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Name: Class: Date:
01: An Overview of Managerial Finance
c. the expectations of long-term investors in the company

d. the awareness of the shareholders regarding the regulations that affect public corporations
e. the prior knowledge of the decisions that public corporations make concerning their cash flows
ANSWER: a
FEEDBACK: a. Correct. The success of a financial institution requires an understanding of
factors that cause interest rates and other returns in the financial markets to
rise and fall, regulations that affect such institutions, and various types of
financial instruments, such as mortgages, automobile loans, and certificates
of deposit, that financial institutions offer. See 1-1: What is Finance?
b. Incorrect. The success of a financial institution requires an understanding of
regulations that affect such institutions, and various types of financial
instruments, such as mortgages, automobile loans, and certificates of deposit,
that financial institutions offer. See 1-1: What is Finance?
c. Incorrect. The success of financial institutions requires an understanding of
d. Incorrect. The success of financial institutions requires an understanding of
e. Incorrect. The success of financial institutions requires an understanding of
POINTS: 1
DIFFICULTY: Easy
REFERENCES: What is Finance?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
LEARNING OBJECTIVES: CFIN6.BESL.19.01.01 - Explain what finance entails and why everyone should have an
understanding of basic financial concepts.
ACCREDITING STANDARDS: Analytic
KEYWORDS: Bloom’s Understand
OTHER: Financial institutions|Finance|Finance markets
DATE CREATED: 12/12/2017 11:23 PM
DATE MODIFIED: 12/21/2017 12:41 AM
3. Which of the following is true of the investment function of finance?

a. The investment function focuses on socially responsible actions taken by corporations.
b. The investment function focuses on the values, risks, and returns associated with financial assets such as
stocks and bonds.
c. The investment function focuses on the optimal mix of securities based on the environment-friendly behavior
of the corporations.
d. The investment function focuses on regulations applicable to a public corporation.
e. The investment function focuses on additional information about the procedures used to construct and report
financial statements.
Copyright Cengage Learning. Powered by Cognero. Page 2
Name: Class: Date:
ANSWER: b
FEEDBACK: a. Incorrect. The investment function of finance focuses on the decisions made
by businesses and individuals as they choose securities for their investment
portfolios. See 1-1: What is Finance?
b. Correct. The investment function of finance focuses on determining the
values, risks, and returns associated with such financial assets as stocks and
bonds. See 1-1: What is Finance?
c. Incorrect. The investment function of finance focuses on the decisions made
d. Incorrect. The investment function of finance focuses on the decisions made
e. Incorrect. The investment function of finance focuses on the decisions made
POINTS: 1
DIFFICULTY: Easy
OTHER: Finance|Investments
DATE CREATED: 12/12/2017 11:28 PM
4. Identify a true statement about the financial services provided by organizations.

a. Financial services organizations invest only in environmentally responsible public corporations.
b. Financial services include services provided by banks and insurance companies only.
c. Financial services organizations make investment decisions based solely on the socially responsible behavior
of corporates.
d. Financial services organizations provide comparative cash flow positions of competing corporations to
investors to help them with investment decisions.
e. Financial services organizations help individuals and companies determine how to invest money to achieve
their financial goals.
ANSWER: e
FEEDBACK: a. Incorrect. Financial services refer to functions provided by organizations that
deal with the management of money. See 1-1: What is Finance?
b. Incorrect. Financial services refer to functions provided by organizations that
c. Incorrect. Financial services refer to functions provided by organizations that
d. Incorrect. Financial services refer to functions provided by organizations that
Name: Class: Date:
e. Correct. Persons working in financial services organizations help individuals

and companies determine how to invest money to achieve their financial
goals. See 1-1: What is Finance?
POINTS: 1
DIFFICULTY: Easy
OTHER: Financial services
DATE CREATED: 12/12/2017 11:31 PM
5. Financial services refer to functions provided by organizations that _____.

a. deal with the most efficient management of the human resources
b. ensure that regulations of the Sarbanes-Oxley Act are followed by public corporations
c. recommend the most environment friendly method of operations to a corporation
d. recommend the types of securities to be issued to finance plant expansions
e. deal with the management of money
ANSWER: e
determine how to invest money to help individuals and companies achieve
their financial goals. See 1-1: What is Finance?
b. Incorrect. Financial services refer to functions provided by organizations that
e. Correct. Financial services refer to functions provided by organizations that
deal with the management of money. Persons who work in these
organizations, help individuals and companies determine how to invest
money to achieve their financial goals. See 1-1: What is Finance?
POINTS: 1
DIFFICULTY: Easy
Name: Class: Date:

DATE CREATED: 12/12/2017 11:35 PM
6. Which of the following functions deals with the management of money?

a. Marketing
b. Human resources
c. Financial services
d. Information systems
e. Research and development
ANSWER: c
FEEDBACK: a. Incorrect. The management of money function helps individuals and
companies achieve their goals such as home purchase, retirement, financial
stability and sustainability, budgeting. See 1-1: What is Finance?
b. Incorrect. The management of money function helps individuals and
c. Correct. Financial services refer to functions provided by organizations that
d. Incorrect. The management of money function helps individuals and
e. Incorrect. The management of money function helps individuals and
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/12/2017 11:38 PM
7. Which of the following is true of financial services provided by persons working in banks, insurance companies, and
brokerage firms?
a. Persons working in banks, insurance companies, and brokerage firms help corporations to decide the types of
securities to be issued to finance plant expansion.
b. Persons working in banks, insurance companies, and brokerage firms help individuals and companies
determine how to invest money to achieve their financial goals.
Name: Class: Date:
c. Persons working in banks, insurance companies, and brokerage firms help corporations fulfill the regulations
required by the Sarbanes-Oxley Act.
d. Persons working in banks, insurance companies, and brokerage firms help public corporations follow
environment-friendly practices.
e. Persons working in banks, insurance companies, and brokerage firms help corporations in framing their
bylaws.
ANSWER: b
b. Correct. Persons working in banks, insurance companies, and brokerage
firms help individuals and companies determine how to invest money to
achieve their financial goals. See 1-1: What is Finance?
e. Incorrect. Financial services refer to functions provided by organizations that
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/12/2017 11:41 PM
8. Which of the following is true of financial institutions?

a. Financial institutions are the regulators of interest rates and other returns in financial markets.
b. Managers of financial institutions should have an understanding of factors that cause interest rates and other
returns in the financial markets to rise and fall.
c. Financial institutions are accountable and responsible in reporting financial information for publicly-traded
corporations.
d. Financial institutions are required by the Sarbanes-Oxley Act to disclose the environment-friendly measures
taken by investment corporations.
e. Financial institutions require public corporations to adopt socially responsible work practices.
ANSWER: b
FEEDBACK: a. Incorrect. The success of financial institutions requires an understanding of

Name: Class: Date:
b. Correct. The success of financial institutions requires an understanding of

POINTS: 1
DIFFICULTY: Easy
OTHER: Financial institutions|Financial markets
DATE CREATED: 12/12/2017 11:47 PM
9. The investment function of finance helps in _____.

a. making decisions regarding the dividends paid by a corporation
b. determining the expenses to be incurred to ensure that the behavior of an investment corporation is socially
acceptable
c. determining the values, risks, and returns associated with such financial assets as stocks and bonds
d. ensuring that 50 percent of all investments in a portfolio are in environment-friendly corporations
e. ensuring that the corporations payout maximum dividends per share
ANSWER: c
FEEDBACK: a. Incorrect. The investment function of finance determines the optimal mix of
securities that should be held in a portfolio of investments, such as a
retirement fund. See 1-1: What is Finance?
b. Incorrect. The investment function of finance determines the optimal mix of
c. Correct. The investment function of finance determines the values, risks, and
returns associated with such financial assets as stocks and bonds. See 1-1:
What is Finance?

Name: Class: Date:
d. Incorrect. The investment function of finance determines the optimal mix of

e. Incorrect. The investment function of finance determines the optimal mix of
POINTS: 1
DIFFICULTY: Easy
OTHER: Investments
DATE CREATED: 12/12/2017 11:50 PM
10. The success of financial institutions requires an understanding of _____.

a. regulations regarding the maximization of wealth applicable to the corporations
b. regulations that affect these financial institutions
c. the environment-friendly manufacturing methods adopted by various corporations
d. the socially responsible behavior required to be demonstrated by these institutions
e. their accountability in reporting the financial information for a publicly-traded company
ANSWER: b
FEEDBACK: a. Incorrect. The success of financial institutions requires an understanding of
rise and fall. See 1-1: What is Finance?
b. Correct. The success of financial institutions requires an understanding of
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:

OTHER: Financial institutions
DATE CREATED: 12/12/2017 11:53 PM
11. The treasurer of a company is a key subordinate of the _____.

a. controller
b. financial vice president
c. chief executive officer
d. credit manager
e. director of capital budgeting
ANSWER: b
FEEDBACK: a. Incorrect. In most firms, the treasurer has direct responsibility for managing
the firm's cash and marketable securities. See 1-1: What is Finance?
b. Correct. The financial vice president's key subordinates are the treasurer and
the controller. See 1-1: What is Finance?
c. Incorrect. In most firms, the treasurer has direct responsibility for managing
d. Incorrect. In most firms, the treasurer has direct responsibility for managing
e. Incorrect. In most firms, the treasurer has direct responsibility for managing
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom’s Remember
OTHER: Organizational structure
DATE CREATED: 12/12/2017 11:56 PM
12. The credit manager is supervised by the _____.

a. treasurer
b. inventory manager
c. director of capital budgeting

Name: Class: Date:
d. vice president of finance

e. controller
ANSWER: a
FEEDBACK: a. Correct. The treasurer supervises the credit manager, the inventory manager,
and the director of capital budgeting, who analyzes decisions related to
investments in fixed assets. See 1-1: What is Finance?
b. Incorrect. The financial vice president's key subordinates are the treasurer
and the controller. In most firms, the treasurer has direct responsibility for
managing the firm's cash and marketable securities. The controller is
responsible for the activities of the accounting and tax departments. See 1-1:
What is Finance?
c. Incorrect. The financial vice president's key subordinates are the treasurer
What is Finance?
d. Incorrect. The financial vice president's key subordinates are the treasurer
What is Finance?
e. Incorrect. The financial vice president's key subordinates are the treasurer
What is Finance?
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:00 AM
13. The accounting and tax departments are the responsibility of the _____.
a. treasurer
b. inventory manager
c. director of capital budgeting
d. vice president of finance
e. controller
ANSWER: e

Name: Class: Date:
FEEDBACK: a. Incorrect. Although organizational structures vary from company to company,

the chief financial officer (CFO), who often has the title of vice president of
finance, generally reports to the president. The financial vice president's key
subordinates are the treasurer and the controller. See 1-1: What is Finance?
b. Incorrect. Although organizational structures vary from company to company,
c. Incorrect. Although organizational structures vary from company to company,
d. Incorrect. Although organizational structures vary from company to company,
e. Correct. The financial vice president's key subordinates are the treasurer and
the controller. The controller is responsible for the activities of the accounting
and tax departments. See 1-1: What is Finance?
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:03 AM
14. Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference
between proprietorship and partnership business forms is that _____.
a. a partnership has more owners than a proprietorship
b. the combined personal liability associated with a partnership is significantly less than the combined personal
liability associated with a proprietorship
c. a partnership is generally easier to form than a proprietorship
d. the annual growth rate of a proprietorship is limited by law, whereas the growth rate of a partnership is always
potentially unlimited
e. many more businesses are formed as partnerships than proprietorships
ANSWER: a
FEEDBACK: a. Correct. A partnership is the same as a proprietorship, except that it has two
or more owners. See 1-2: Alternative Forms of Business Organization
b. Incorrect. Starting a proprietorship is generally as easy as just beginning
business operations. Partnerships can operate under different degrees of
formality, ranging from informal, oral understandings to formal agreements

