Overview
Chapter 11
The Firm and Financial Markets
True/false
1. In a proprietorship, the owner is solely responsible and has unlimited liability for the debts of the company.
ANS: T
PTS: 1 NOT: NEW Question
2. A partnership agreement must be changed each time a partner dies or wants to sell his or her interest in the firm.
ANS: T
PTS: 1 NOT: NEW Question
3. The partnership has a life of its own, independent of that of its owners.
ANS: F
PTS: 1 NOT: NEW Question
4. S corporation allows the owners to retain the benefits of limited liability but are double taxed like a normal corporation.
ANS: F
PTS: 1 NOT: NEW Question
5. Some corporations have hundreds of thousands of owners.
ANS: T
PTS: 1
6. General Motors and Microsoft have millions of individual stockholders.
ANS: T
PTS: 1
7. The typical owner of a corporation has little voice in the making of decisions.
ANS: T
PTS: 1 NOT: NEW Question
8. A principal-agent problem exists when the managers are pursuing their own individual goals rather than those of the shareholders.
ANS: T
PTS: 1 NOT: NEW Question
9. Stock options align managers’ incentives more closely with the goals of stockholders.
ANS: T
PTS: 1 NOT: NEW Question
10. Owners of preferred stock receive a regular, fixed interest payment.
ANS: F
PTS: 1 NOT: NEW Question
11. Owners of common stock assume lesser investment risks than preferred stockholders.
ANS: F
PTS: 1 NOT: NEW Question
12. Bonds are by far the most important source of corporate funding.
ANS: F
PTS: 1 NOT: NEW Question
13. Before any dividends can be paid, even to owners of preferred stock, the interest obligations to bondholders must be met.
ANS: T
PTS: 1 NOT: NEW Question
14. The possibility of capital gain on a bond is comparable to that of stocks.
ANS: F
PTS: 1 NOT: NEW Question
15. Owners of a corporation include bondholders and common stockholders.
ANS: F
PTS: 1
16. According to the random walk theory, portfolio diversification is the best way to consistently pick winners in the stock market.
ANS: F
PTS: 1 NOT: NEW Question
17. Bondholders are the residual claimants of a corporation.
ANS: F
PTS: 1
18. Periods of pessimism, associated with decline in stock prices, are characterized by increased capital equipment expenditures to shore up the fortunes of the company.
ANS: F
PTS: 1 NOT: NEW Question
19. If markets are operating efficiently, the current stock prices will reflect all available information.
ANS: T
PTS: 1 NOT: NEW Question
20. The price-earnings ratio is found by taking the price of the stock and dividing it by the dividend paid per share.
ANS: F
PTS: 1 NOT: NEW Question
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