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Multiple Choice Quiz
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1
Generally, a corporation is owned by its:
A)Managers
B)Board of Directors
C)Shareholders
D)All of these options
2
Financing decisions are more important than investment decisions:
A)True
B)False
3
A firm's investment decision is also called the:
A)Financing decision
B)Capital budgeting decision
C)Liquidity decision
D)None of these options
4
The choice between debt and equity in financing is called the:
A)Capital structure decision
B)Investment decision
C)Liquidity decision
D)None of these options
5
When shareholders appoint financial managers to run firms and make investment decisions, this is called:
A)Agency cost
B)Financing decision
C)Limited liability
D)Separation of ownership and control
6
Which of the following is not an advantage of separation of ownership and management of corporations?
A)Corporations can exist forever.
B)Transfer of ownership can be facilitated without affecting the operations of the firm.
C)Professional managers can be hired.
D)Agency costs are incurred.
7
The financial goal of a corporation is to:
A)Maximize sales
B)Maximize profits
C)Maximize the market value of the firm
D)Maximize managers' benefits
8
Agency costs are costs incurred when:
A)Managers do not attempt to maximize firm value
B)Shareholders incur costs to monitor the managers and influence their actions
C)Both A and B
D)None of these options
9
Assets such as equipment and raw materials are referred to as:
A)Dividends
B)Securities
C)Financial assets
D)Real assets
10
The decision to pay dividends or repurchase shares is called the:
A)Payout decision
B)Financing decision
C)Equity decision
D)None of these options
11
Generally, a corporation is owned by its shareholders.
A)True
B)False
12
Shares owned and not traded on an exchange are sometimes referred to as:
A)Asymmetric
B)Closely held
C)Private
D)Public
13
The minimum acceptable rate of return on an investment is called the:
A)Risk
B)Opportunity cost of capital
C)Capital structure decision
D)Interest rate
14
Which of these forms of business organization offers limited liability for the business?
A)Sole proprietorship
B)Partnership
C)Professional corporation
D)None of these options
15
Which of the following is typically considered an agency cost?
A)Audit
B)Cost of goods sold
C)Consultant fees
D)Taxes





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