Question 1 Which of the following statements is correct?
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Question 1

Which of the following statements is correct?

It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.

Corporate shareholders are exposed to unlimited liability.

Corporations generally face fewer regulations than sole proprietorships.

Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.


Question 3

Which of the following statements is NOT correct.

Agency problem is that managers may act in their own interests and not on behalf of stockholders.

Corporate governance is the set of rules that control a company's behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community.

Corporate governance can help control agency problems.

Agency problems can be perfectly and permanently solved with corporate governance.


Question 4

What aspects of cash flows affect an investment's value?

Amount of expected cash flows (bigger is better)

Timing of the cash flow stream (sooner is better)

Risk of the cash flows (less risk is better)

All of the above.


Question 5

If an investor buys enough stocks, he or she can, through diversification, eliminate most of the market risk and company-specific risk and inherent in owning stocks.

True.

False


Question 6

Perpetuity is a kind of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return.

 True

 False

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