Question 1 A shareholder in a corporation Answer a. may not sell his or her share of ownership in the business

| June 14, 2016

Question
Question 1

1.

A shareholder in a corporation

Answer

a.

may not sell his or her share of ownership in the business without the business dissolving.

b.

can earn interest, but not dividends, from the profits of the business.

c.

is a part owner of the business.

d.

is personally liable for the debts of the corporation.

4 points

Question 2

1.

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $11,450. The interest rate is

Answer

a.

11.4 percent.

b.

14.5 percent.

c.

18 percent.

d.

12.7 percent.

4 points

Question 3

1.

The owners of preferred stock

Answer

a.

receive preferential treatment in the payment of dividends.

b.

have the same voting rights as owners of common stock.

c.

are the original owners of the corporation.

d.

have the same rights as bondholders.

4 points

Question 4

1.

The main advantage of a corporate form of organization is that

Answer

a.

shareholders have limited liability.

b.

shareholders have unlimited liability.

c.

shareholders are not subject to double taxation.

d.

all corporate profits must be distributed as dividends.

4 points

Question 5

1.

Which of the following is the most common form of business organization in the United States?

Answer

a.

Proprietorship

b.

Partnership

c.

Corporation

d.

S-corporation

4 points

Question 6

1.

Suppose that you open your own business and earn an accounting profit of $30,000 per year. When you started your business, you left a job that paid you a $25,000 salary annually. Also, suppose that you invested $70,000 of your own money to start up your business. If the normal rate of return on capital is 12 percent, your economic profit is

Answer

a.

$66,400.

b.

-$3,400.

c.

$6,600.

d.

-$8,400.

4 points

Question 7

1.

The random walk theory says that

Answer

a.

stock prices follow a trend for varying periods of time.

b.

successive stock prices increase more than they decrease.

c.

successive stock prices are dependent on the weighted average of the previous week’s prices.

d.

successive stock prices are independent of each other.

4 points

Question 8

1.

Accounting profits are total revenues minus

Answer

a.

all relevant opportunity costs.

b.

explicit and implicit costs.

c.

explicit costs and all other relevant opportunity costs.

d.

explicit costs.

4 points

Question 9

1.

The PE ratio for a stock is

Answer

a.

the predicted earnings per share of the stock divided by its current yield.

b.

the current yield of the stock.

c.

the price of the stock divided by its earnings per share.

d.

the predicted volatility of the stock.

4 points

Question 10

1.

The most common type of firm in the United States is the

Answer

a.

proprietorship.

b.

partnership.

c.

corporation.

d.

limited partnership.

4 points

Question 11

1.

Economic profits equal

Answer

a.

accounting profits.

b.

accounting profits less economic rents.

c.

total revenue less the opportunity costs of all factors of production.

d.

accounting profits plus the owner’s labor opportunity costs.

4 points

Question 12

1.

A difference between a share of stock in a corporation and a corporate bond is that

Answer

a.

the share of stock is a legal claim while the bond is not.

b.

the bond owner has voting rights within the corporation whereas the stockholder does not.

c.

the bond owner is entitled to receive a fixed annual coupon payment plus a lump-sum payment at the bond’s maturity date, whereas the stockholder is entitled to a share of future profits.

d.

stocks are issued in return for funds that are lent to the corporation.

4 points

Question 13

1.

A pure economic rent is

Answer

a.

a payment to a resource owner over and above what is necessary to keep the resource in its current use.

b.

a payment to a resource owner just sufficient to keep its supply constant.

c.

the inverse of economic profit.

d.

the competitive rental rate on capital.

4 points

Question 14

1.

Economic rent is any payment

Answer

a.

received by the owner of a resource in perfectly elastic supply.

b.

received by the owner of a resource with a supply curve that is not horizontal.

c.

in excess of the resource’s opportunity cost.

d.

below that of a normal profit or return.

4 points

Question 15

1.

Implicit costs are measured by

Answer

a.

the value of alternative uses of the resources used in production.

b.

actual expenses paid by the firm.

c.

total revenues minus total costs.

d.

comparing the compensation packages of the CEOs in the industry.

4 points

Question 16

1.

Economic profit can be calculated as

Answer

a.

total revenue – explicit costs.

b.

total revenue – implicit costs.

c.

total revenue – explicit costs – implicit costs.

d.

total revenue – fixed costs.

4 points

Question 17

1.

Accounting costs represent

Answer

a.

explicit costs paid by the firm.

b.

opportunity costs.

c.

both sunk and future costs.

d.

long run costs only.

4 points

Question 18

1.

The part of corporate profits that is paid to the shareholders of a corporation is

Answer

a.

retained earnings.

b.

shareholders.

c.

dividends.

d.

business revenue.

4 points

Question 19

1.

The real rate of interest is

Answer

a.

the nominal interest rate minus the rate of inflation.

b.

the interest rate actually paid explicitly by the borrower.

c.

the interest rate received by the lender minus the handling charges of the loan.

d.

the average rate of interest over the last 20 years.

4 points

Question 20

1.

In a partnership, legal responsibility for all debts is

Answer

a.

shared by the partners.

b.

passed to the shareholders.

c.

paid by the principle owner.

d.

handled by the bondholders.

4 points

Question 21

1.

Another term to describe the normal rate of return on capital is the

Answer

a.

fixed cost of capital.

b.

depreciation cost of capital.

c.

opportunity cost of capital.

d.

monopoly rent.

4 points

Question 22

1.

Bond coupon payments represent

Answer

a.

dividends paid to owners.

b.

interest on the amount borrowed.

c.

capital gains for tax purposes.

d.

payments to preferred shareholders.

4 points

Question 23

1.

The yield percentage of a stock is calculated as

Answer

a.

the corporation’s net worth divided by the number of shareholders.

b.

the book value of the stock divided by the number of shareholders.

c.

the stock dividend divided by the price of the stock.

d.

the expected appreciation of the stock.

4 points

Question 24

1.

The nominal rate of interest is

Answer

a.

the same as the price level.

b.

the real rate of interest minus the previous year’s change in the price level.

c.

the interest rate actually paid by the borrower.

d.

lower than the real rate in a period of inflation.

4 points

Question 25

1.

In an inflationary atmosphere, lenders will

Answer

a.

desire a lower nominal interest rate to increase the real rate.

b.

desire a higher nominal interest rate to protect against the inflation.

c.

tend to see the real rate of interest increase, particularly if the inflation is unforeseen.

d.

have the real rate of interest guaranteed by the Federal Reserve Board.

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