A. limited liability company.
B. joint stock company.
C. general partnership.
D. limited partnership.
E. sole proprietorship.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Topic: 01-03 Capital Structure
19. The Splitz Corporation has borrowed $5 million in debt with a promise to repay $5.5 million in one year. The corporation had 10 million shares outstanding worth $2 each at the time of the borrowing. Splitz earns $6 million during the year. What is the debtholder's contingent claim; how much do the debtholders receive; and, how much do the equity holders receive?
A. 5.5; 6; 20.
B. 5; 5.5; 0.
C. 5; 5.5; 20.
D. 5.5; 5.5;.5.
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: Medium
Topic: 01-03 Capital Structure
20. The Splitz Corporation has borrowed $5 million in debt with a promise to repay $5.5 million in one year. The corporation had 10 million shares outstanding worth $2 each at the time of the borrowing. Splitz earns $5 million during the year. What is the debtholder's contingent claim; how much does the debtholder receive; and, how much do the equity holders receive?
A. 5; 5.5; 20.
B. 5.5; 5; 0.
C. 5; -.5; 20.
D. -.5; 5; 0.
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: Medium
Topic: 01-03 Capital Structure
21. Corporate securities are contingent claims because:
A. they don't represent a direct claim on the firm.
B. the firm may be bought out.
C. the securities value is derived from the total value of the firm.
D. book value can be negative.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Topic: 01-02 The Balance-Sheet Model of the Firm
22. Agency costs as the sum costs of:
A. monitoring costs of the shareholders and the residual loss of wealth due to divergent management behavior.
B. the costs of implementing control devices and the monitoring costs of the shareholders.
C. the costs of implementing control devices and the residual loss of wealth due to divergent management behavior.
D. the set-of-contracts needed to structure the firm and residual wealth.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Topic: 01-04 The Financial Manager
23. Which one of these best fits the description of an agency cost?
A. increasing the dividend payments per share
B. the benefits received from reducing production costs per unit
C. the payment of corporate income taxes
D. the payment required for an outside audit of the firm
E. the payment of interest on a firm's debts
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-04 The Financial Manager
24. Agency costs refer to:
A. the total dividends paid to stockholders over the lifetime of a firm.
B. the costs that result from default and bankruptcy of a firm.
C. corporate income subject to double taxation.
D. the costs of any conflicts of interest between stockholders and management.
E. the total interest paid to creditors over the lifetime of the firm.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Topic: 01-04 The Financial Manager
25. Managerial goals may differ from those of the shareholders. It is noted that managers may:
A. have a preference for expense consumption.
B. be motivated by controlling sufficient resources to stay in business.
C. avoid the control of the capital market and rely on internally generated funds.
D. be wanted to depend on external parties.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Topic: 01-04 The Financial Manager
26. What is the primary goal of the corporation?
A. Maximize the pay and compensation of employees and managers of the firm.
B. Maximize the value of the stockholders as they are the owners of the corporation.
C. Minimize the wealth of the shareholders and maximize the wealth of managers.
D. Maximize the societal value to minimize governmental interference.