FIN2601-EXAM

FIN2601-EXAMSECTION A: MULTIPLE-CHOICE QUESTIONS [40 MARKS] Choose the correct option in each of the following questions: 1. A basic distinction between a primary and secondary market is that … 1. proceeds from sales in the primary market go to the current owner of a security, while proceeds in a secondary market go to the original owner. 2. primary markets involve direct dealings with regional exchanges. 3. only new securities are sold in the primary market, while only outstanding (issued) securities and sold in the secondary market. 4. primary markets deal exclusively in debentures, while secondary markets deal primarily in ordinary shares. 2. Which one of the following statements is correct regarding profit maximisation as the primary goal of a firm? 1. Profit maximisation considers the firm's risk level. 2. Profit maximisation will not lead to an increase in short-term profits at the expense of expected future profits. 3. Profit maximisation does consider the impact on individual shareholders' earnings per share (EPS). 4. Profit maximisation is more concerned with maximising profits than the share price. 3. If all else were equal, in which of the following forms of business would the possibility of an agency problem be the greatest? 1. A sole proprietorship 2. A foreign corporation that is publicly traded 3. A foreign corporation with concentrated ownership – that is, relatively few owners 4. A partnership in which all partners share management and decision-making responsibilities equally 4. Which one of the following is the advantage of both a close corporation and company? 1. The owners have unlimited liability, which guarantees that they cannot lose more than they invested. 2. The owners have limited liability, which guarantees that they cannot lose more than they invested. 3. The shareholders have unlimited liability and total wealth can be taken to satisfy debts. 4. The shareholders enjoy unlimited liability, meaning that they are not personally liable for the firm’s debts