Q1. The CEO of High Tech International decides to change an accounting method at the end of the current year. The change results in reported profits increasing by 5%, but the company's cash flows are not changed. If capital markets are efficient, then

a. the stock price will not be affected by the accounting change.

b. the stock price will increase due to higher profits.

c. the stock price will increase only if the accounting change will also result in higher profits in the next year.

d. the stock price will decrease because accounting method changes are not permitted under generally accepted accounting principles.

Q2. Which of the following forms of business organizations provide limited liability to all its owners?

a. general partnership

b. limited partnership

c. corporation

d. both B and C

Q3. Which of the following categories of owners have limited liability?

a. general partners

b. sole proprietors

c. shareholders of a corporation

d. both A and B

Q4. The primary goal of a publicly owned corporation is to ________.

a. maximize dividends per share

b. maximize shareholder wealth

c. maximize earnings per share after taxes

d. minimize shareholder risk

Q5. If two companies have the same net income and the same level of risk, they must also have the same stock price or the market is not in equilibrium.

a. True

b. False

Q6. Which of the following is an advantage of the sole proprietorship?

a. limited liability for its owners

b. double taxation for its owners

c. no significant legal requirements for starting the business

d. easily transferred ownership

Q7. Shareholder wealth maximization means

a. maximizing earnings per share.

b. maximizing dividends per share.

c. maximizing the price of existing common stock.

d. maximizing stockholders equity.

Q8. The principle of risk-return tradeoff means that

a. higher risk investments must earn higher returns.

b. an investor who takes more risk will earn a higher return.

c. a rational investor will only take on higher risk if he expects a higher return.

d. an investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S. Treasury bonds five years ago.

Q9. Joe is deciding whether or not to invest $10,000 in a business that has pending lawsuits against it. If Joe invests and the business loses the lawsuits, the most Joe can lose is

a. $10,000 if Joe is a general partner.

b. $10,000 if Joe is a sole proprietor.

c. $10,000 if Joe is a limited partner.

d. $10,000 plus his share of the lawsuits if Joe is a limited partner.

Q10. The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the

a. chief financial officer.

b. controller.

c. treasurer.

d. vice president - financer.