1. MULTIPLE-CHOICE QUESTIONS (80%) 1. In the past, the study of finance has included A. mergers and acquisitions. B. raising capital. C. bankruptcy. D. all of these. 2. One of the major advantages of a sole proprictorship is A. that the owner bas limited liability. B. that stock in the proprietorship can be easily transferred. C. that it is exempt from many tax rules that would otherwise epply when employees are hired by the firm. D. low operating costs. 3. A gency problems are least likely to arise in which organizational form? A. sole proprietorship B. limited partnership C. corporation D. subchapter S corporation 4. A financial manager's goal of maximizing current or short-term eamings may not be appropriate because A. it fails to consider the timing of the benefits. B. lacreased carnings may be accompanied by unacceptably higher levels of risk: C. eamings are subjective; they can be defined in various ways such as accounting or economic eamings. D. all of these. 5. The major difficulty in most insider-trading cases has been A. that lenient judges have simply released the guilty individuals. B. that insider trading, even though illegal, actually serves a beneficial economic and financial purpose. C. that inside trades have not been legally well definod. D. inside trades actually have a beneficial effect on the wealth of all stockholders. 6. The financial markets allocate capitul to corporations by A. reflecting expectations of the market participants in the prices of the corporations. B. requiring higher returns from companies with lower risk than their competitors. C. rowarding companies with expected high retums with lower relative stock prices. D. relying on the opinion of investment bsnkers. 7. The residual income of the firm belongs to A. creditors. B. preferred stockholders. C. common stockholders. D. bondholders. 8. An item which may be converted to cash within one year or one operating cycle of the firm is classified as a A. current liability. B. long-term asset. C. current asset. D. Iong-term liability. Page 1/4