Name: Class: Date:
filed with the secretary of the state in which the partnership does business.
See 1-2: Alternative Forms of Business Organization
c. Incorrect. Starting a proprietorship is generally as easy as just beginning
d. Incorrect. Starting a proprietorship is generally as easy as just beginning
e. Incorrect. Starting a proprietorship is generally as easy as just beginning
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: Alternative Forms of Business Organization
LEARNING OBJECTIVES: CFIN6.BESL.19.01.02 - Identify different forms of business organization as well as the
advantages and disadvantages of each.
OTHER: Business ownership forms|Sole proprietorships|Partnerships
DATE CREATED: 12/13/2017 12:06 AM
15. Which of the following represents a difference between an S corporation and a limited liability company (LLC)?
a. An S corporation can have more than one type of stock outstanding, whereas an LLC can have only one type
of stock outstanding.
b. An S corporation can choose to be taxed as a corporation or as a partnership, whereas an LLC is taxed as a
corporation only.
c. An S corporation is subject to unlimited personal liability of the owners, whereas an LLC is subject to limited
personal liability.
d. An S corporation has no more than 100 stockholders, whereas an LLC can have more than 100 owners
(members).
e. An S corporation's business income is subject to double taxation, whereas an LLC's business income is taxed
only once.
ANSWER: d
FEEDBACK: a. Incorrect. A limited liability company (LLC) combines the features of a
corporation and a partnership. A domestic corporation that meets the number
of stockholders condition and types of stock outstanding can elect to file taxes
as an S corporation. See 1-2: Alternative Forms of Business Organization
b. Incorrect. A limited liability company (LLC) combines the features of a
Name: Class: Date:
c. Incorrect. A limited liability company (LLC) combines the features of a
d. Correct. One of the major differences between an S corporation and an LLC
is that an LLC can have more than 100 stockholders (members) and more
than one type of stock (membership interest). See 1-2: Alternative Forms of
Business Organization
e. Incorrect. A limited liability company (LLC) combines the features of a
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability companies|S corporations
DATE CREATED: 12/13/2017 12:10 AM
16. Which of the following statements is true of corporate bylaws?

a. Corporate bylaws are a set of rules drawn up by the state to enable managers to run the firm in accordance
with state laws.
b. Procedures for electing corporate directors are contained in corporate bylaws.
c. Procedures that govern changes in corporate bylaws are contained in the corporate charter.
d. To open their doors and start their operations, corporations are legally required only to file their bylaws with
the appropriate agency in the state where they incorporate.
e. The declaration of the activities that a firm will pursue and the number of directors are included in the
corporate bylaws.
ANSWER: b
FEEDBACK: a. Incorrect. Setting up a corporation is more complex and time-consuming than
setting up a proprietorship or a partnership. When a corporation is created, a
corporate charter and a set of rules must be drawn up by the founder(s). See
1-2: Alternative Forms of Business Organization
b. Correct. Bylaws are a set of rules drawn up by the founders of a corporation
that indicates how the company is to be governed and includes procedures
for electing directors, rights of stockholders, and how to change the bylaws
when necessary. See 1-2: Alternative Forms of Business Organization
c. Incorrect. Setting up a corporation is more complex and time-consuming than

Name: Class: Date:
d. Incorrect. Setting up a corporation is more complex and time-consuming than
e. Incorrect. Setting up a corporation is more complex and time-consuming than
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations
DATE CREATED: 12/13/2017 12:20 AM
17. Which of the following statements is correct?

a. A hostile takeover is the primary method of transferring ownership interest in a corporation.
b. The corporation is a legal entity created by the state and is a direct extension of the legal status of its owners
and managers, that is, the owners and managers are the corporation.
c. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business
organization.
d. In part due to limited liability and ease of ownership transfer, corporations have less trouble raising money in
financial markets than other organizational forms.
e. Although stockholders of the corporation are insulated by limited legal liability, the legal status of the
corporation does not protect the firm's managers in the same way.
ANSWER: d
FEEDBACK: a. Incorrect. Even though the corporate form of business offers significant
advantages over proprietorships and partnerships, setting up a corporation is
more complex and time-consuming than a proprietorship or a partnership.
Corporations must file periodic state and federal reports that are not required
of other forms of businesses. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. Even though the corporate form of business offers significant
Organization
c. Incorrect. Even though the corporate form of business offers significant
Name: Class: Date:

Organization
d. Correct. Limited liability, easy transferability of ownership interest, and
unlimited life make it much easier for corporations than for proprietorships or
partnerships to raise money in the financial markets. See 1-2: Alternative
Forms of Business Organization
e. Incorrect. Even though the corporate form of business offers significant
Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations
DATE CREATED: 12/13/2017 12:24 AM

a. In a partnership, liability for other partners' misdeeds includes but is limited to the amount a particular partner
has invested in the business.
b. Partnerships must be formed according to specific rules, which include the filing of a formal written
agreement with state authorities where the partnership does business.
c. A fast growth company would be more likely to set up a partnership for its business organization than would a
slow-growth company.
d. Under partnership law, if any partner is unable to meet his or her pro rata claim in the event the partnership
goes bankrupt, the remaining partners must make good on the unsatisfied claims.
e. A major disadvantage of a partnership as a form of business organization is the high cost and practical
difficulty of its formation.
ANSWER: d
FEEDBACK: a. Incorrect. A partnership has two or more owners. Partnerships can operate
under different degrees of formality. The advantages of a partnership are the
same as those of a proprietorship, except that most partnerships have more
sources available for raising funds. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. A partnership has two or more owners. Partnerships can operate

Name: Class: Date:
Organization
c. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
d. Correct. Under partnership law, each partner is liable for the debts of the
business. Therefore, if any partner is unable to meet his or her pro rata claim
in the event the partnership goes bankrupt, the remaining partners must make
good on the unsatisfied claims, drawing on their personal assets if necessary.
e. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Partnerships
DATE CREATED: 12/13/2017 12:27 AM

a. A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not
offer their owners limited liability, whereas proprietorships do.
b. An advantage of the corporate form for many businesses is the fact that the corporate tax rate always exceeds
the personal tax rate, which is the rate at which proprietorships and partnerships are taxed.
c. There are more partnerships and proprietorships than corporations in the United States, but corporations
produce more goods and services than do other forms of business.
d. Because partnerships and proprietorships enjoy the benefits of limited liability, easy transferability of
ownership interest, unlimited life, and favorable tax status relative to the situation for corporations, most large
businesses choose to be set up as partnerships and proprietorships.
e. Because lawyers have the incorporation process so automated (e.g., word processors for drawing up the
necessary papers), it is less expensive to form a corporation than to form a proprietorship or partnership.
ANSWER: c
FEEDBACK: a. Incorrect. A proprietorship is an unincorporated business owned by one
individual. A partnership is the same as a proprietorship, except that it has
two or more owners. A corporation is separate and distinct from its owners
and managers. See 1-2: Alternative Forms of Business Organization

Name: Class: Date:
b. Incorrect. A proprietorship is an unincorporated business owned by one

c. Correct. In the United States 70–75 percent of businesses are operated as
proprietorships, 9–12 percent are partnerships, and the remaining 15–20
percent are corporations. Based on the dollar value of sales, however,
approximately 82 percent of all business is conducted by corporations, while
the remaining 18 percent is generated by proprietorships (3–4 percent) and
partnerships (14–15 percent). See 1-2: Alternative Forms of Business
Organization
d. Incorrect. A proprietorship is an unincorporated business owned by one
e. Incorrect. A proprietorship is an unincorporated business owned by one
POINTS: 1
DIFFICULTY: Easy
OTHER: Sole proprietorships|Partnerships|Corporations
DATE CREATED: 12/13/2017 12:30 AM
20. Which of the following statements about the corporate form of business organization is correct?
a. A corporation has the legal authority to act like a person when conducting business.
b. In the United States, corporations generate a lower percentage of total annual sales than either partnerships or
proprietorships.
c. Corporations generally are smaller than either partnerships or proprietorships.
d. One of the most important features of the corporate form of business organization is that stockholders have
unlimited liability.
e. Corporations can operate under different degrees of formality, ranging from informal, oral understandings to
formal agreements filed with the secretary of the state in which the corporations do business.
ANSWER: a
FEEDBACK: a. Correct. A corporation is a legal entity created by a state, which means that a
corporation has the legal authority to act like a person when conducting
business. See 1-2: Alternative Forms of Business Organization
b. Incorrect. Setting up a corporation is more complex and time-consuming than
a proprietorship or a partnership. When a corporation is created, a corporate

Name: Class: Date:
charter and a set of rules must be drawn up by the founder(s). See 1-2:
Alternative Forms of Business Organization
c. Incorrect. Setting up a corporation is more complex and time-consuming than
d. Incorrect. Setting up a corporation is more complex and time-consuming than
e. Incorrect. Setting up a corporation is more complex and time-consuming than
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations
DATE CREATED: 12/13/2017 12:34 AM
21. In the United States, the most common form of business is the _____, and the form of business that generates most of
the sales and profits is the _____.
a. corporation; corporation
b. corporation; proprietorship
c. proprietorship; partnership
d. proprietorship; corporation
e. corporation; partnership
ANSWER: d
FEEDBACK: a. Incorrect. A proprietorship is an unincorporated business owned by one
individual. A partnership has two or more owners. A corporation is a legal
entity created by a state, which means that a corporation has the legal
authority to act like a person when conducting business. See 1-2: Alternative
b. Incorrect. A proprietorship is an unincorporated business owned by one
c. Incorrect. A proprietorship is an unincorporated business owned by one
Name: Class: Date:
d. Correct. In the United States, 70–75 percent of businesses are operated as
proprietorships, 9–12 percent are partnerships, and the remaining 15–20
percent are corporations. Based on the dollar value of sales, however,
approximately 82 percent of all business is conducted by corporations, while
the remaining 18 percent is generated by proprietorships (3–4 percent) and
partnerships (14–15 percent). See 1-2: Alternative Forms of Business
Organization
e. Incorrect. A proprietorship is an unincorporated business owned by one
POINTS: 1
DIFFICULTY: Easy
OTHER: Partnerships|Sole proprietorships|Corporations
DATE CREATED: 12/13/2017 12:36 AM
22. Which of the following is a disadvantage of the corporate form of business?

