Exam1SP08R

Exam1SP08R - Exam1SP08 Chapter 1 _ 1. Which of the...

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Chapter 1 ____ 1. Which of the following statements is CORRECT? a. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a partnership. b. Corporations face fewer regulations than sole proprietorships. c. One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, at both the firm level and the owner level. d. It is generally less expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. Chapter 1 ____ 2. 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. Chapter 1 ____ 3. Which of the following statements is CORRECT? a. Compensating managers with stock options will do nothing to help eliminate potential conflicts between stockholders and managers. b. Restrictions can be included in credit agreements, but these restrictions will do nothing to protect bondholders from conflicts of interest between them and the firm's managers and stockholders. c. The threat of takeovers reduces conflict of interest problems, but only between bondholders and stockholders. d. 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. Chapter 1 ____ 4. Which of the following statements is CORRECT? a. One disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability. b. Using restrictive covenants in debt agreements is an effective way to reduce agency conflicts between stockholders and managers. c. Managers genelly welcome hostile takeovers since the company seeking to do the taking over generally offers a price for the stock that is higher than the price before the takeover action started. d. The entrenched managers of established, stable companies sometimes attempt to get their state legislatures to impose rules that make it more difficult for raiders to succeed with hostile takeovers. Chapter 2 ____ 5. Kramer Corporation recently announced that its net income was lower than last year. However, analysts estimate that the company's net cash flow increased. What factors could explain this discrepancy? a. The company's depreciation and amortization expenses increased. b.
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This note was uploaded on 11/21/2011 for the course BMGT 340 taught by Professor White during the Fall '08 term at Maryland.

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Exam1SP08R - Exam1SP08 Chapter 1 _ 1. Which of the...

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