Reference no: EM132562773

Problem 1: Which of the following statements is correct?

Option 1: It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.

Option 2: Corporate shareholders are exposed to unlimited liability.

Option 3: Corporations generally face fewer regulations than sole proprietorships.

Option 4: Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.

Problem 2: Which of the following statements is NOT correct.

Option 1: Agency problem is that managers may act in their own interests and not on behalf of stockholders.

Option 2: Corporate governance is the set of rules that control a company's behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community.

Option 3: Corporate governance can help control agency problems.

Option 4: Agency problems can be perfectly and permanently solved with corporate governance.

Problem 3: What aspects of cash flows affect an investment's value?

Option 1: Amount of expected cash flows (bigger is better)

Option 2: Timing of the cash flow stream (sooner is better)

Option 3: Risk of the cash flows (less risk is better)

Option 4: All of the above.

Problem 4: If an investor buys enough stocks, he or she can, through diversification, eliminate most of the market risk and company-specific risk and inherent in owning stocks.

True.

False

Problem 5: Perpetuity is a kind of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return.

True

False