a. A corporation faces difficulty in attracting substantial amounts of funds.
b. The owners of a corporation are subject to unlimited personal liability for the business' debts.
c. Setting up a corporation is more complex and time-consuming than setting up a proprietorship or a
partnership.
d. A corporation is said to have limited life.
e. Ownership interests cannot be transferred as easily as proprietorship or partnership interests.
ANSWER: c
FEEDBACK: a. Incorrect. When a corporation is created, a corporate charter must be filed
with the secretary of the state in which the firm incorporates and a set of
rules, called bylaws, must be drawn by founders. In addition, a corporation is
required to file periodic state and federal reports that are not required of other
forms of businesses. See 1-2: Alternative Forms of Business Organization
b. Incorrect. When a corporation is created, a corporate charter must be filed
c. Correct. Setting up a corporation is more complex and time-consuming than
corporate charter and a set of rules must be drawn up by the founder(s). In
Name: Class: Date:
addition, corporations must file periodic state and federal reports that are not
required of other forms of businesses. See 1-2: Alternative Forms of Business
Organization
d. Incorrect. When a corporation is created, a corporate charter must be filed
e. Incorrect. When a corporation is created, a corporate charter must be filed
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations|Sole proprietorships|Partnerships
DATE CREATED: 12/13/2017 12:39 AM
23. Compared to corporations, what is the primary disadvantage of partnerships as a form of business organization?
a. The tax rates applied to partnerships are higher than the tax rates applied to corporations.
b. Any dividends paid to the owners of a partnership business are taxed twice, once at the partnership level and
once at the personal, or individual level.
c. Partnerships generally are more complex to form (start up) than corporations.
d. Partnerships have unlimited lives whereas corporations do not.
e. The owners of a partnership, that is, the partners, have unlimited liability when it comes to business
obligations whereas the owners of a corporation have limited liability.
ANSWER: e
FEEDBACK: a. Incorrect. A partnership has two or more owners. Partnerships can operate
under different degrees of formality, ranging from informal, oral
understandings to formal agreements filed with the secretary of the state in
which the partnership does business. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
c. Incorrect. A partnership has two or more owners. Partnerships can operate
Name: Class: Date:
Organization
d. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
e. Correct. Under partnership law, each partner is liable for the debts of the
business, whereas a corporation offers its owners limited liability. See 1-2:
POINTS: 1
DIFFICULTY: Easy
OTHER: Partnerships|Corporations
DATE CREATED: 12/13/2017 12:43 AM
24. Which of the following forms of business offers limited personal liability to owners as well as the choice to be taxed
as either a corporation or as a partnership?
a. Limited liability partnership
b. Limited liability company
c. Corporation
d. Proprietorship
e. Partnership
ANSWER: b
FEEDBACK: a. Incorrect. Alternative business forms that include some of the advantages,
and avoid some of the disadvantages of the major forms of business have
evolved over time. These alternative forms of business combine some
characteristics of proprietorships and partnerships with some characteristics
of corporations. See 1-2: Alternative Forms of Business Organization
b. Correct. A limited liability company (LLC) offers the limited personal liability
associated with a corporation, but the company can choose to be taxed as
either a corporation or as a partnership. See 1-2: Alternative Forms of
c. Incorrect. Alternative business forms that include some of the advantages,
d. Incorrect. Alternative business forms that include some of the advantages,
Name: Class: Date:

e. Incorrect. Alternative business forms that include some of the advantages,
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability companies|Corporations|Partnerships|Sole proprietorships
DATE CREATED: 12/13/2017 12:46 AM
25. Identify a true statement about a limited liability company (LLC).

a. A limited liability company can be taxed as a corporation only.
b. One of the owners of a limited liability company must be designated as a general partner with unlimited
personal financial liability.
c. A limited liability company can have no more than 100 stockholders.
d. Only one of the owners of a limited liability company can participate in the management of the business.
e. A limited liability company can have more than one type of stock (ownership interest) outstanding.
ANSWER: e
FEEDBACK: a. Incorrect. A limited liability company (LLC) is a relatively new business form
that combines the features of a corporation and a partnership. See 1-2:
b. Incorrect. A limited liability company (LLC) is a relatively new business form
c. Incorrect. A limited liability company (LLC) is a relatively new business form
d. Incorrect. A limited liability company (LLC) is a relatively new business form
e. Correct. An LLC can have more than 100 stockholders (members) and more
than one type of stock (membership interest). See 1-2: Alternative Forms of
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:

OTHER: Limited liability companies
DATE CREATED: 12/13/2017 12:49 AM
26. If a limited liability company (LLC) is taxed like a partnership, _____.

a. income passes through to the owners
b. income is taxed twice
c. the owners have unlimited tax liability
d. the shareholders pay taxes on dividends they receive after the company pays taxes on the money that is
distributed
e. dividends are taxed at the capital gain rate
ANSWER: a
FEEDBACK: a. Correct. If a limited liability company (LLC) is taxed like a partnership, income
passes through to the owners. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. A limited liability company (LLC) is a relatively new business form
e. Incorrect. A limited liability company (LLC) is a relatively new business form
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:52 AM

Name: Class: Date:

27. Identify a true statement about a limited liability company (LLC).
a. A limited liability company (LLC) has a maximum of 100 stockholders (owners).
b. A limited liability company (LLC) offers the limited personal liability associated with a corporation.
c. A limited liability company (LLC) has only one type of stock (membership interest).
d. A limited liability company (LLC) is taxed as a partnership, which means the stockholders are subject to
double taxation.
e. A limited liability company (LLC) is liable for the negligence, irresponsibility, or similar acts committed by
any partner.
ANSWER: b
FEEDBACK: a. Incorrect. A limited liability company (LLC) is a relatively new business form
b. Correct. A limited liability company (LLC) offers the limited personal liability
associated with a corporation, but the company can choose to be taxed as
either a corporation or as a partnership. See 1-2: Alternative Forms of
e. Incorrect. A limited liability company (LLC) is a relatively new business form
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:54 AM
28. Which of the following is true of a general partner of a limited liability partnership (LLP)?
a. A general partner of a limited liability partnership (LLP) is fully personally liable for all business debts.
b. A general partner of a limited liability partnership (LLP) cannot participate in the management of the business.
c. A general partner of a limited liability partnership (LLP) is considered as an investor only.
d. A general partner of a limited liability partnership (LLP) is liable only to the extent of his/her investment in
the partnership.
e. A general partner of a limited liability partnership (LLP) is taxed for the limited partners' share of the
partnership's income.
Name: Class: Date:
ANSWER: a
FEEDBACK: a. Correct. In some states, an LLP can be established that permits persons to
invest in partnerships without exposure to the personal liability that general
partners face. With this type of LLP, at least one partner is designated a
general partner and the others are limited partners. The general partners
remain fully personally liable for all business debts. See 1-2: Alternative
b. Incorrect. In some states, an LLP can be established that permits persons to
invest in partnerships without exposure to the personal liability. See 1-2:
c. Incorrect. In some states, an LLP can be established that permits persons to
d. Incorrect. In some states, an LLP can be established that permits persons to
e. Incorrect. In some states, an LLP can be established that permits persons to
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability partnerships
DATE CREATED: 12/13/2017 12:57 AM
29. A limited partner in a limited liability partnership (LLP) is _____.

a. responsible for the general management of the business
b. liable for only the amount invested in the partnership
c. responsible for negligence, irresponsibility, or similar acts committed by any other partner
d. liable to pay tax on the general partner's share of partnership income
e. personally liable for the partnership debts
ANSWER: b
FEEDBACK: a. Incorrect. In some states, an LLP can be established that permits persons to
invest in partnerships without exposure to the personal liability. With this type
of LLP, at least one partner is designated a general partner and the others
are limited partners. See 1-2: Alternative Forms of Business Organization
b. Correct. In some states, an LLP can be established that permits persons to

Name: Class: Date:
d. Incorrect. In some states, an LLP can be established that permits persons to
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 1:00 AM
30. Identify the correct statement about a limited liability partnership (LLP).
a. The controller of a limited liability partnership is responsible for the negligence and irresponsibility of the
general partners.
b. A limited partner of a limited liability partnership is responsible for the general management of the partnership
business.
c. A limited partner of a limited liability partnership is liable to pay tax on all the partnership income.
d. A general partner of a limited liability partnership is personally liable for all business debts.
e. A limited partner of a limited liability partnership is responsible for the negligence and irresponsibility of all
general partners.
ANSWER: d
FEEDBACK: a. Incorrect. In some states, an LLP can be established that permits persons to
b. Incorrect. In some states, an LLP can be established that permits persons to

Name: Class: Date:
d. Correct. In some states, an LLP can be established that permits persons to
POINTS: 1
DIFFICULTY: Easy
31. It is possible to limit the liability faced by some of the partners in a partnership form of business by establishing a
_____.
a. limited liability partnership (LLP)
b. general partnership
c. Proprietorship
d. concentrated partnership
e. limited accumulation partnership
ANSWER: a
FEEDBACK: a. Correct. Alternative business forms that include some of the advantages, and
avoid some of the disadvantages, of the three major forms of business have
evolved over time. It is possible to limit the liability faced by some of the
partners in a business by establishing a limited liability partnership (LLP). See
b. Incorrect. Alternative business forms that include some of the advantages,
and avoid some of the disadvantages, of the three major forms of business
have evolved over time. These alternative forms of business combine some
c. Incorrect. Alternative business forms that include some of the advantages,
Name: Class: Date:
d. Incorrect. Alternative business forms that include some of the advantages,

e. Incorrect. Alternative business forms that include some of the advantages,
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability partnership|Partnerships|Sole proprietorships
32. Identify a true statement about an S corporation.

a. An S Corporation is required to have more than 100 stockholders.
b. An S Corporation is required to have more than one type of stock outstanding.
c. The income of an S Corporation passes through the company to the owners.
d. The income of an S Corporation is taxed twice, at the corporate level and the owner level.
e. The income of an S Corporation is taxed as capital gains to the owners.
ANSWER: c
FEEDBACK: a. Incorrect. If a corporation elects the S corporation status, then its income is
taxed the same as income earned by proprietorships and partnerships. See
b. Incorrect. If a corporation elects the S corporation status, then its income is
c. Correct. If a corporation elects the S corporation status, then its income
passes through the company to the owners so that it is taxed only once. See
d. Incorrect. If a corporation elects the S corporation status, then its income is
e. Incorrect. If a corporation elects the S corporation status, then its income is
POINTS: 1
DIFFICULTY: Easy
Name: Class: Date:

OTHER: S corporations
33. Which of the following is a feature of an S Corporation?

a. An S Corporation is required to have more than 100 stockholders.
b. An S Corporation is required to have more than one type of stock outstanding.
c. The income of an S Corporation is taxed as capital gains to the owners.
d. The income of an S Corporation is taxed twice, at the corporate level and the owner level.
e. The income of an S Corporation is taxed the same as income earned by proprietorships and partnerships.
ANSWER: e
FEEDBACK: a. Incorrect. If a corporation elects the S corporation status, then its income
passes through the company to the owners. See 1-2: Alternative Forms of
b. Incorrect. If a corporation elects the S corporation status, then its income
c. Incorrect. If a corporation elects the S corporation status, then its income
d. Incorrect. If a corporation elects the S corporation status, then its income
e. Correct. If a corporation elects the S corporation status, then its income is
taxed the same as income earned by proprietorships and partnerships. Its
income passes through the company to the owners so that it is taxed only
once. See 1-2: Alternative Forms of Business Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: S corporations

