FIN 320 MIDTERM 1 QUESTIONS &
SOLUTIONS RATED 100% COMPLETE
What is the process of double taxation for the stockholders in a C corporation - Correct
Answer ✔✔ the corporation is taxed on the profit it makes, and the owners are taxed
when this profit is distributed to them
What is the most important type of decision that the financial manager makes - Correct
Answer ✔✔ the financial manager's most important job is to make the firm's investment
decisions
A factory owner wants his workers to produce as many widgets as they can so he pays
his workers based on how many widgets they produce. However, in order to make sure
that the workers do not rush and produce a large number of poorly made widgets, he
checks the widgets at random at various stages of their manufacture. If a defect is found
in a widget, the pay of the entire section of the factory responsible for that defect is
docked. How is this factory owner seeking to solve the agency conflict problem in this
case? - Correct Answer ✔✔ by supplying incentives so the agents act in the way
principal desires
Bid/ask question - shown yahoo finance page and asked what I would buy and sell
something for based on the bid and ask prices - Correct Answer ✔✔ you would buy at
the ask price, and sell at the bid price
A ________ is when a rich individual or organization purchases a large fraction of the
stock of a poorly performing firm and in doing so gets enough votes to replace the board
of directors and the CEO. - Correct Answer ✔✔ a hostile takeover
What is the difference between a public and private corporation - Correct Answer ✔✔
The shares of a public corporation are traded on an exchange (or "over the counter" in
an electronic trading system) while the shares of a private corporation are not traded on
a public exchange.
What does the phrase limited liability mean in a corporate context - Correct Answer ✔✔
Owners' liability is limited to the amount they invested in the firm. Stockholders are not
responsible for any encumbrances of the firm; in particular, they cannot be required to
pay back any debts incurred by the firm.
What are some differences between the NYSE and the NASDAQ - Correct Answer ✔✔
The NYSE is an example of a physical market. It is located at 11 Wall Street in New
York City. On the floor of the NYSE, market makers (known on the NYSE as specialists)
match buyers and sellers. Nevertheless, in today's technology-driven economy, a stock
market does not need to have a physical location. Stock transactions can be made over
, the phone or by computer network. Consequently, stock markets such as NASDAQ,
which are called over-the-counter (OTC) markets, are a collection of dealers or market
makers connected by computer networks and telephones. An important difference
between the NYSE and NASDAQ is that on the NYSE, each stock has only one market
maker. Each exchange has its own listing standards, outlines of the requirements a
company must meet to be traded on the exchange. These standards usually require
that the company has enough shares outstanding for shareholders to have a liquid
market and to be of interest to a broad set of investors. The NYSE's standards are more
stringent than those of NASDAQ; traditionally, there has been a certain pride in being
listed on the NYSE. Many companies would start on the NASDAQ and then move to the
NYSE as they grew. However, NASDAQ has retained many big, successful companies
such as Starbucks, Apple, and Microsoft
True or False: Partnerships are the most common type of business firms in the world -
Correct Answer ✔✔ false
What are the main advantages of organizing a firm as a corporation - Correct Answer
✔✔ -There is no limit on the number of owners a corporation may have, thus allowing
the corporation to raise substantial amounts of capital.
-The life of the business can continue beyond the death of any of the owners.
-The liability of the owners is limited to the amount of their investment in the firm.
What are the main disadvantages of organizing a firm as a corporation - Correct Answer
✔✔ -Income to a corporation is subject to double taxation, once at the corporate level
and again when received by the owners in the form of a dividend.
-The corporation is more complicated and more expensive to set up than other business
entities.
