Question 1

Which of the following parties are considered stakeholders of a firm?
I.employee
II.long-term creditor
III.government
IV.common stockholder

Accepted Answer

The answer of Which of the following parties are considered...

Question 2

Which one of the following statements is generally correct?

Accepted Answer

Auction markets match buy and sell orders, while dealer markets involve individual dealers arranging trades with customers. Private placements do not need to be registered with the SEC, secondary markets can be either auction or dealer markets, and dealer markets do not necessarily have a physical floor. However, the statement that dealers never own the securities traded is not entirely accurate, as some dealers take positions in securities for themselves in addition to facilitating trades for customers.

Question 3

The Sarbanes-Oxley Act of 2002 is a governmental response to:

Accepted Answer

The Sarbanes-Oxley Act of 2002 was a result of scandals such as Enron, WorldCom, and other corporate fraud and accounting scandals. It was specifically aimed at addressing issues of management greed and abuses, such as fraudulent financial reporting, conflicts of interest, and insider trading.

Question 4

Public offerings of debt and equity must be registered with which one of the following?

Accepted Answer

Public offerings of debt and equity must be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. The NYSE Registration Office and Market Dealers Exchange are not responsible for registering public offerings, while the Federal Reserve is responsible for regulating monetary policy and the banking system rather than securities offerings.

Question 5

Which one of the following statements concerning stock exchanges is correct?

Accepted Answer

Some large companies, such as Amazon and Google, are listed on NASDAQ. The exchange with the strictest listing requirements is actually the NYSE. The NYSE is a dealer market for some securities, but not all. Most debt securities are actually traded over-the-counter instead of on a stock exchange.

Question 6

Which one of the following is an agency cost?

Accepted Answer

Agency costs are expenses incurred to ensure that agents (managers) act in the best interest of the principals (shareholders). Hiring outside accountants to audit the company's financial statements is an example of an agency cost, as it is done to ensure that the company's financial reporting is accurate and trustworthy, aligning managers' actions with shareholders' interests.

Question 7

Which of the following represent cash outflows from a corporation?
I.issuance of securities
II.payment of dividends
III.new loan proceeds
IV.payment of government taxes

Accepted Answer

I. Issuance of securities represents a cash inflow as the corporation is receiving funds in exchange for the securities.
II. Payment of dividends represents a cash outflow as the corporation is paying out funds to shareholders.
III. New loan proceeds represent a cash inflow as the corporation is receiving funds from the loan.
IV. Payment of government taxes represents a cash outflow as the corporation is paying funds to the government.

Therefore, the cash outflows from a corporation are II and IV only, making choice B the correct answer.

Question 8

Which one of the following is an unintended result of the Sarbanes-Oxley Act?

Accepted Answer

One of the unintended consequences of the Sarbanes-Oxley Act was that some smaller corporations chose to delist from major exchanges due to the additional costs and requirements associated with compliance.

Question 9

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.
I.compensation based on the value of the stock
II.stock option plans
III.threat of a company takeover
IV.threat of a proxy fight

Accepted Answer

Compensation based on the value of the stock (I) and stock option plans (II) align managers' financial interests with those of the stockholders, encouraging them to work towards increasing the stock value. The threat of a company takeover (III) and a proxy fight (IV) can motivate managers to perform well to avoid losing their positions, thus acting in the best interest of the stockholders.

Question 10

Which one of the following is least likely to be an agency problem?

Accepted Answer

Agency problems typically arise when there's a conflict of interest between the management (agents) and the shareholders (principals). Increasing the market value of the firm's shares aligns with the interests of the shareholders, making it least likely to be considered an agency problem.

Question 11

Which one of the following parties has ultimate control of a corporation?

Accepted Answer

Shareholders are the owners of a corporation and therefore have ultimate control through their ability to elect the board of directors and make major decisions through shareholder voting. While the chairman of the board, board of directors, CEO, and COO all play important roles in the management of the corporation, they ultimately answer to the shareholders.

Question 12

Which form of business structure is most associated with agency problems?

Accepted Answer

Corporations are most associated with agency problems because of the separation between ownership and control. Shareholders may not have direct control over the actions of the managers who run the company, leading to potential conflicts of interest and agency problems.

Question 13

Which of the following are cash flows from a corporation into the financial markets?
I.repayment of long-term debt
II.payment of government taxes
III.payment of loan interest
IV.payment of quarterly dividend

Accepted Answer

Repayment of long-term debt is a cash outflow from the corporation to the financial markets. Payment of loan interest and payment of quarterly dividend are also cash outflows from the corporation to the financial markets. Payment of government taxes, on the other hand, is not a cash flow into the financial markets but is a cash outflow to the government. Therefore, the correct answer is D) I, III, and IV only.

Question 14

Which one of the following grants an individual the right to vote on behalf of a shareholder?

Accepted Answer

A proxy is a document that grants an individual the right to vote on behalf of a shareholder. This is commonly used when a shareholder is unable to attend a shareholder meeting and wants their vote to still be counted. By-laws, indenture agreements, stock options, and stock audits do not grant the right to vote on behalf of a shareholder.

Question 15

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange.This transaction:

Accepted Answer

The transaction took place after the initial issuance of the stock, so it did not occur in the primary market. It also did not involve a dealer, as the shareholder sold the shares on the exchange. Therefore, the correct choice is that the transaction was facilitated in the secondary market. It also did not involve a proxy or private placement.

Question 16

Which one of the following is a means by which shareholders can replace company management?

Accepted Answer

A proxy fight is a tactic used by shareholders to replace company management. It involves persuading other shareholders to vote for a new slate of directors who will then have the power to replace the current management team. Stock options relate to compensation for employees or executives, promotion is a career advancement for individuals within the company, the Sarbanes-Oxley Act established new regulations for public companies, and agency play refers to the conflict of interest that arises when management prioritizes their own interests over those of the shareholders.

Question 17

Which one of the following is a primary market transaction?

Accepted Answer

A primary market transaction involves the sale of new securities directly to investors, and option B represents the sale of a new share of stock to an individual investor. The other options represent secondary market transactions (options A and C) or non-market transactions (options D and E).

Question 18

Which one of the following actions by a financial manager is most apt to create an agency problem?

Accepted Answer

Option E is most likely to create an agency problem because it involves actions that benefit the manager in the short term (e.g., through bonuses tied to current profits) at the expense of the long-term value of the firm's equity, which is not in the best interest of the shareholders.

Question 19

Which of the following are results related to the enactment of the Sarbanes-Oxley Act of 2002?
I.increased foreign stock exchange listings of U.S.stocks
II.decreased compliance costs
III.increased privatization of public corporations
IV.increased public disclosure by all corporations

Accepted Answer

The answer of Which of the following are results related...

Question 20

A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:

Accepted Answer

A firm that opts to "go dark" in response to the Sarbanes-Oxley Act can provide less information to its shareholders than it did prior to "going dark". The decision to go dark allows a company to cease filing certain reports with the Securities and Exchange Commission (SEC), which means less transparency and fewer obligations to shareholders. However, the company must continue to provide audited financial statements to any existing shareholders who request them. The company does not necessarily have to provide a detailed list of internal control deficiencies on an annual basis, and it can continue to publicly trade its stock on any exchange. Ceasing to exist is not a necessary outcome of going dark.

Quiz 1: Introduction to Corporate Finance

Which of the following parties are considered stakeholders of a firm? I.employee II.long-term creditor III.government IV.common stockholder