Name: Class: Date:
34. The primary goal of a publicly-owned firm interested in serving its stockholders should be to _____.
a. minimize the debt used by a firm
b. maximize expected earnings per share (EPS)
c. minimize the chances of losses
d. maximize the stock price per share
e. maximize expected net income
ANSWER: d
FEEDBACK: a. Incorrect. Investors want to increase their wealth positions as much as
possible. Management's primary goal is stockholder wealth maximization.
See 1-3: What Goal(s) Should Businesses Pursue?
b. Incorrect. Investors want to increase their wealth positions as much as
c. Incorrect. Investors want to increase their wealth positions as much as
d. Correct. Management's primary goal is stockholder wealth maximization,
which translates into maximizing the value of the firm as measured by the
price of its common stock. See 1-3: What Goal(s) Should Businesses
Pursue?
e. Incorrect. Investors want to increase their wealth positions as much as
POINTS: 1
REFERENCES: What Goal(s) Should Businesses Pursue?
LEARNING OBJECTIVES: CFIN6.BESL.19.01.03 - Identify major goals that firms pursue and what a firm's primary
goal should be.
OTHER: Stockholders|Financial performance|Wealth maximization
35. Institutional investors can ensure that a corporation pursues goals that are in their best interest by _____.
a. binding the management with stockholder-sponsored proposals
b. ensuring that the management is working toward maximizing current earnings
c. compensating managers of the corporation on the basis of the firm's performance in the short run
d. implementing policies that encourage management to make decisions that maximize managers' wealth
e. monitoring its financial performance to ensure that managers pursue the goal of wealth maximization
ANSWER: e

Name: Class: Date:
FEEDBACK: a. Incorrect. Institutional investors ensure that a corporation pursues goals that
are in their best interest and increase their wealth positions as much as
possible. See 1-3: What Goal(s) Should Businesses Pursue?
b. Incorrect. Institutional investors ensure that a corporation pursues goals that
c. Incorrect. Institutional investors ensure that a corporation pursues goals that
d. Incorrect. Institutional investors ensure that a corporation pursues goals that
e. Correct. Institutional investors can ensure that a corporation pursues goals
that are in their best interest by monitoring its financial performance to ensure
that managers pursue the goal of wealth maximization. See 1-3: What Goal(s)
Should Businesses Pursue?
POINTS: 1
goal should be.
OTHER: Stockholders|Executive compensation|Wealth maximization
36. Which of the following should be the primary goal pursued by the financial manager of a firm?
a. Maximizing net income (profits)
b. Maximizing the firm's net worth, or book value
c. Maximizing dividends paid to common stockholders
d. Minimizing variable operating expenses
e. Maximizing the market value of the firm's stock
ANSWER: e
FEEDBACK: a. Incorrect. Managers can increase the value of a firm by making decisions that
increase the firm's expected future cash flows, generate the expected cash
flows sooner, increase the certainty of the expected cash flows, or produce
any combination of these actions. See 1-3: What Goal(s) Should Businesses
Pursue?
b. Incorrect. Managers can increase the value of a firm by making decisions that
Pursue?
c. Incorrect. Managers can increase the value of a firm by making decisions that
Name: Class: Date:
Pursue?
d. Incorrect. Managers can increase the value of a firm by making decisions that
Pursue?
e. Correct. The appropriate goal for management decisions; considers the risk
and timing associated with expected cash flows to maximize the price of the
firm's common stock. See 1-3: What Goal(s) Should Businesses Pursue?
POINTS: 1
goal should be.
OTHER: Financial performance|Wealth maximization
37. The primary goal of a financial manager should be to _____.

a. minimize operating costs
b. minimize interest payments
c. minimize tax payments
d. maximize operating income each year
e. maximize the value of the firm's stock
ANSWER: e
FEEDBACK: a. Incorrect. Managers can increase the value of a firm by making decisions that
Pursue?
b. Incorrect. Managers can increase the value of a firm by making decisions that
Pursue?
c. Incorrect. Managers can increase the value of a firm by making decisions that
Pursue?
d. Incorrect. Managers can increase the value of a firm by making decisions that
Name: Class: Date:
Pursue?
e. Correct. The appropriate goal for management decisions considers the risk
and timing associated with expected cash flows to maximize the price of the
firm's common stock. See 1-3: What Goal(s) Should Businesses Pursue?
POINTS: 1
goal should be.
OTHER: Organizational goal setting|Wealth maximization

a. Given the multi-owner nature of most large corporations, the agency costs associated with perquisite
consumption are not really a problem.
b. Managers may operate in the stockholders' best interests, but they may also operate in their own personal best
interests. As long as managers stay within the law, there simply are not any effective controls that stockholders
can implement to affect managerial decision making.
c. The potential for agency problems is greatest when individual stockholders own extremely small proportions
of the companies and managers have little, if any, of their own wealth tied up in these companies.
d. An agency relationship exists when one or more persons hire another person to perform some service but
withhold decision-making authority from that person.
e. Managers rule out any potential conflicts of interest with the shareholders by selling the firm's stock to
outsiders.
ANSWER: c
FEEDBACK: a. Incorrect. The stockholders want the managers to make decisions that are
consistent with the goal of wealth maximization. However, managers'
interests can potentially conflict with stockholders' interests. See 1-3: What
Goal(s) Should Businesses Pursue?
b. Incorrect. The stockholders want the managers to make decisions that are
c. Correct. The potential for agency problems is greatest in corporations with
widely dispersed ownership because individual stockholders own extremely
small proportions of the companies and managers have little, if any, of their
own wealth tied up in these companies. See 1-3: What Goal(s) Should
Businesses Pursue?
d. Incorrect. The stockholders want the managers to make decisions that are

Name: Class: Date:
e. Incorrect. The stockholders want the managers to make decisions that are
POINTS: 1
goal should be.
OTHER: Agency problem
39. Which of the following actions is consistent with social responsibility and is not necessarily inconsistent with
stockholder wealth maximization?
a. Selling a smokestack "scrubber" required by the firm's air pollution policy that is also mandated by law.
b. Dumping effluent discharge into a river, where it ruins the drinking water of the community around the plant.
The installation of machinery to treat the effluents is very expensive.
c. Investing in a smokestack filter to reduce sulphur-dioxide emissions to decrease the tax being levied on the
firm by the state for pollution it produces each year.
d. Making a large corporate donation to the local community for funding a recreation complex that can be used
by the firm's employees only.
e. Consider taking over the competitor's business in an attempt to establish monopoly for its product in the
market.
ANSWER: c
FEEDBACK: a. Incorrect. Most actions that help a firm increase the price of its stock also are
beneficial to the society at large. This is why profit-motivated, free-enterprise
economies have been so much more successful than socialistic and
communistic economic systems. See 1-3: What Goal(s) Should Businesses
Pursue?
b. Incorrect. Most actions that help a firm increase the price of its stock also are
Pursue?
c. Correct. It is good for the society if a firm attempts to maximize its stock price.
Aside from such illegal actions as attempting to form monopolies, violating
safety codes, and failing to meet pollution control requirements, the same
actions that maximize stock prices also benefit society. See 1-3: What Goal(s)
d. Incorrect. Most actions that help a firm increase the price of its stock also are
Name: Class: Date:

Pursue?
e. Incorrect. Most actions that help a firm increase the price of its stock also are
Pursue?
POINTS: 1
goal should be.
OTHER: Stockholders

a. The optimal dividend policy is the one that satisfies management, not shareholders.
b. The use of debt financing has no effect on earnings per share (EPS) or stock price.
c. The riskiness of projected EPS can impact the firm's value.
d. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings
stream.
e. Dividend policy is one aspect of the firm's financial policy that is determined solely by the shareholders.
ANSWER: c
FEEDBACK: a. Incorrect. The financial manager makes decisions about the expected cash
flows of a firm, which include capital structure decisions, capital budgeting
decisions, and dividend policy decisions. See 1-3: What Goal(s) Should
Businesses Pursue?
b. Incorrect. The financial manager makes decisions about the expected cash
Businesses Pursue?
c. Correct. Net income, and EPS, can be used as a barometer for measuring a
firm's potential for generating future cash flows. Although current earnings
and cash flows are generally highly correlated, a firm's value is determined by
the cash flows it is expected to generate in the future, as well as the risk
associated with those expected cash flows. See 1-3: What Goal(s) Should
Businesses Pursue?
d. Incorrect. The financial manager makes decisions about the expected cash
Businesses Pursue?

Name: Class: Date:
e. Incorrect. The financial manager makes decisions about the expected cash
Businesses Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Earnings per share|Wealth maximization|Organizational goal setting

a. Other things held constant, it is generally safer to invest money in a proprietorship than in a corporation.
b. There really is no difference between a general partnership and a corporation, because both have multiple
owners and both offer limited liability to the owners.
c. If you are planning to start a business, which you will run as the sole employee, and if you expect the business
to earn $1,000,000 per year before taxes, you always can minimize the total taxes you pay by setting up the
business as a corporation.
d. According to the text, "agency problems" tend to increase when managers own larger relative amounts of the
company's stock.
e. Maximizing the income statement item "net income" might not be the best goal for a corporation if the
managers are interested in maximizing the economic welfare of the firm's stockholders (that is, the firm's stock
price).
ANSWER: e
FEEDBACK: a. Incorrect. Financial managers can increase the value of a firm by making
decisions that increase the firm's expected future cash flows, generate the
expected cash flows sooner, increase the certainty of the expected cash
flows, or produce any combination of these actions. See 1-3: What Goal(s)
b. Incorrect. Financial managers can increase the value of a firm by making
c. Incorrect. Financial managers can increase the value of a firm by making
d. Incorrect. Financial managers can increase the value of a firm by making
Name: Class: Date:
e. Correct. Financial managers who attempt to maximize earnings might not
maximize value. Financial managers should consider the risk and timing
associated with expected cash flows to maximize the price of the firm's
common stock. See 1-3: What Goal(s) Should Businesses Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Stockholders|Wealth maximization
42. Paying Payroll Service (PPS) recently declared bankruptcy. The price of PPS's stock has dropped from approximately
$10 per share one year ago to $1 today. You can imagine that stockholders are not happy that the value of their stock has
dropped so significantly. At the same time the financial position of the firm was deteriorating, PPS executives increased
their salaries and perquisites substantially. Nothing they did violated any laws or was considered an unethical act. We
would most likely describe this situation as _____.
a. an agency problem
b. an accounting glitch
c. an appropriate use of the tax laws
d. an appropriate action, because executive compensation should always be increased substantially each year
e. acceptable, because it is obvious that the executives were trying to maximize the value of the firm, which is
what the shareholders want them to do
ANSWER: a
FEEDBACK: a. Correct. A potential conflict between two parties—the principals (outside
shareholders) and the agents (managers)—is an agency problem. The
potential for agency problems is greatest in large corporations because
individual stockholders own an extremely small proportion of the company
and managers might be more concerned about pursuing their own agendas.
b. Incorrect. Stockholders of large corporations “permit” (empower) the
executives to make decisions about how the firms are run. The stockholders
want the managers to make decisions that are consistent with the goal of
wealth maximization. See 1-3: What Goal(s) Should Businesses Pursue?
c. Incorrect. Stockholders of large corporations “permit” (empower) the
d. Incorrect. Stockholders of large corporations “permit” (empower) the

