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Firms and Market Concepts

1. Which statement concerning registration of publicly available corporate securities is not true?
(A) The securities must be registered at the SEC
(B) Registration involves the disclosure of relevant information.
(C) The costs of preparing the registration statement are not negligible.
(D) Private placement of securities avoids registering.
(E) All the statements are true.

2. Companies can raise cash to finance their investment activities by:
(A) Making dividend payments.
(B) Selling or issuing financial instruments.
(C) Buying back their financial instruments.
(D) Not producing goods during the current quarter

3. In the United States, all securities markets that are auction markets are also:
(A) NASDAQ markets.
(B) Over-the-counter markets
(C) Primary Markets
(D) Secondary Markets

4. In terms of the balance sheet model of the firm, the value of a firm in financial markets is equal to:
(A) Tangible fixed assets plus intangible fixed assets.
(B) Sales minus costs
(C) Cash inflow minus cash outflow
(D) The value of the debt plus the value of the equity
(E) The value of the debt minus the value of the equity

5. Which of the statements are not true
(A) Agency costs include managerial perquisite consumption.
(B) Agency costs include the monitoring costs of shareholders.
(C) According to Donaldson, the basic financial objective of managers is the maximization of shareholder's wealth
(D) All of the above are true

6. Over the long term, appropriately discounted value is created and recognized over time if:
(A) Cash raised is invested in the investment activities of the firm.
(B) Funds are raised in the capital markets.
(C) Cash paid to investors, shareholders and bondholders is greater than cash raised in the financial markets.
(D) Management pursues activities to reduce taxes to zero.

7. Financial markets are composed of:
(A) Capital markets and equity markets
(B) Capital markets and debt markets.
(C) Capital markets and money markets.
(D) Equity markets and money markets.

8. The NYSE and NASDAQ are both:
(A) Primary markets.
(B) Auction markets.
(C) Secondary markets.
(D) All of the above

9. The need to manage net working capital arises because:
(A) Shareholders want to ensure they receive dividend payments.
(B) There is a mismatch between the timing of cash inflows and cash outflows.
(C) The sum of current assets and current liabilities usually is zero.
(D) The capital structure pie is limited in size

10. Which is a requirement for listing on the NYSE?
(A) Approval by the SEC.
(B) Listed Options
(C) Minimum Market Value
(D) Both A and B

Solution Preview

1. Which statement concerning registration of publicly available corporate securities is not true?
(A) The securities must be registered at the SEC
(B) Registration involves the disclosure of relevant information.
(C) The costs of preparing the registration statement are not negligible.
(D) Private placement of securities avoids registering.
(E) All the statements are true.

Answer: (E) All the statements are true.
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2. Companies can raise cash to finance their investment activities by:
(A) Making dividend payments.
(B) Selling or issuing financial instruments.
(C) Buying back their financial instruments.
(D) Not producing goods during the current quarter

Answer: (B) Selling or issuing financial instruments.
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3. In the United States, all securities markets that are auction markets are also:
(A) NASDAQ markets.
(B) Over-the-counter ...

Solution Summary

This solution identifies the characteristics of firms and market concepts with justifications.

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