1. Which one of the following statement is correct?

1. Corporations face fewer regulations than proprietorships.
2. One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level.
3. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.
4. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
5. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

2. The goal of the financial manager of a corporation should be
   1. To maximize the number of capital budgeting projects undertaken.
   2. To maximize net income on the income statement.
   3. To maximize the long-term market value of the stock.
   4. To maximize earnings per share.
   5. To maximize market share while maintaining steady earnings growth.
3. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios. a) asset management b) long-term solvency c) liquidity d) profitability e) market value

4. Which of the following is NOT FOUND in the Balance Sheet?

1. Retained Earnings
2. Inventories
3. Depreciation Expense
4. Short-term Notes Payable
5. Total assets

5. Which of the following statements is CORRECT?

a. If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be equal.

b. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios may not be the same.

c. If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price/earnings ratio.

d. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their price/earnings ratios must also be the same.

6. Which of the following is CORRECT?

1. Retained Earnings (2001) = Retained Earnings (2000) Net Income (2001) + Dividends (2001)
2. Retained Earnings (2000) = Retained Earnings (2001) + Net Income (2000) Dividends (2000)
3. Retained Earnings (2001) = Retained Earnings (2000) + Net Income (2001) Dividends (2001)
4. Retained Earnings (2000) = Retained Earnings (2001) + Net Income (2000) + Dividends (2000)

7. Which of the following statements concerning the effective annual rate are correct? I. When lending and choosing which investment to accept, you should select the offer with the highest effective annual rate II. The more frequently interest is compounded, the higher the effective annual rate. III. A quoted rate of 6% compounded per second has a higher effective annual rate than if the rate were compounded daily. IV. When making financial decisions, you should compare effective annual rates rather than annual percentage rates. a) I and II only b) I and IV only c) I, II, and III only d) II, III, and IV only e) I, II, III, and IV

8. If D₁ = $1.25, g (dividend growth rate) = 4.7%, and P₀ = $26.00, what is the stocks expected dividend yield for the coming year?

a. 4.12%

b. 4.34%

c. 4.57%

d. 4.81%

e. 5.05%

9. A stock is expected to pay a dividend of $0.75 in the next year. The required rate of return is r_s = 10.5%, and the expected constant growth rate is g = 6.4%. What should be the fair value of the stock?

a. $17.39

b. $17.84

c. $18.29

d. $18.75

e. $19.46

10. Which of the following statements is CORRECT?

a. You hold two bonds, a 10-year, zero coupon, issue and a 10-year bond that pays a 6% annual coupon. If the interest rate rises from its current level, the zero coupon bond will experience the larger percentage decline.

b. The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates.

c. You hold two bonds. One is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6% annual coupon. The same interest rate, 6%, applies to both bonds. If the interest rate rises from the current level, the zero coupon bond will experience the smaller percentage decline.

d. The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates, other things held constant.

11. If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and increases in yield to maturity will ____
    1. discount; increase bond price.
    2. discount; decrease bond price
    3. premium; increase bond price.
    4. premium; decrease bond price.
    5. None of the above.