Name: Class: Date:
e. Incorrect. Stockholders of large corporations “permit” (empower) the
POINTS: 1
goal should be.
ACCREDITING STANDARDS: Reflective Thinking
KEYWORDS: Bloom’s Apply
43. All else equal, in which of the following forms of business would the possibility of an agency problem be the greatest?
a. A U.S. corporation in which individual stockholders own extremely small proportions of the company.
b. A proprietorship in which the owner is actively managing the business operations.
c. A partnership in which all the partners share management and decision-making responsibilities equally.
d. A foreign corporation with concentrated ownership; that is, it has relatively few owners.
e. A U.S. corporation that gives company shares as incentives to its managers.
ANSWER: a
FEEDBACK: a. Correct. Stockholders of large corporations "permit" (empower) the executives
to make decisions about how the firms are run for the stockholders' goal of
wealth maximization. An agency problem is a potential conflict of interest
between outside shareholders (owners) and managers who make decisions
about how to operate the firm. See 1-3: What Goal(s) Should Businesses
Pursue?
b. Incorrect. An agency relationship exists when one or more individuals, who
are called the principals, hire another person, the agent, to perform a service
and delegate decision-making authority to that agent. See 1-3: What Goal(s)
c. Incorrect. An agency relationship exists when one or more individuals, who
d. Incorrect. An agency relationship exists when one or more individuals, who
e. Incorrect. An agency relationship exists when one or more individuals, who
Name: Class: Date:
POINTS: 1
goal should be.
44. Identify the internal factor that influences the stock price of a firm.
a. Legal constraints
b. Capital structure
c. Tax laws
d. General level of economic activity
e. Conditions in the stock market
ANSWER: b
FEEDBACK: a. Incorrect. The financial manager makes decisions about the expected cash
flows of a firm. Although managerial actions affect the value of a firm's stock,
external factors also influence stock prices. See 1-3: What Goal(s) Should
Businesses Pursue?
b. Correct. The financial manager makes decisions about internal factors like
capital structure, capital budgeting decisions, and dividend policy decisions.
External factors like legal constraints, the general level of economic activity,
tax laws, and conditions in the financial markets influence stock prices. See 1-
3: What Goal(s) Should Businesses Pursue?
c. Incorrect. The financial manager makes decisions about the expected cash
Businesses Pursue?
d. Incorrect. The financial manager makes decisions about the expected cash
Businesses Pursue?
e. Incorrect. The financial manager makes decisions about the expected cash
Businesses Pursue?
POINTS: 1

Name: Class: Date:
goal should be.
OTHER: Capital structure|Stock valuation
45. Which of the following statements is true of agency problems?

a. Regardless of economic conditions, if a firm's stock price falls during the year, this indicates that the firm's
managers must not be acting in the best interests of the shareholders.
b. One method of controlling agency problems is to engage in the taking of "poison pills."
c. One of the best means to control agency problems is to require the managers and other important decision-
makers of the firm to also be owners of the firm.
d. Agency problems probably would not exist if the important decisions of a firm were made by persons who
have no vested interests, such as ownership, in the firm.
e. Shareholders can solve agency problems by selling their stock to other investors.
ANSWER: c
FEEDBACK: a. Incorrect. The potential conflict between two parties—the principals (outside
shareholders) and the agents (managers)—is an agency problem. A common
method used to motivate managers to operate in a manner consistent with
stock price maximization is to tie managers' compensation to the company's
performance. See 1-3: What Goal(s) Should Businesses Pursue?
b. Incorrect. The potential conflict between two parties—the principals (outside
c. Correct. One of the best means to control agency problems is to require the
managers and other important decision-makers of the firm to also be owners
of the firm. The potential for agency problems is greatest when individual
stockholders own extremely small proportions of the companies and
managers have little, if any, of their own wealth tied up in these companies.
d. Incorrect. The potential conflict between two parties—the principals (outside
e. Incorrect. The potential conflict between two parties—the principals (outside
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:

goal should be.
46. The management's primary goal is stockholder wealth maximization, which, translates into _____.
a. maximizing the value of the firm as measured by the price of its common stock
b. maximizing the earnings per share of the stockholders
c. maximizing the dividends received by stockholders
d. maximizing the net income earned by the company
e. maximizing the managerial compensation (incentives)
ANSWER: a
FEEDBACK: a. Correct. The management's primary goal is stockholder wealth maximization,
which translates into maximizing the value of the firm as measured by the
price of its common stock. See 1-3: What Goal(s) Should Businesses
Pursue?
b. Incorrect. Investors want to increase their wealth positions as much as
possible. All else equal, it follows that managers should behave in a manner
that is consistent with enhancing the firm's value. See 1-3: What Goal(s)
c. Incorrect. Investors want to increase their wealth positions as much as
d. Incorrect. Investors want to increase their wealth positions as much as
e. Incorrect. Investors want to increase their wealth positions as much as
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Stock valuation|Wealth maximization

Name: Class: Date:

47. Stock price maximization requires _____.

a. sale of high-quality goods and services at the highest possible prices
b. efficient, low-cost plants that produce high-quality goods and services
c. the development of products that can be sold at a higher price to consumers
d. investment in high-cost plants to manufacture efficiently
e. investment in one business establishment to cut the operational cost of multiple establishments
ANSWER: b
FEEDBACK: a. Incorrect. The management's primary goal is stockholder wealth
maximization, which translates into maximizing the value of the firm as
measured by the price of its common stock. See 1-3: What Goal(s) Should
Businesses Pursue?
b. Correct. Stock price maximization is the most important goal of most
corporations. Stock price maximization requires efficient, low-cost plants that
produce high-quality goods and services. See 1-3: What Goal(s) Should
Businesses Pursue?
c. Incorrect. The management's primary goal is stockholder wealth
maximization, which, translates into maximizing the value of the firm as
Businesses Pursue?
d. Incorrect. The management's primary goal is stockholder wealth
Businesses Pursue?
e. Incorrect. The management's primary goal is stockholder wealth
Businesses Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
48. Actions that help a firm increase the price of its stock also _____.
a. result in manufacturing of low-quality products
b. result in inflation
c. require the development of products that consumers want and need
Name: Class: Date:
d. require investment in high-cost manufacturing plants

e. result in sale of goods and services at highest possible prices
ANSWER: c
FEEDBACK: a. Incorrect. Aside from such illegal actions as attempting to form monopolies,
violating safety codes, and failing to meet pollution control requirements, the
same actions that maximize stock prices also benefit society. See 1-3: What
b. Incorrect. Aside from such illegal actions as attempting to form monopolies,
c. Correct. Actions that help a firm increase the price of its stock also require the
development of products that consumers want and need. See 1-3: What
d. Incorrect. Aside from such illegal actions as attempting to form monopolies,
e. Incorrect. Aside from such illegal actions as attempting to form monopolies,
POINTS: 1
DIFFICULTY: Easy
goal should be.
49. Identify the external factor that affects the value of a firm's stock.
a. Capital structure decisions
b. General level of economic activity
c. Capital budgeting decisions
d. Dividend policy decisions
e. Cash flow of the firm
ANSWER: b
FEEDBACK: a. Incorrect. Although managerial actions affect the value of a firm's stock,
external factors also influence stock prices. Based on both internal and
external constraints, management makes a set of long-run strategic policy
decisions that chart a future course for the firm. See 1-3: What Goal(s)
Name: Class: Date:
b. Correct. Although managerial actions affect the value of a firm's stock,

external factors also influence stock prices. Included among these factors are
legal constraints, the general level of economic activity, tax laws, and
conditions in the financial markets. See 1-3: What Goal(s) Should Businesses
Pursue?
c. Incorrect. Although managerial actions affect the value of a firm's stock,
d. Incorrect. Although managerial actions affect the value of a firm's stock,
e. Incorrect. Although managerial actions affect the value of a firm's stock,
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Stock valuation
50. Which of the following mathematical expressions computes earnings per share (EPS)?
a. Earnings per share = Net Income × Number of outstanding shares of common stock
b. Earnings per share = (Net Income + Dividend Paid) ÷ Number of outstanding shares of common stock
c. Earnings per share = Net Income ÷ Number of outstanding shares of common stock
d. Earnings per share = (Net Income – Dividend Paid) ÷ Number of outstanding shares of common stock
e. Earnings per share = (Net Income – Dividend Paid) × Number of outstanding shares of common stock
ANSWER: c
FEEDBACK: a. Incorrect. EPS is simply net income stated on a per share basis. See 1-3:
What Goal(s) Should Businesses Pursue?
b. Incorrect. EPS is simply net income stated on a per share basis. See 1-3:
c. Correct. Earnings per share (EPS) equals net income (NI) divided by the
number of outstanding shares of common stock. See 1-3: What Goal(s)

Name: Class: Date:
d. Incorrect. EPS is simply net income stated on a per share basis. See 1-3:
e. Incorrect. EPS is simply net income stated on a per share basis. See 1-3:
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Net income|Earnings per share
51. Which of the following statements is true of earnings per share?

a. A company must pay tax on the earnings per share.
b. Earnings per share can be maximized by changing from corporation to proprietorship form of organization.
c. A company can maximize its value by maximizing earnings per share.
d. Earnings per share is often used as an indication of the firm's potential for generating future cash flows.
e. A high earnings per share in the current period results in lower future risk position of the business.
ANSWER: d
FEEDBACK: a. Incorrect. Earnings per share (EPS), equals net income (NI) divided by the
b. Incorrect. Earnings per share (EPS), equals net income (NI) divided by the
c. Incorrect. Earnings per share (EPS), equals net income (NI) divided by the
d. Correct. Many investors use earnings per share (EPS) to gauge the value of a
stock. A primary reason EPS receives so much attention is the belief that net
income, and thus EPS, can be used as a barometer for measuring the firm's
potential for generating future cash flows. See 1-3: What Goal(s) Should
Businesses Pursue?
e. Incorrect. Earnings per share (EPS), equals net income (NI) divided by the
POINTS: 1
Name: Class: Date:
goal should be.
OTHER: Earnings per share
52. Which of the following statements is true of a hostile takeover?

a. A hostile takeover results when management wants the firm to be taken over.
b. A hostile takeover is most likely to occur when a firm's stock is undervalued relative to its potential.
c. After a hostile takeover, managers of the acquired firm generally retain the positions they had prior to the
takeover.
d. A hostile takeover does not allow managers to take actions that maximize stock prices.
e. A hostile takeover results in poor management and inefficient operations after the takeover is completed.
ANSWER: b
FEEDBACK: a. Incorrect. Hostile takeovers are a threat that can motivate managers to act in
the shareholders' best interests. See 1-3: What Goal(s) Should Businesses
Pursue?
b. Correct. Hostile takeovers are most likely to occur when a firm's stock is
undervalued relative to its potential, which is often caused by inefficient
operations that result from poor management. See 1-3: What Goal(s) Should
Businesses Pursue?
c. Incorrect. Hostile takeovers are a threat that can motivate managers to act in
Pursue?
d. Incorrect. Hostile takeovers are a threat that can motivate managers to act in
Pursue?
e. Incorrect. Hostile takeovers are a threat that can motivate managers to act in
Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Takeover
53. Which of the following actions should be taken by managers to avoid takeover threats?
Name: Class: Date:
a. Managers should take action to maximize stock prices.

