FIN303_Examtypeq1 (1) - FIN303 Exam-type questions Chapter...

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FIN303 Exam-type questions Chapter 1 1. Which of the following statements is most correct? a. One advantage of forming a corporation is that you have limited liability. * b. Corporations face fewer regulations than sole proprietorships. c. One disadvantage of being a sole proprietor is that you have to pay corporate taxes, even though you don’t realize the benefits of being a corporation. d. Statements b and c are correct. 2. The primary goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize expected total corporate profit. b. Maximize expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share. * 3. Which of the following actions are likely to reduce agency conflicts between stockholders and managers? a. Paying managers a large fixed salary. b. Increasing the threat of corporate takeover. * c. Placing restrictive covenants in debt agreements. d. All of the statements above are correct. 4. Which of the following statements is most correct? a. A good goal for a corporate manager is maximization of expected EPS. b. Most business in the U.S. is conducted by corporations; corporations’ popularity results primarily from their favorable tax treatment. c. A good example of an agency relationship is the one between stockholders and managers. * d. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability, but investors in the other types of businesses are not. Chapter 4 5. All else being equal, which of the following will increase a company’s current ratio? a. An increase in accounts receivable. * b. An increase in accounts payable. c. An increase in net fixed assets. d. Statements a and b are correct. 1
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6. Stennett Corp.’s CFO has proposed that the company issue new debt and use the proceeds to buy back common stock. Which of the following are likely to occur if this proposal is adopted? (Assume that the proposal would have no effect on the company’s operating income.) a. Return on assets (ROA) will decline. b. The Depreciation will increase. c. Taxes paid will decline. d. Statements a and c are correct. * 7. Bedford Hotels and Breezewood Hotels both have $100 million in total assets and a 10 percent return on assets (ROA). Each company has a 40 percent tax rate. Bedford, however, has a higher debt ratio and higher interest expense. Which of the following statements is most correct? a. The two companies have the same return on equity (ROE). b. Bedford has a higher return on equity (ROE). * c. Bedford has a lower level of operating income (EBIT). d.
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FIN303_Examtypeq1 (1) - FIN303 Exam-type questions Chapter...

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