Question: The capital budgeting decision process can be described as

A)how a firm’s day-to-day financial matters should be managed.

B)how a firm should finance its assets.

C)which productive assets a firm should purchase.

D)all of the above.

Answer: C)which productive assets a firm should purchase.

Question: Financial markets in which equity and debt instruments with maturities greater than one year are traded are called:

A)Money markets.

B)Capital markets.

C)Over the counter exchange.

D)None of the above.

Answer: B)Capital markets.

Question: Which of the following business organizational form(s) create(s) a tax liability on income at the personal income tax rate?

A)Sole proprietorship

B)Partnership

C)Corporation

D)Both Sole proprietorship and Partnership

Answer: D)Both Sole proprietorship and Partnership

Question: Which of the following organizational forms is subject to the Securities and Exchange Commission (SEC) regulations?

A)Partnership

B)Public corporation

C)Sole proprietorship

D)Private corporation

Answer: B)Public corporation

Question: Which of the following forms of business organization is subject to double taxation?

A)A limited partnership.

B)A limited liability partnership (LLP).

C)A sole proprietorship.

D) A C-corporation.

Answer: D) A C-corporation.

Question: The audit committee reports directly to the

A)internal auditor.

B)board of directors.

C)chief executive officer.

D)external auditor.

Answer: B)board of directors.

Question: Which of the following factors or activities can be controlled by a firm’s managers?

A)Capital budgeting

B)The level of market interest rates

C)Stock market conditions

D)The level of economic activity

Answer: A)Capital budgeting

Question: Which of the following does the audit committee have unconditional authority to do?

A)Audit the personal bank account of the CEO.

B)Question any person employed by the firm.

C)Audit the compensation files of firms in the same industry.

D)None of the above.

Answer: B)Question any person employed by the firm.

Question: Agency conflicts are mainly caused by:

A)excessive control being exercised by the owners over their managers.

B)owners not caring about the managers’ interests.

C)managers not putting shareholders’ interests above their own interest.

D)excessive government regulation.

Answer: C)managers not putting shareholders’ interests above their own interest.

Question: The legal system and market forces impose substantial costs on individuals and institutions that engage in unethical behavior. Which of the following would not be an example of these costs?

A)Agency conflicts

B)Jail time

C)Financial losses

D)Legal fines

Answer: