Ch1.mult choice - MULTIPLE CHOICE 1. Which of the following...

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MULTIPLE CHOICE 1. Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization? a. Investing in a smokestack "scrubber" to reduce the firm's air pollution as mandated by law. b. Voluntarily installing expensive machinery to treat effluent discharge which is currently being dumped into a river where it is ruining the drinking water of the community where the plant is located. c. Investing in a smokestack filter to reduce sulphur-dioxide emissions in order to reduce the current tax being levied on the firm by the state for its pollution. d. Making a large corporate donation to the local community in order to fund a recreation complex which will be used by the community and the firm's employees. e. Each of the actions above is consistent with social responsibility and none is necessarily inconsistent with stockholder wealth maximization. 2. Which of the following statements is most correct? a. The ability of firms to engage in socially beneficial projects that involve voluntary costs is constrained by competition and the need of firms to attract capital at low cost. b. The actions that maximize a firm's stock price are inconsistent with maximizing social welfare. c. The concepts of social responsibility and ethical responsibility on the part of corporations are completely different and neither is relevant in maximizing stock price. d. In a competitive market, if a group of firms do not spend resources making social welfare improvements, but another group does, in general, this will not affect the second group's ability to attract capital. e. If government did not mandate socially responsible corporate actions, such as those relating to product safety and fair hiring practices, most firms in competitive markets would still pursue such policies voluntarily. 3. Which of the following statements is most correct? a. Other things held constant, it is generally safer to invest money in a proprietorship than in a partnership or a corporation. b. According to the text, law firms and accounting firms must be organized as proprietorships or partnerships; these businesses do not have the option of incorporating. c. If you are planning to start a business, which you will run as the sole employee, and if you expect the business to earn $1,000,000 per year before taxes, you can minimize
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federal income taxes by setting up the business as a corporation because corporations are not subject to double taxation while proprietorships are. d. According to the text, "agency problems" tend to increase as the percentage of a corporation's stock owned by its managers increases. e. Maximizing the income statement item "net income" is not the best goal for a corporation whose managers are interested in maximizing the economic welfare of the firm's stockholders. 4. Which of the following statements is most correct?
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This note was uploaded on 10/03/2010 for the course FINANCE 08FB40447 taught by Professor Raymond during the Spring '10 term at University of Manchester.

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Ch1.mult choice - MULTIPLE CHOICE 1. Which of the following...

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