The Exploration Of Economics International Edition 4th Edition By Robert L. Sexton – Test Bank

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