Question

 True (T) or False (F) (5 points each). Do NOT include an explanation.

 1.

 The liability of sole proprietors is limited to their company's book value.

 2.

 The separation of ownership and management is a distinctive feature of corporations.

 3.

 Previously issued securities are traded among investors in the secondary markets.

 4.

 Small proprietorships are mostly dependent upon internally generated funds for expansion, where

 corporations typically rely on the capital markets.

 5.

 An increase in the accounts receivable balance results in an increase in cash flow, all else equal.

 6.

 An increase in inventories uses cash, reducing the firm's net cash balance.

 7.

 If net income is positive, then cash flow from operations is also positive for that period.

 ৪.

 Agency costs are borne by the shareholders of the firm.

 9.

 The value of a dollar received today is worth more than a dollar to be received in the future.

 Fill in the blank (not necessarily one word) (5 points each)

 10.

 When a corporation fails, the maximum that can be lost by an investor protected by limited liability

 11.

 The corporation's board of directors is elected to represent the company's

 12.

 The primary goal of the corporation's management should be to

 13.

 Financial institutions can also be referred to as financial

 if they facilitate the  movement of capital from the savers to the users of capital.

 14.

 The cost of debt capital is generally greater than/less than the cost of equity capital. Choose. Short answer (5 points each)

 15.

 A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Does IBM profit from this sale? Why or why not?

 16.

 A primary debt or equity market is utilized when companies do what, exactly?

 17.

 What happens to a firm's net worth as it uses cash to satisfy their accounts payable?

Answer 1

1. False. Sole Proprietors will have unlimited liability towards his business

2. True. One notable feature of corporation is that shareholders are different from management

3. True. After initial public offer the shares are traded in secondary markets

4. True. Small business rely on internal funds and corporation has an option to rely on capital markets

5. False. Increase in accounts receivables reduces Cash flow

6. True. increase in inventories reduces cash flow

7. False. Whether cash flow from operations is positive or not is dependent on current assets and current liabilities and not net income alone

8. False. Agency costs are issuance costs which were born by Firm

9. True. One dollar today worth more than one dollar tomorrow

2. Fill in the blanks

10. Investment into that particular Corporation - The maximum that can be lost

11. Shareholders - Company BOD represents company shareholders

12. Maximize the wealth of shareholders

13. Financial Intermediaries

14. Cost of debt generally lesser than Cost of equity

Short Answer

15. IBM will have nether profit nor loss from such transactions because those transactions are executed in Secondary markets.

16. Issue of company shares or Company Bonds for expansion of the company

17. Net worth doesnot changes because the Current asset used to pay off current liability