What is not a role of financial institutions - Correct Answer ✔✔ printing money for
borrowers
What is a firm's net income - Correct Answer ✔✔ -the last or bottom line of the income
statement
-a measure of the firm's profitability over a given period
-the difference between the sales and other income generated by a firm, and all costs,
taxes, and expenses incurred by the firm in a given period
What financial statement DOES NOT have to be produced by a public company -
Correct Answer ✔✔ the statement of activities
What financial statement DOES have to be produced by a public company - Correct
Answer ✔✔ income statement, balance sheet, and statement of cash flows
A company's after tax profits measured per unit of common stock are known as: -
Correct Answer ✔✔ earnings per share
SOLUTIONS RATED 100% COMPLETE
What is the process of double taxation for the stockholders in a C corporation - Correct
Answer ✔✔ the corporation is taxed on the profit it makes, and the owners are taxed
when this profit is distributed to them
What is the most important type of decision that the financial manager makes - Correct
Answer ✔✔ the financial manager's most important job is to make the firm's investment
decisions
A factory owner wants his workers to produce as many widgets as they can so he pays
his workers based on how many widgets they produce. However, in order to make sure
that the workers do not rush and produce a large number of poorly made widgets, he
checks the widgets at random at various stages of their manufacture. If a defect is found
in a widget, the pay of the entire section of the factory responsible for that defect is
docked. How is this factory owner seeking to solve the agency conflict problem in this
case? - Correct Answer ✔✔ by supplying incentives so the agents act in the way
principal desires
Bid/ask question - shown yahoo finance page and asked what I would buy and sell
something for based on the bid and ask prices - Correct Answer ✔✔ you would buy at
the ask price, and sell at the bid price
A ________ is when a rich individual or organization purchases a large fraction of the
stock of a poorly performing firm and in doing so gets enough votes to replace the board
of directors and the CEO. - Correct Answer ✔✔ a hostile takeover
What is the difference between a public and private corporation - Correct Answer ✔✔
The shares of a public corporation are traded on an exchange (or "over the counter" in
an electronic trading system) while the shares of a private corporation are not traded on
a public exchange.
What does the phrase limited liability mean in a corporate context - Correct Answer ✔✔
Owners' liability is limited to the amount they invested in the firm. Stockholders are not
responsible for any encumbrances of the firm; in particular, they cannot be required to
pay back any debts incurred by the firm.
What are some differences between the NYSE and the NASDAQ - Correct Answer ✔✔
The NYSE is an example of a physical market. It is located at 11 Wall Street in New
York City. On the floor of the NYSE, market makers (known on the NYSE as specialists)
match buyers and sellers. Nevertheless, in today's technology-driven economy, a stock
market does not need to have a physical location. Stock transactions can be made over
, the phone or by computer network. Consequently, stock markets such as NASDAQ,
which are called over-the-counter (OTC) markets, are a collection of dealers or market
makers connected by computer networks and telephones. An important difference
between the NYSE and NASDAQ is that on the NYSE, each stock has only one market
maker. Each exchange has its own listing standards, outlines of the requirements a
company must meet to be traded on the exchange. These standards usually require
that the company has enough shares outstanding for shareholders to have a liquid
market and to be of interest to a broad set of investors. The NYSE's standards are more
stringent than those of NASDAQ; traditionally, there has been a certain pride in being
listed on the NYSE. Many companies would start on the NASDAQ and then move to the
NYSE as they grew. However, NASDAQ has retained many big, successful companies
such as Starbucks, Apple, and Microsoft
True or False: Partnerships are the most common type of business firms in the world -
Correct Answer ✔✔ false
What are the main advantages of organizing a firm as a corporation - Correct Answer
✔✔ -There is no limit on the number of owners a corporation may have, thus allowing
the corporation to raise substantial amounts of capital.
-The life of the business can continue beyond the death of any of the owners.
-The liability of the owners is limited to the amount of their investment in the firm.
What are the main disadvantages of organizing a firm as a corporation - Correct Answer
✔✔ -Income to a corporation is subject to double taxation, once at the corporate level
and again when received by the owners in the form of a dividend.
-The corporation is more complicated and more expensive to set up than other business
entities.
What is not a role of financial institutions - Correct Answer ✔✔ printing money for
borrowers
What is a firm's net income - Correct Answer ✔✔ -the last or bottom line of the income
statement
-a measure of the firm's profitability over a given period
-the difference between the sales and other income generated by a firm, and all costs,
taxes, and expenses incurred by the firm in a given period
What financial statement DOES NOT have to be produced by a public company -
Correct Answer ✔✔ the statement of activities
What financial statement DOES have to be produced by a public company - Correct
Answer ✔✔ income statement, balance sheet, and statement of cash flows
A company's after tax profits measured per unit of common stock are known as: -
Correct Answer ✔✔ earnings per share
