brokers

• Advisers

• Comptrollers

Which of the following is incorrect regarding contributory factors to the financial crisis of 2008 ?

• Over-optimistic rating by the credit rating agencies

• Mortgage lending to high-risk homebuyers

• Creation of new financial securities

• High introductory interest rates on home mortgages

What is it called when corporations are taxed for their earnings and dividend distribution ?

• Maturity

• Default Risk

• Fiduciary Responsibility

• Double Taxation