Deck 8: Firms, the Stock Market, and Corporate Governance

Question 1

Before its IPO, Lyft was an example of a private firm. As a private firm, Lyft was

A) not subject to government regulations and taxation.
B) run by stockholders and a board of directors.
C) run by its cofounders, John Zimmer and Logan Green.
D) not legally allowed to raise funds through venture capital firms.

Answer 1

run by its cofounders, John Zimmer and Logan Green.

Question 2

In most years, ________ new firms open in the United States.

A) more than 400,000
B) more than 1 million
C) less than 200,000
D) approximately 125,000

Answer 2

more than 400,000

Question 3

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a corporation. What is one advantage to Jeremy of setting up his business as a corporation?

A) By setting up the business as a corporation, Jeremy would not face double taxation.
B) By setting up the business as a corporation, Jeremy would have the ability to share risk with shareholders.
C) By setting up the business as a corporation, Jeremy would have both ownership and control over the business.
D) All of the above would be advantages of setting up his business as a corporation.

Answer 3

By setting up the business as a corporation, Jeremy would have the ability to share risk with shareholders.

Question 4

Included on the board of directors of Microsoft are John W. Stanton, the chairman of Trilogy Equity Partners, the executive president and chief financial officer of Gap, Inc. Teri L. List-Stoll, and Arne Sorenson,president and CEO of Marriott International, Inc. These three board members do not have a direct management role with Microsoft and are therefore referred to as

A) inside directors.
B) outside directors.
C) competitive directors.
D) honorary directors.

Question 5

When you buy newly issued shares of Lyft stock, this transaction takes place in the

A) primary market.
B) bond market.
C) secondary market.
D) bear market.

Question 6

When you buy previously issued shares of Lyft stock, this transaction takes place in the

A) primary market.
B) bond market.
C) secondary market.
D) bear market.

Question 7

Which of the following are true regarding exchange-traded funds (ETFs)?

A) They can be bought and sold throughout the day.
B) When you buy shares in an ETF, you are buying a claim to a portfolio of stocks or bonds.
C) They can be bought or sold to other investors in financial markets.
D) All of the above are true regarding exchange traded funds.

Question 8

When Electronic Arts, the company behind the games FIFA 20 and Star Wars Jedi: Fallen Order, sold stock to the public for the first time in September 1989, funds were being raised in a ________ market, and when those newly issued shares are resold to other buyers, the sales take place in a ________ market.

A) primary; primary
B) primary; secondary
C) secondary; primary
D) secondary; secondary

Question 9

Fitness company Peloton Interactive Inc. raised $1.16 billion in its initial public offering, although its stock price closed more than $3 down from its IPO price of $29 per share only 3 days after the initial offering. The IPO gave a value to the company of about $8 billion. Peloton, which sells Internet-connected exercise bikes starting at $2,245 and treadmills priced from $4,295, saw its yearly revenue increase in 2019 from about $350 million to $720 million, but also saw its losses increase from $48 million to $196 million during the same period.
Source: Emily Bary, "Peloton stock spins in reverse during trading debut as IPO market cools down," marketwatch.com, September 29, 2019.

-Refer to the Article Summary. When Peloton sold stock to the public in its IPO, it did so through the NASDAQ market. This is an example of Peloton raising funds through

A) reinvesting retained earnings.
B) a financial intermediary.
C) dividend reinvestment.
D) a financial market.

Question 10

Fitness company Peloton Interactive Inc. raised $1.16 billion in its initial public offering, although its stock price closed more than $3 down from its IPO price of $29 per share only 3 days after the initial offering. The IPO gave a value to the company of about $8 billion. Peloton, which sells Internet-connected exercise bikes starting at $2,245 and treadmills priced from $4,295, saw its yearly revenue increase in 2019 from about $350 million to $720 million, but also saw its losses increase from $48 million to $196 million during the same period.
Source: Emily Bary, "Peloton stock spins in reverse during trading debut as IPO market cools down," marketwatch.com, September 29, 2019.

-Refer to the Article Summary. When Peloton sold stock to the public in its IPO, it did so through the NASDAQ market. This is an example of Peloton using ________ to raise funds.

A) indirect finance
B) direct finance
C) bonds
D) corporate governance

Question 11

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs. The restaurant earns $1.3 million in revenues. Based on this information, what is the accounting profit for Laura's Pizza Place?

A) $200,000
B) $400,000
C) $500,000
D) $900,000

Question 12

To become profitable, a firm that is incurring losses must

A) either increase its revenue or increase its costs.
B) either increase its revenue or reduce its costs.
C) increase its revenue and also reduce its costs.
D) decrease both its revenue and its costs.

Question 13

Jake sells Star Wars memorabilia on eBay. His annual revenue is $42,000 per year, and the explicit costs of his business are $10,000. What is his accounting profit?

A) $10,000
B) $22,000
C) $32,000
D) $42,000

Question 14

Lyft's two largest costs are

A) its drivers' pay and marketing.
B) research and development necessary to improve it's app and keep it up-to-date and its drivers' pay.
C) executive salaries and marketing.
D) its drivers' pay and executive salaries.

Question 15

An unusual feature relating to corporate governance at Lyft is that stock shares sold during its IPO

A) were sold only to the company's early investors who had provided funds to the firm prior to the IPO.
B) were sold only to the company's two founders.
C) would not have the voting rights that shareholders typically have.
D) were sold only to its previously announced board of directors.

Question 16

What is a firm's balance sheet?

Question 17

A corporation's assets minus its liabilities is equal to

A) stockholders' equity.
B) retained earnings.
C) goodwill.
D) operating income.

Question 18

All of the following appear on a firm's income statement except

A) revenue.
B) costs.
C) goodwill.
D) profit.

Question 19

The difference between a firm's revenue and its costs is its

A) assets.
B) operating income.
C) goodwill.
D) profit.

Question 20

A firm's income statement summarizes its financial position on a particular day.

Question 21

A firm's cost of revenue is also known as its cost of goods sold.

Question 22

On a balance sheet, what does goodwill represent?

Question 23

On a balance sheet, what are current assets? What are two examples of current assets?