This document contains a quiz on foundations of finance topics including forms of business ownership, agency theory, and financial markets. It consists of 25 multiple choice questions testing understanding of key concepts such as: 1) shareholder wealth being represented by stock market price; 2) the long-run objective of financial management being to maximize stock value; and 3) corporations providing limited liability for owners. The questions cover topics like sole proprietorships, partnerships, corporations, and the primary and secondary financial markets.

1. BWFF1013: FOUNDATIONS OF FINANCE
TOPIC 1: INTRODUCTION TO FINANCIAL MANAGEMENT
EXERSICE 1
1) "Shareholder wealth" in a firm is represented by:
A) the number of people employed in the firm.
B) the book value of the firm's assets less the book value of its liabilities.
C) the amount of salary paid to its employees.
D) the market price per share of the firm's common stock.
2) The long-run objective of financial management is to:
A) maximize earnings per share.
B) maximize the value of the firm's common stock.
C) maximize return on investment.
D) maximize market share.
3) A(n) would be an example of a principal, while a(n) would be an example of
an agent.
A) shareholder; manager
B) manager; owner
C) accountant; bondholder
D) shareholder; bondholder
4) The market price of a share of common stock is determined by:
A) the board of directors of the firm.
B) the stock exchange on which the stock is listed
C) the president of the company
D) individuals buying and selling the stock
5) The controller's responsibilities are primarily in nature, while the treasurer's
responsibilities are primarily related to .
A) operational; financial management
B) financial management; accounting
C) accounting; financial management
D) financial management; operational
6) The person generally directly responsible for overseeing the tax management, cost accounting,
financial accounting, and information system functions is the:
A) treasurer.
B) director.
C) controller.
D) chairman of the board.
E) chief executive officer.
7) The owner of a sole proprietorship:
A) has unlimited legal liability only if he or she is actively involved in the daily
operations of the business.
B) is personally liable for all of the company’s debts.
C) has created an organization with an unlimited life.
D) suffers from double taxation.
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2. BWFF1013: FOUNDATIONS OF FINANCE
8) Which one of the following statements concerning partnerships is TRUE?
A) All partners enjoy limited liability if they create a general partnership of equal shares.
B) A limited partner actively participates in running the partnership on a daily basis.
C) A general partnership terminates whenever one general partner decides to sell her
share of the business.
D) A general partnership has an unlimited life while a limited partnership has a limited
life.
9) Which of the following is TRUE about corporation?
A) An entity that legally functions separate and apart from its owner.
B) It can be divided into general and limited
C) A business owned by single individual.
D) More individual agreed to form a business in order to get profit based on agreement.
10) Which of the following enjoys limited liability?
A) A general partnership
B) A sole proprietorship
C) A corporation
D) None of the above
11) Which one of the following best describes the primary advantage of being a limited partner rather
than a general partner?
A) entitlement to a larger portion of the partnership’s income
B) ability to manage the day-to-day affairs of the business
C) no potential financial loss
D) greater management responsibility
E) liability for firm debts limited to the capital invested
12) Which one of the following statements concerning a sole proprietorship is TRUE?
A) A sole proprietorship is the least common form of business ownership.
B) The profits of a sole proprietorship are taxed twice.
C) The owners of a sole proprietorship share profits as established by the partnership
agreement.
D) The owner of a sole proprietorship may be forced to sell his/her personal assets to pay
company debts.
E) A sole proprietorship is often structured as a limited liability company.
13) A corporation in which you are a shareholder has just gone bankrupt. Its liabilities are far
in excess of its assets. You will be called on to pay:
A) a proportionate share of bondholder claims based on the number of common shares
that you own.
B) a proportional share of all creditor claims based on the number of common shares that
you own.
C) an amount that could, at most, equal what you originally paid for the shares of
common stock in the corporation.
D) nothing.
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3. BWFF1013: FOUNDATIONS OF FINANCE
14) Which of the following are disadvantages of a partnership?
I. limited life of the firm
II. personal liability for firm debt
III. greater ability to raise capital than a sole proprietorship
IV. lack of ability to transfer partnership interest
A) I and II only
B) III and IV only
C) II and III only
D) I, II, and IV only
E) I, III, and IV only
15) Which of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
A) I and II only
B) III and IV only
C) I, II, and III only
D) II, III, and IV only
E) I, III, and IV only
16) Which one of the following statements is TRUE?
A) Both partnerships and corporations incur double taxation.
B) Both sole proprietorships and partnerships are taxed in a similar fashion.
C) Partnerships are the most complicated type of business to form.
D) Both partnerships and corporations have bylaws.
E) All types of business formations have limited lives.
17) Issuing stock for the first time publicly would be considered as:
A) a secondary market
B) over the counter market
C) initial public offering
D) seasoned offering
18) The money market is the source for ______ financial assets, while the capital market is
the course for the ______ financing.
A) investment; liquid
B) short term; long term
C) liquid; financial institution
D) long term; short term
19) A 30-year bond issued in 1997 would now trade in the:
A) primary money market
B) secondary money market
C) primary capital market
D) secondary capital market
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4. BWFF1013: FOUNDATIONS OF FINANCE
20) The primary market is defined as the:
A) market for insured securities.
B) market for new issues.
C) market for securities of the largest firms.
D) over-the-counter market.
21) Which one of the following is a primary market transaction?
A) a dealer selling shares of stock to an individual investor
B) a dealer buying newly issued shares of stock from a corporation
C) an individual investor selling shares of stock to another individual
D) a bank selling shares of a medical firm to an individual
E) a sole proprietor buying shares of stock from an individual investor
22) A major advantage of the corporate form of organization is:
A) a reduction of double taxation
B) limited owner liability
C) legal restriction
D) ease of organization.
23) The purpose of financial markets is to:
A) increase the price of common stocks
B) lower the yield on bonds.
C) allocate savings efficiently.
D) control inflation
24) What does agency problem refers to?
A) The conflict that exist between stockbrokers and investors.
B) The problem associated with financial managers and Inland Revenue agents.
C) The conflict that exist between the board of directors and the employees of the firm
D) The conflict of interest between managers and the stockholders.
25) Which form of business structure faces the greatest agency problems?
A) Sole proprietorship
B) General partnership
C) Limited partnership
D) Corporation
E) Limited liability company
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