ECON-1B Week 2 Quiz 2

 ECON-1B Week 2 Quiz 2 | Cabrillo College

Question 1

A corporation is the type of business that has ________ government rules and regulations affecting it.

  

the fewest  

the most  

no  

only federal

 

Question 2

Assume you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt. This means a sole proprietorship

  

has little chance of succeeding. 

faces limited liability.  

is not a good type of business to set up. 

faces unlimited liability.

 

Question 3

Which of the following is an advantage of starting a new business as a proprietorship?

  

A proprietorship has few government rules and regulations to comply with.  

Business profits are not taxed at all.  

A proprietorship can easily attain additional funding.  

The owner has limited personal liability.

 

 

Question 4

Which is the least common type of business?

  

impossible to determine without further information  

corporation  

sole proprietorship 

partnership

 

Question 5

Which type of businesses earns the majority of profits in the United States?

  

sole proprietorships  

corporations  

partnerships  

none of these

 

Question 6

Corporate governance involves the way in which

  

the government licenses corporations.  

a corporation is subject to government regulations.  

a corporation is structured.  

the government nationalizes corporations.

 

 

Question 7

By tying the salaries of top corporate managers to the price of the corporation's stock, corporations hope to avoid

  

conflict between the CFO and the CEO.  

the principal-agent problem.  

paying high salaries to their managers. 

corporate governance.

 

 Question 8

A corporation's management 

owns the corporation.  

operates and controls a corporation in its day-to-day activities.  

are liable for the corporation's debts.  

hires the board of directors.

 

 

Question 9

In many corporations, there is "separation of ownership from control." What does this mean?

  

The shareholders control the corporation, although the board of directors owns the corporation.  

Top corporate managers only make decisions that have been approved unanimously by shareholders.  

The managers of the corporation run the corporation, although the shareholders own the corporation.  

The board of directors controls corporate operations, although the managers of the corporation own the corporation.

 

Question 10

Included on the board of directors of Microsoft are Dina Dublon, former chief financial officer of JP Morgan Chase , the president of Harvey Mudd college Maria M. Klawe, and the vice chairman of Bank of America Charles H. Noski. These three board members do not have a direct management role with Microsoft and are therefore referred to as

  

outside directors.  

inside directors.  

competitive directors.  

honorary directors.

 

Question 11

An explicit cost is

  

a cost specifically related to government rules and regulations.  

a nonmonetary opportunity cost.  

a cost that involves spending money.  

a cost unique to corporations.

 

 

Question 12

Which of the following is an example of an implicit cost a firm might incur?

  

the revenue a firm generates in using its resources  

the out-of-pocket expense to hire resources  

taxes owed to the state and Federal governments  

the rental value of the office space the company owns and uses for itself

 Question 13

Which of the following would explain why accounting profit might be greater than economic profit?

  

A firm's net income is less than its accounting profit. 

A firm has implicit costs as well as explicit costs.

A firm's net income is greater than its accounting profit.  

A firm has only explicit costs.

 

Question 14

An implicit cost is

  

a cost unique to corporations.  

a cost unique to sole proprietorships.  

a nonmonetary opportunity cost.  

a cost that involves spending money.

 

Question 15

How can a proprietorship or partnership raise funds for expansion?

  

borrow from someone or an institution willing to lend the funds  

Any of these would generate funds for expansion.  

take on a partner or more partners  

reinvest profit back into the business

 

Question 16

What takes place in the indirect finance market?

  

Deposits of savers are accepted and loans made to borrowers.  

Corporate and government bonds are sold to savers.  

Part ownership of corporations is sold in the form of stocks.  

Government purchases of buildings and equipment are sold to the highest bidder.

 

 

Question 17

If Southwest Airlines borrows $20 million from a bank to finance the renovation of their corporate offices, this is an example of

  

a bond market transaction.  

direct finance. 

indirect finance.  

a stock market transaction.

 

Question 18

When an investor buys a corporate bond

  

the investor becomes part owner of the corporation. 

the principal of the bond is a loan to the corporation.  

the interest made on the bond represents the bondholder's limited liability in the company.  

the face value of the bond is always equal to what the investor paid for the bond.

 

Question 19

If a corporation earns a profit, how do owners of the firm share in the profit?

  

by selling any bonds or stocks owned and realizing a capital gain  

through coupon payments on that firm's bonds  

by raising the interest rate on bonds  

through dividend payments on shares of that firm's stock

 

 Question 20

If a corporation goes bankrupt, which of the following has first claim on the firm's assets?

  

employees  

stockholders  

bondholders  

the state where chartered