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.
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.