b. Managers should declare lower dividends.
c. Managers should let the stockholders make the capital structure decisions.
d. Managers should make decisions that decrease the firm's expected future cash flows.
e. Managers should ensure that high-quality goods and services are sold at the highest possible prices.
ANSWER: a
FEEDBACK: a. Correct. To avoid takeover threats, managers take actions that maximize
stock prices. See 1-3: What Goal(s) Should Businesses Pursue?
b. Incorrect. Hostile takeovers are most likely to occur when a firm's stock is
Businesses Pursue?
c. Incorrect. Hostile takeovers are most likely to occur when a firm's stock is
undervalued relative to its potential, which often is caused by inefficient
Businesses Pursue?
d. Incorrect. Hostile takeovers are most likely to occur when a firm's stock is
Businesses Pursue?
e. Incorrect. Hostile takeovers are most likely to occur when a firm's stock is
Businesses Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Takeover
54. Identify the correct statement about business ethics.

a. Good business ethics decrease shareholders' trust in the company.
b. Good business ethics result in recurring fines and legal expenses.
c. Good business ethics attract business from customers who appreciate and support specific political parties.
d. Good business ethics reduce the economic viability of the communities where these firms operate.
e. Good business ethics attract and keep employees of the highest caliber.
ANSWER: e
FEEDBACK: a. Incorrect. Business ethics are a company's attitude and conduct toward its
employees, customers, community, and stockholders. High standards of
Name: Class: Date:
ethical behavior demand that a firm treat each party it deals with in a fair and
honest manner. See 1-4: What Roles do Ethics and Governance Play in
Business Success?
b. Incorrect. Business ethics is a company's attitude and conduct toward its
Business Success?
c. Incorrect. Business ethics are a company's attitude and conduct toward its
Business Success?
d. Incorrect. Business ethics is a company's attitude and conduct toward its
Business Success?
e. Correct. Executives believe that there is a positive correlation between ethics
and long-run profitability because ethical behavior attracts and keeps
employees of the highest caliber. See 1-4: What Roles do Ethics and
Governance Play in Business Success?
POINTS: 1
REFERENCES: What Roles do Ethics and Governance Play in Business Success?
LEARNING OBJECTIVES: CFIN6.BESL.19.01.04 - Explain the roles ethics and good governance play in successful
businesses.
OTHER: Business ethics|Corporate governance
55. Which of the following statements concerning a firm's quest to maximize wealth is correct?
a. In extremely competitive industries, we would expect firms would voluntarily engage in many socially
beneficial projects to try to maximize their stocks' values.
b. Actions that maximize a firm's stock price are inconsistent with maximizing social welfare.
c. The concepts of social responsibility and ethical responsibility on the part of corporations are completely
different and neither is relevant in maximizing stock price.
d. In a competitive market, if a group of firms does not spend resources making social welfare improvements, but
another group does, in general, this will not affect the second group's ability to attract funds.
e. If the government did not mandate socially responsible corporate actions, such as those relating to product
safety and fair hiring practices, most firms in competitive markets probably would not pursue such policies
voluntarily.
ANSWER: e

Name: Class: Date:
FEEDBACK: a. Incorrect. High standards of ethical behavior demand that a firm treat each
party it deals with in a fair and honest manner. Good ethical behavior and
social responsibility is important in wealth maximization. See 1-4: What Roles
do Ethics and Governance Play in Business Success?
b. Incorrect. High standards of ethical behavior demand that a firm treat each
c. Incorrect. High standards of ethical behavior demand that a firm treat each
d. Incorrect. High standards of ethical behavior demand that a firm treat each
e. Correct. Although most firms have policies that espouse ethical business
conduct, in many instances, large corporations have engaged in unethical
behavior. The unethical behavior of executives provided substantial gains at
the expense of stockholders' positions and resulted in legislation aimed at
arresting the apparent tide of unethical behavior in the corporate world. See
1-4: What Roles do Ethics and Governance Play in Business Success?
POINTS: 1
DIFFICULTY: Easy
businesses.
56. The 11 "titles" in the Sarbanes-Oxley Act of 2002 establish standards for accountability and responsibility in reporting
financial information for publicly-traded corporations. Which of the following activities does the act provide that a
corporation must abide by?
a. The corporation must have a committee that consists of an internal director nominated from the board to
oversee the firm's audits.
b. The corporation's internal auditor will render a biased opinion concerning the firm's financial statements.
c. The corporation must maximize social welfare through funding of environmentally friendly activities.
d. The corporation must provide additional information about the procedures used to construct and report
financial statements.
e. Either the firm's chief executive officer (CEO) or its chief financial officer (CFO), but not both, must certify
audit reports submitted to the Securities Exchange Commission.
ANSWER: d

Name: Class: Date:
FEEDBACK: a. Incorrect. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 establish
standards for accountability and responsibility in reporting financial
information for publicly-traded corporations. See 1-4: What Roles do Ethics
and Governance Play in Business Success?
b. Incorrect. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 establish
c. Incorrect. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 establish
d. Correct. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 require a
publicly-traded corporation to provide additional information about the
procedures used to construct and report financial statements. See 1-4: What
Roles do Ethics and Governance Play in Business Success?
e. Incorrect. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 establish
POINTS: 1
DIFFICULTY: Easy
businesses.
OTHER: Sarbanes-Oxley Act of 2002
57. Which of the following is an example of ethical behavior of the management of a corporation?
a. Executives of the corporation pursue their own personal interests when making important business decisions.
b. Payment of bribe by the management of the corporation to foreign governments to obtain business.
c. The management of the corporation uses confidential information for personal gain.
d. The management actions are often resulting in large gains for themselves and large losses for stockholders.
e. The management takes steps to adhere to laws and regulations relating to product safety.
ANSWER: e
FEEDBACK: a. Incorrect. Business ethics is a company's attitude and conduct toward its
Business Success?
b. Incorrect. Business ethics is a company's attitude and conduct toward its
Name: Class: Date:
Business Success?
c. Incorrect. Business ethics is a company's attitude and conduct toward its
Business Success?
d. Incorrect. Business ethics is a company's attitude and conduct toward its
Business Success?
e. Correct. A firm's commitment to business ethics can be measured by the
tendency of the firm and its employees to adhere to laws and regulations
relating to such factors as product safety and quality, fair employment
practices, fair marketing and selling practices. See 1-4: What Roles do Ethics
POINTS: 1
DIFFICULTY: Easy
businesses.
58. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 _____.

a. require corporations to payout all the earnings as dividends
b. establish standards for accountability and responsibility in reporting financial information
c. allow management to take actions resulting in large gains to them and losses to stockholders
d. allow management to use confidential information for personal gains
e. require stockholders to make capital structure decisions
ANSWER: b
FEEDBACK: a. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
accounting scandals caused the public to be skeptical of accounting and
financial information reported by large U.S. corporations. See 1-4: What
b. Correct. The 11 sections (titles) in the Sarbanes-Oxley Act of 2002 establish
information. See 1-4: What Roles do Ethics and Governance Play in Business
Success?
c. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that

Name: Class: Date:

d. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
e. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
POINTS: 1
DIFFICULTY: Easy
businesses.
59. The Sarbanes-Oxley Act of 2002 requires a publicly-traded corporation to _____.

a. keep confidential the procedures used to construct and report financial statements
b. have an internal audit team that renders an unbiased opinion concerning the firm's governance policy
c. have a committee that consists of outside directors to oversee the firm's audits
d. increase the certainty of the expected cash flows
e. adopt the primary goal of stockholder wealth maximization
ANSWER: c
FEEDBACK: a. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
accountability and responsibility in reporting financial information for publicly-
traded corporations. See 1-4: What Roles do Ethics and Governance Play in
Business Success?
b. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Business Success?
c. Correct. The Sarbanes-Oxley Act of 2002 requires a publicly-traded
corporation to have a committee that consists of outside directors to oversee
the firm's audits. See 1-4: What Roles do Ethics and Governance Play in
Business Success?
d. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Business Success?
e. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Name: Class: Date:
Business Success?
POINTS: 1
DIFFICULTY: Easy
businesses.
60. The Sarbanes-Oxley Act of 2002 requires the chief executive officer of a publicly-traded corporation to _____.
a. keep confidential the procedures used to construct and report financial statements
b. certify financial reports that are submitted to the Securities and Exchange Commission
c. pursue interests that result in large gains for them and large losses for stockholders
d. oversee the corporation's audit and attest the audit report
e. construct the firm's financial statements
ANSWER: b
FEEDBACK: a. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Business Success?
b. Correct. The Sarbanes-Oxley Act of 2002 requires the chief executive officer
of a publicly-traded corporation to certify financial reports that are submitted
to the Securities and Exchange Commission. See 1-4: What Roles do Ethics
c. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Business Success?
d. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Business Success?
e. Incorrect. The Sarbanes-Oxley Act of 2002 establishes standards for
Business Success?
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:

businesses.
61. Which of the following is true of the Sarbanes-Oxley Act of 2002?

a. The act requires at least 30 percent of the businesses in the United States to be formed as S corporations.
b. The act requires a limited liability company to have a committee that consists of inside directors to oversee the
firm's audits.
c. The act requires a limited liability company to be taxed like a proprietorship.
d. The act requires an S corporation to have more than 100 stockholders (members) and more than one type of
stock.
e. The act requires a publicly-traded corporation to hire an external auditing firm that renders an unbiased
opinion concerning the firm's financial statements.
ANSWER: e
FEEDBACK: a. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
b. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
c. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
d. Incorrect. A major reason for the Sarbanes-Oxley Act of 2002 was that
e. Correct. The Sarbanes-Oxley Act of 2002 requires a publicly-traded
corporation to hire an external auditing firm that will render an unbiased
(independent) opinion concerning the firm's financial statements. See 1-4:
What Roles do Ethics and Governance Play in Business Success?
POINTS: 1
DIFFICULTY: Easy
businesses.
Name: Class: Date:

62. Which of the following is a reason for a company to go international?

a. The company manufactures products that have saturated foreign markets.
b. The company holds a patent for the best production technology for its products.
c. The company is manufacturing the finished product in their country at a very high production cost.
d. The company has the best access to the basic resources in their country needed to sustain their primary
business.
e. The company wants to avoid a hostile takeover.
ANSWER: c
FEEDBACK: a. Incorrect. Large multinational companies are involved in all phases of the
production process, from extraction of raw materials, through the
manufacturing process, to distribution to consumers throughout the world,
managers of such firms face a wide range of issues that are not present when
a company operates in a single country. See 1-5: Forms of Businesses in
Other Countries
b. Incorrect. Large multinational companies are involved in all phases of the
Other Countries
c. Correct. Companies in countries where production costs are high, tend to shift
production to low-cost countries. The ability to shift production from country to
country has important implications for labor costs in all countries. See 1-5:
Forms of Businesses in Other Countries
d. Incorrect. Large multinational companies are involved in all phases of the
Other Countries
e. Incorrect. Large multinational companies are involved in all phases of the
Other Countries
POINTS: 1
REFERENCES: Forms of Businesses in Other Countries
LEARNING OBJECTIVES: CFIN6.BESL.19.01.05 - Describe how foreign firms differ from U.S. firms and identify
factors that affect financial decisions in multinational firms.
Name: Class: Date:

OTHER: Finance|Multinational corporations

a. Financial institutions in other countries generally are less regulated than in the United States.
b. One reason domestic firms "go global" is to sell products in saturated markets.
c. Often firms can avoid labor laws that apply to foreign manufacturers by establishing manufacturing units in
the country where the hurdles apply.
d. One of the advantages associated with doing business in international markets is that all countries report their
financial statements in the U.S. dollar.
e. A multinational firm takes advantage of the cultural differences among countries and uses the same marketing
strategy in every country in which it operates.
ANSWER: a
FEEDBACK: a. Correct. Financial institutions in other countries are generally less regulated
than in the United States, which means foreign banks can provide businesses
with a greater variety of services than U.S. banks can, including short-term
loans, long-term financing, and even stock ownership. See 1-5: Forms of
Businesses in Other Countries
b. Incorrect. While most developed countries with free economies have business
organizations that are similar to U.S. corporations, some differences exist
relating to ownership structure and management of operations. See 1-5:
c. Incorrect. While most developed countries with free economies have business
d. Incorrect. While most developed countries with free economies have business
e. Incorrect. While most developed countries with free economies have business
POINTS: 1
DIFFICULTY: Easy
OTHER: Global business finance|Finance
Name: Class: Date:
64. Because financial institutions in other countries are generally less regulated than those in the United States, they
generally _____.
a. invest in less socially responsible companies than U.S. banks
b. can provide businesses a greater variety of services than U.S. banks can
c. invest to minimize investment corporations' losses
d. can provide investment opportunities in illegal business plans also
e. are required to fulfill the regulations of the Sarbanes-Oxley Act
ANSWER: b
FEEDBACK: a. Incorrect. Financial institutions in other countries can provide businesses with
services such as short-term loans, long-term financing, and even stock
ownership. Non-U.S. firms tend to have close relationships with individual
banking organizations that also might take ownership positions in the
companies. See 1-5: Forms of Businesses in Other Countries
b. Correct. As financial institutions in other countries are generally less regulated
than in the United States, foreign banks provide businesses a greater variety
of services than U.S. banks do. See 1-5: Forms of Businesses in Other
Countries
c. Incorrect. Financial institutions in other countries can provide businesses with
d. Incorrect. Financial institutions in other countries can provide businesses with
e. Incorrect. Financial institutions in other countries can provide businesses with
POINTS: 1
DIFFICULTY: Easy
OTHER: Finance|Global business finance
65. Which of the following is true of corporations that operate in several different countries?
Name: Class: Date:
a. A nation may expropriate the assets of multinational corporations without compensation.

b. Differences in legal systems of host nations make it easy for executives trained in one country to operate
effectively in another.
c. Cash flows in various parts of a multinational corporate system are denominated in one currency.
d. Multinational corporations have the advantage of uniform attitudes toward risk taking from one country to the
next.
e. Uniformity of tax-laws across different nations result in proper coordination and control of subsidiaries.
ANSWER: a
FEEDBACK: a. Correct. A nation is free to place constraints on the transfer of corporate
resources and even to expropriate—that is, take for public use—the assets of
a firm without compensation. See 1-5: Forms of Businesses in Other
Countries
b. Incorrect. Several problems associated with the international environment
increase the complexity of the manager's task in a multinational corporation,
and they often force the manager to change the way alternative courses of
action are evaluated and compared. See 1-5: Forms of Businesses in Other
Countries
c. Incorrect. Several problems associated with the international environment
Countries
d. Incorrect. Several problems associated with the international environment
Countries
e. Incorrect. Several problems associated with the international environment
Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: Political risk|Global business environment|
66. Which of the following is true of stockholders in continental Europe?

a. The stocks of corporations are widely dispersed among a large number of different investors, both individuals
and institutions.
Name: Class: Date:
b. Many stockholders assign banks their proxy votes for the directors of the companies.
c. Banks are major stockholders of corporations in continental Europe.
d. Major stockholders of closed corporations are not involved in the firms' daily operations.
e. Stockholders in continental Europe are often family units resulting from the universal banking relationship
existing in the United States.
ANSWER: b
FEEDBACK: a. Incorrect. The stocks of corporations in the United States are widely
dispersed among a large number of different investors, both individuals and
institutions. On the other hand, in much of continental Europe, major investor
groups include families, banks, and other corporations. See 1-5: Forms of
b. Correct. Although banks in continental Europe do not hold large numbers of
shares of stocks, they can greatly influence companies because many
shareholders assign banks their proxy votes for the directors of the
c. Incorrect. The stocks of corporations in the United States are widely
d. Incorrect. The stocks of corporations in the United States are widely
e. Incorrect. The stocks of corporations in the United States are widely
POINTS: 1
DIFFICULTY: Easy
OTHER: Proxy|Global business finance|Organizational structure types
67. Which of the following statements is true of the concentrated organizational structures of non-U.S. firms?
a. The concentrated organizational structures of non-U.S. firms permit managers to focus more on short-term
earnings.
b. The concentrated organizational structures of non-U.S. firms result in restricted access to credit in times of
financial difficulty.
Name: Class: Date:
c. The concentrated organizational structures of non-U.S. firms make it difficult to change managers.
d. The concentrated organizational structures of non-U.S. firms reduce the managerial focus on wealth
maximization.
e. The concentrated organizational structures of non-U.S. firms result from the universal banking relationships
that exist outside the United States.
ANSWER: e
FEEDBACK: a. Incorrect. The ownership structures of many large non-U.S. companies are
often concentrated in the hands of a relatively few investors or investment
groups. Such firms are considered closed because shares of stock often are
not publicly traded, relatively few individuals or groups own the stock, and
major stockholders are generally involved in the firms' daily operations. See
1-5: Forms of Businesses in Other Countries
b. Incorrect. The ownership structures of many large non-U.S. companies are
c. Incorrect. The ownership structures of many large non-U.S. companies are
d. Incorrect. The ownership structures of many large non-U.S. companies are
e. Correct. The primary reason non-U.S. firms are likely to be more closed, and
thus have more concentrated ownership than U.S. firms, results from the
universal banking relationships that exist outside the United States. See 1-5:
POINTS: 1
DIFFICULTY: Easy
OTHER: Global business finance|Organizational structure types
68. Which of the following is true of the greater concentration of ownership in non-U.S. firms than in U.S. firms?
a. It makes it easy to change managers in non-U.S. firms.
Name: Class: Date:
b. It permits greater monitoring and control by individuals or groups than the more dispersed ownership
structures of U.S. firms.
c. It makes it difficult for non-U.S. firms to access credit in times of financial difficulty.
d. It results in managers focusing on short-term goals rather than on long-term objectives.
e. It reduces the involvement of stockholders in the daily operations of non-U.S. firms.
ANSWER: b
FEEDBACK: a. Incorrect. The primary reason non-U.S. firms are likely to be more closed, and
b. Correct. The greater concentration of ownership of non-U.S. firms permits
managers to focus more on long-term objectives, especially wealth
maximization, than on short-term earnings, because these firms have easier
access to credit in times of financial difficulty. See 1-5: Forms of Businesses
in Other Countries
c. Incorrect. The primary reason non-U.S. firms are likely to be more closed, and
d. Incorrect. The primary reason non-U.S. firms are likely to be more closed, and
e. Incorrect. The primary reason non-U.S. firms are likely to be more closed, and
POINTS: 1
DIFFICULTY: Easy
OTHER: Organizational structure types|Finance
69. Industrial groups that exist in foreign countries are _____.

a. owned and managed by the Securities and Exchange Commission
b. organizations that tie together all the functions of production and sales from start to finish
c. organizations that encompass firms involved in financing and marketing only
d. privately held companies and the stock of such firms are not traded publicly
e. led by the firm involved with manufacturing and distribution of products
ANSWER: b
Name: Class: Date:
FEEDBACK: a. Incorrect. In some parts of the world, firms belong to industrial groups, which
are organizations composed of companies in different industries that have
common ownership interests and, in some instances, shared management.
See 1-5: Forms of Businesses in Other Countries
b. Correct. Industrial groups are organizations that tie together all the functions
of production and sales from start to finish by including firms that provide the
materials and services required to manufacture and sell the groups' products.
c. Incorrect. In some parts of the world, firms belong to industrial groups, which
d. Incorrect. In some parts of the world, firms belong to industrial groups, which
e. Incorrect. In some parts of the world, firms belong to industrial groups, which
POINTS: 1
DIFFICULTY: Easy
OTHER: Organizational structure types
70. Which of the following statements is true?

a. The currency values among different countries rarely fluctuate.
b. Cash flows of various parts of a multinational corporate system are always denominated in the same
currencies.
c. Institutional differences among countries can cause significant problems in coordination of subsidiaries.
d. No nation places constraints on the transfer of corporate resources.
e. Within similar geographic regions, different countries have uniform cultural heritages that shape values and
influence the role of business in the society.
ANSWER: c
FEEDBACK: a. Incorrect. Several problems associated with the international environment
Countries

Name: Class: Date:

Countries
c. Correct. Each country in which the firm operates has its own political and
economic institutions, and institutional differences among countries can cause
significant problems when a firm tries to coordinate and control the worldwide
operations of its subsidiaries. See 1-5: Forms of Businesses in Other
Countries
Countries
Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: Exchange rates|International sociocultural differences
71. Which of the following statements concerning the complexity of the manager's task in a multinational corporation is
correct?
a. The currency values of different countries in which a multinational corporation operates often experience
fluctuations.
b. Cash flows in the various parts of a multinational corporate system are often denominated in the same
currencies.
c. All the countries in which a multinational corporation operates have uniform political and economic
institutions.
d. The management personnel of the subsidiaries of a multinational corporation are fluent in English and several
other languages.
e. No nation can place constraints on the transfer of corporate resources.
ANSWER: a
FEEDBACK: a. Correct. Cash flows in various parts of a multinational corporate system often
are denominated in different currencies. An analysis of exchange rates and

Name: Class: Date:
the effects of fluctuating currency values must be included in all multinational

financial analyses. See 1-5: Forms of Businesses in Other Countries
Countries
c. Incorrect. Several problems associated with the international environment
Countries
Countries
Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: Exchange rates|International sociocultural differences|Political risk
72. The prices at which the currency of one country can be converted into the currencies of other countries are known as
_____.
a. procurement prices
b. political risk costs
c. exchange rates
d. conversion costs
e. transfer prices
ANSWER: c
FEEDBACK: a. Incorrect. Cash flows in various parts of a multinational corporate system are
often denominated in different currencies. Hence, an analysis of the effects of
fluctuating currency values must be included in all multinational financial
analyses. See 1-5: Forms of Businesses in Other Countries

Name: Class: Date:
b. Incorrect. Cash flows in various parts of a multinational corporate system are

c. Correct. The prices at which the currency of one country can be converted
into the currencies of other countries are known as exchange rates. An
analysis of exchange rates and the effects of fluctuating currency values must
be included in all multinational financial analyses. See 1-5: Forms of
d. Incorrect. Cash flows in various parts of a multinational corporate system are
e. Incorrect. Cash flows in various parts of a multinational corporate system are
POINTS: 1
DIFFICULTY: Easy
OTHER: Exchange rates
73. Which of the following is true of a firm that tries to coordinate and control the worldwide operations of its
subsidiaries?
a. The management personnel of its subsidiaries need to be fluent only in English.
b. The subsidiaries based in different countries never face any constraints on the transfer of corporate resources.
c. Cash flows in different subsidiaries are denominated in different currencies.
d. The terms of trade determined after negotiation with the host government and the multinational corporation
are always well aligned to the firm's policies.
e. All the subsidiaries are based only in countries that have homogeneous cultural heritages.
ANSWER: c
FEEDBACK: a. Incorrect. Several problems associated with the international environment
Countries

