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Multiple Choice Quiz
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1
Retained earnings are:
A)The amount of cash that the firm has saved up
B)The difference between the net income earned and the dividends paid during a year
C)The difference between the market price of the stock and the book value
D)The amount of directly contributed equity capital in excess of par value
2
Internally generated cash is calculated as:
A)Retained earnings plus interest payments
B)Retained earnings plus depreciation
C)Retained earnings minus depreciation
D)Dividends paid plus interest payments
3
Generally, managers of corporations prefer internally generated cash to finance their capital expenditures because:
A)They can avoid the discipline of the security markets
B)The costs of issuing new securities are high
C)The announcement of new equity issue is usually bad news for investors
D)All of these options
4
A firm has $100 million in current liabilities, $200 million in total long-term liabilities, $300 million in stockholders' equity, and total assets of $600 million. Calculate the debt ratio for the firm.
A)40%
B)20%
C)50%
D)35%
5
Common stock is primarily owned by:
A)Financial institutions
B)Common stockholders
C)Wealthy investors
D)Financial managers
6
The primary difference between common stock and limited partnerships is that:
A)Partnerships can last forever
B)Partnerships avoid corporate income tax
C)Partners can lose more than their investment
D)None of these options
7
In classified boards:
A)Half of directors come up for re-election each year
B)All directors come up for re-election each year
C)One third of directors come up for re-election each year
D)None of these options
8
REITS:
A)Are restricted to real estate investment
B)Are not taxed if they distribute 95% of their earnings to REIT owners
C)Both of these options
D)None of these options
9
A CEO who owns her corporation has:
A)Cash-flow rights
B)Control rights
C)Both cash-flow and control rights
D)None of these options
10
A modification to the company charter that requires 75% shareholder approval for a merger is called a(n):
A)Majority voting amendment
B)Cumulative voting amendment
C)Proxy voting amendment
D)Supermajority amendment
11
A corporation is owned by its
A)Board of directors
B)Common stockholders
C)CEO
D)Stakeholders
12
Most companies have:
A)One class of common stock and each share has one vote
B)Several classes of common stock and each share has two votes
C)Various classes of preferred and common stock and each share has one vote
D)One class of preferred stock and each share has two votes
13
A convertible bond gives its owner the option to:
A)Turn the bond into preferred stock
B)Sell bond at a market premium
C)Sell bond at its par value
D)Exchange the bond for a predetermined number of shares
14
You have owned shares of Knight Inc. for one year, and Knight Inc. went public three years ago. When you sell your shares of stock, you will be selling them in the
A)Secondary market
B)Primary market
C)Over-the-counter market
D)None of these options
15
Markets where there is no organized exchange are known as:
A)Securities markets
B)Primary markets
C)Secondary markets
D)Over-the-counter markets





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