FINANCE 2
1.Which of the following statements is CORRECT?
a. Sole proprietorships are subject to more regulations than corporations.
b. In any partnership, every partner has the same rights, privileges, and liability exposure as every other
partner.
c. Corporations of all types are subject to the corporate income tax.
d. Sole proprietorships and partnerships generally have a tax advantage over corporations.
Answer(d)
2. The idea that corporations have a responsibility to all stakeholders including general society is
called ______________.
a. Shareholder Wealth Maximization
b. Corporate Social Responsibility
c. The 5 Cs
d. Principal Agency Relations
Answer(b)
3. Which of the following statements is CORRECT?
a. Covenants can be included in credit agreements, but these will do nothing to protect bondholders
from conflicts of interest between them and the firm’s managers and stockholders.
b. Shareholders generally want managers to reduce risk so that they won’t lose money.
c. Compensating managers with stock options can help reduce conflicts of interest between
stockholders and managers, but if the options are all exercisable on a specific date in the near future,
this can motivate managers to deceive stockholders.
d. Conflicts would not exist if the lead agency, the Security and Exchange Commission, were abolished.
Answer(c)
4.Which of the following actions would be likely to encourage a firm’s managers to make decisions
that are in the best interest of shareholders?
a. The percentage of executive compensation that comes the form of cash is increased and the
percentage from than long-term stock options is reduced.
b. The state legislature passes a law that makes it easier for outside investors to successfully complete a
hostile takeover.
1.Which of the following statements is CORRECT?
a. Sole proprietorships are subject to more regulations than corporations.
b. In any partnership, every partner has the same rights, privileges, and liability exposure as every other
partner.
c. Corporations of all types are subject to the corporate income tax.
d. Sole proprietorships and partnerships generally have a tax advantage over corporations.
Answer(d)
2. The idea that corporations have a responsibility to all stakeholders including general society is
called ______________.
a. Shareholder Wealth Maximization
b. Corporate Social Responsibility
c. The 5 Cs
d. Principal Agency Relations
Answer(b)
3. Which of the following statements is CORRECT?
a. Covenants can be included in credit agreements, but these will do nothing to protect bondholders
from conflicts of interest between them and the firm’s managers and stockholders.
b. Shareholders generally want managers to reduce risk so that they won’t lose money.
c. Compensating managers with stock options can help reduce conflicts of interest between
stockholders and managers, but if the options are all exercisable on a specific date in the near future,
this can motivate managers to deceive stockholders.
d. Conflicts would not exist if the lead agency, the Security and Exchange Commission, were abolished.
Answer(c)
4.Which of the following actions would be likely to encourage a firm’s managers to make decisions
that are in the best interest of shareholders?
a. The percentage of executive compensation that comes the form of cash is increased and the
percentage from than long-term stock options is reduced.
b. The state legislature passes a law that makes it easier for outside investors to successfully complete a
hostile takeover.
