test - 1. Which of the following statements is CORRECT? a....

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1. Which of the following statements is CORRECT? a. One of the advantages of the corporate form of organization is that it avoids double taxation. b. It is easier to transfer one’s ownership interest in a partnership than in a corporation. C. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. d. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.” e. Corporations of all types are subject to the corporate income tax. 2. Which of the following actions would tend to reduce conflicts of interest between stockholders and bondholders? A. Including restrictive covenants in the company’s bond indenture (which is the contract between the company and its bondholders). b. Compensating managers with more stock options and less cash income. c. The passage of laws that make it harder for hostile takeovers to succeed. d. A government regulation that banned the use of convertible bonds. e. Have the firm use only long-term debt, e.g., debt that matures in 30 years or more rather than in less than one year. 3. Which of the following statements is CORRECT? a. Bond covenants are a good way to resolve agency conflicts between stockholders and managers. B. The bid price in a hostile takeover is generally above the price before the takeover attempt is announced because otherwise the takeover attempt would probably fail. c. The bid price in a hostile takeover is generally below the price before the takeover attempt is announced because takeover targets are generally not very well managed companies. d. Takeovers are more likely to be attempted if the target firm’s stock price is above its intrinsic value. e. The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden. 4. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize its expected total corporate income. b. Maximize its expected EPS. c. Minimize the chances of losses. D. Maximize the stock price per share over the long run, which is the stock’s intrinsic value. e. Maximize the stock price on a specific target date. 5. Which of the following statements is CORRECT?
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a. While the distinctions are becoming blurred, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. B. The NYSE operates as an auction market, whereas Nasdaq is an example of a dealer market. c. Money market mutual funds usually invest their money in a well-diversified portfolio of liquid common stocks. d. Money markets are markets for long-term debt and common stocks.
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This note was uploaded on 01/18/2011 for the course FINANCE fin300 taught by Professor Thomasrhee during the Fall '10 term at CSU Long Beach.

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test - 1. Which of the following statements is CORRECT? a....

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