Name: Class: Date:
Countries
c. Correct. Cash flows in various parts of a multinational corporate system are
often denominated in different currencies. The fluctuations in these currencies
increase the complexity of the manager's task in a multinational corporation.
Countries
Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: International legal differences|International sociocultural differences
74. In many countries, the terms under which companies compete, the actions that must be taken or avoided, and the terms
of trade of various transactions are determined by _____.
a. the governments of the countries in which the subsidiaries operate
b. the fluctuations in the exchange rates of the currencies of the countries in which the subsidiaries operate
c. direct negotiation between the host government and the multinational corporation
d. the ability to curtail unprofitable operations
e. the host government only
ANSWER: c
FEEDBACK: a. Incorrect. The determination of terms under which companies compete, the
actions that must be taken or avoided, and the terms of trade on various
transactions is a political process. Most traditional models in finance assume
the existence of a competitive marketplace in which the terms of trade are
determined by the participants. See 1-5: Forms of Businesses in Other
Countries
b. Incorrect. The determination of terms under which companies compete, the

Name: Class: Date:

Countries
c. Correct. In most of the world, the terms under which companies compete, the
transactions are determined by direct negotiation between the host
government and the multinational corporation rather than in the marketplace.
d. Incorrect. The determination of terms under which companies compete, the
Countries
e. Incorrect. The determination of terms under which companies compete, the
Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: International legal differences
75. The finance function is relatively independent of most other corporate functions. Marketing decisions, for example,
might affect the firm's need for funds but are not affected by conditions in financial markets or other financing issues.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Coordination of the finance function and the marketing function is critical to the
success of a company, especially a small, newly formed firm because it is
necessary to ensure that sufficient cash is generated to survive. See 1-1: What
is Finance?
Incorrect Coordination of the finance function and the marketing function is critical to the
success of a company, especially a small, newly formed firm because it is
necessary to ensure that sufficient cash is generated to survive. See 1-1: What
is Finance?
POINTS: 1
DIFFICULTY: Easy
Name: Class: Date:
QUESTION TYPE: True / False

OTHER: Finance|Financial markets
76. Two key limitations of the proprietorship form of business involve potential difficulty in raising the necessary capital
and the presence of unlimited personal liability for business debts.
a. True
b. False
ANSWER: True
FEEDBACK: Correct It is difficult for a proprietorship to obtain large sums of capital because the
firm's financial strength is generally based solely on the financial strength of the
only owner. The proprietor has unlimited personal liability for business debts
because any debts of the business are considered obligations of the sole
owner. See 1-2: Alternative Forms of Business Organization
Incorrect It is difficult for a proprietorship to obtain large sums of capital because the
firm's financial strength is generally based solely on the financial strength of the
only owner. The proprietor has unlimited personal liability for business debts
because any debts of the business are considered obligations of the sole
owner. See 1-2: Alternative Forms of Business Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Business ownership forms|Sole proprietorships
77. The disadvantages associated with a proprietorship are similar to those of a partnership. A major difference between
these two forms of business organization is that a partnership requires a legal agreement that commits the partners'
personal assets, which means that partnerships have little difficulty raising large amounts of capital (similar to
corporations).
a. True
b. False
ANSWER: False

Name: Class: Date:
FEEDBACK: Correct Even though partnerships have greater capabilities than proprietorships to
raise funds to support growth, partnerships still have difficulty in attracting
substantial amounts of funds. See 1-2: Alternative Forms of Business
Organization
Incorrect Even though partnerships have greater capabilities than proprietorships to
raise funds to support growth, partnerships still have difficulty in attracting
substantial amounts of funds. See 1-2: Alternative Forms of Business
Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Business ownership forms|Sole proprietorships|Partnerships
78. A proprietorship is an unincorporated business owned by one individual and the owner benefits from the limited
liability for business, which limits personal losses to what the proprietor has invested in the company.
a. True
b. False
ANSWER: False
FEEDBACK: Correct A proprietorship is an unincorporated business owned by one individual. The
proprietor has unlimited personal liability for business debts because any debts
of the business are considered obligations of the sole owner. See 1-2:
Incorrect A proprietorship is an unincorporated business owned by one individual. The
proprietor has unlimited personal liability for business debts because any debts
of the business are considered obligations of the sole owner. See 1-2:
POINTS: 1
DIFFICULTY: Easy
OTHER: Business ownership forms|Sole proprietorships
Name: Class: Date:
79. The corporate charter is a document filed with the secretary of the state in which a firm is incorporated that provides
information about the corporation, including its name, address, directors, and amount of capital stock.
a. True
b. False
ANSWER: True
FEEDBACK: Correct A corporate charter, which provides general information, including the name of
the corporation, types of activities it will pursue, amount of stock that will be
issued initially, and so forth, must be filed with the secretary of the state in
which a firm incorporates. See 1-2: Alternative Forms of Business Organization
Incorrect A corporate charter, which provides general information, including the name of
the corporation, types of activities it will pursue, amount of stock that will be
issued initially, and so forth, must be filed with the secretary of the state in
which a firm incorporates. See 1-2: Alternative Forms of Business Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Business ownership forms|Corporations
80. In general, the role of a financial manager is to plan for the acquisition and use of funds so as to maximize the value of
the firm.
a. True
b. False
ANSWER: True
FEEDBACK: Correct The appropriate goal for management decisions is to consider the risk and
timing associated with expected cash flows to maximize the price of a firm's
Incorrect The appropriate goal for management decisions is to consider the risk and
POINTS: 1
DIFFICULTY: Easy
goal should be.
Name: Class: Date:

OTHER: Wealth maximization|Financial management|Financial performance
81. To properly maximize the value of the firm, the financial manager should execute his or her duties independent of the
cash flow decisions made by other senior managers.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Managers can increase the value of a firm by making decisions that increase
the firm's expected future cash flows, generate the expected cash flows
sooner, increase the certainty of the expected cash flows, or produce any
combination of these actions. See 1-3: What Goal(s) Should Businesses
Pursue?
Incorrect Managers can increase the value of a firm by making decisions that increase
Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Wealth maximization|Financial management
82. As hostile takeovers are most likely to occur when a firm's stock is overvalued, the managers have a strong incentive
to undervalue the firm's stock relative to its potential.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Hostile takeovers are most likely to occur when a firm's stock is undervalued
relative to its potential. Thus, to avoid takeover threats, managers have a
strong incentive to take actions that maximize stock prices. See 1-3: What
Incorrect Hostile takeovers are most likely to occur when a firm's stock is undervalued
relative to its potential. Thus, to avoid takeover threats, managers have a
strong incentive to take actions that maximize stock prices. See 1-3: What

Name: Class: Date:
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Takeover|Financial management
83. The proper goal of the financial manager should be to maximize the firm's expected profit, because this will add the
most wealth to each of the individual shareholders (owners) of the firm.
a. True
b. False
ANSWER: False
Pursue?
Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Wealth maximization|Financial management|Organizational goal setting
84. Financial managers should seek the combination of assets, liabilities, and capital that generate the largest expected
projected income in the current accounting period.
a. True
b. False
Name: Class: Date:
ANSWER: False
Pursue?
Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Wealth maximization|Financial management|Organizational goal setting
85. The riskiness inherent in a firm's earnings per share (EPS) depends on both, the types of projects the firm takes on and
the manner in which the projects are financed.
a. True
b. False
ANSWER: True
FEEDBACK: Correct A primary reason EPS receives so much attention is the belief that net income,
and thus EPS, can be used as a barometer for measuring a firm's potential for
generating future cash flows. Although current earnings and cash flows are
generally highly correlated, a firm's value is determined by the cash flows it is
expected to generate in the future, as well as the risk associated with those
expected cash flows. See 1-3: What Goal(s) Should Businesses Pursue?
Incorrect A primary reason EPS receives so much attention is the belief that net income,
and thus EPS, can be used as a barometer for measuring a firm's potential for
generating future cash flows. Although current earnings and cash flows are
generally highly correlated, a firm's value is determined by the cash flows it is
expected to generate in the future, as well as the risk associated with those
expected cash flows. See 1-3: What Goal(s) Should Businesses Pursue?
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:
goal should be.
OTHER: Net income|Earnings per share
86. If a firm raises its product prices beyond reasonable levels, it will generally lose some of its market share.
a. True
b. False
ANSWER: True
FEEDBACK: Correct In a reasonably competitive economy, which exists in the United States, prices
are constrained by competition and consumer resistance. If a firm raises its
prices beyond reasonable levels, it will simply lose its market share. See 1-3:
Incorrect In a reasonably competitive economy, which exists in the United States, prices
are constrained by competition and consumer resistance. If a firm raises its
prices beyond reasonable levels, it will simply lose its market share. See 1-3:
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Organizational goal setting|Net income|Financial performance
87. If a firm's managers want to maximize stock price, it is in their best interests to operate efficient, low-cost plants,
develop new and safe products that consumers want, and maintain good relationships with customers, suppliers, creditors,
and the communities in which they operate.
a. True
b. False
ANSWER: True
FEEDBACK: Correct Stock price maximization requires efficient, low-cost plants that produce high-
quality goods and services that are sold at the lowest possible prices. It also
requires the development of products that consumers want and need. Finally,
stock price maximization necessitates efficient and courteous service,
adequate stocks of merchandise, and well located business establishments.

Name: Class: Date:
Incorrect Stock price maximization requires efficient, low-cost plants that produce high-
quality goods and services that are sold at the lowest possible prices. It also
requires the development of products that consumers want and need. Finally,
stock price maximization necessitates efficient and courteous service,
adequate stocks of merchandise, and well located business establishments.
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Organizational goal setting|Wealth maximization
88. A financial manager's task is to make decisions concerning the acquisition and use of funds for the greatest benefit of
the firm.
a. True
b. False
ANSWER: True
FEEDBACK: Correct The appropriate goal for management decisions is to consider the risk and
Incorrect The appropriate goal for management decisions is to consider the risk and
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Organizational goal setting|Financial performance
89. Incentive compensation plans are used to attract and retain top managerial talent as well as to align the interests of
management with shareholders.

Name: Class: Date:
a. True
b. False
ANSWER: True
FEEDBACK: Correct All incentive compensation plans should be designed to accomplish two things:
(1) Provide inducements to executives to act on those factors under their
control in a manner that will contribute to stock price maximization. (2) Attract
and retain top-level executives. See 1-3: What Goal(s) Should Businesses
Pursue?
Incorrect All incentive compensation plans should be designed to accomplish two things:
(1) Provide inducements to executives to act on those factors under their
control in a manner that will contribute to stock price maximization. (2) Attract
and retain top-level executives. See 1-3: What Goal(s) Should Businesses
Pursue?
POINTS: 1
DIFFICULTY: Easy
goal should be.
OTHER: Executive compensation|Wealth maximization
90. In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder
wealth maximization, they risk being disciplined by the market. Part of this discipline involves the threat of being taken
over by companies with policies that are more aligned with stockholder interests.
a. True
b. False
ANSWER: True
FEEDBACK: Correct Hostile takeovers are most likely to occur when a firm's stock is undervalued
relative to its potential, which often is caused by inefficient operations that
result from poor management. See 1-3: What Goal(s) Should Businesses
Pursue?
Incorrect Hostile takeovers are most likely to occur when a firm's stock is undervalued
relative to its potential, which often is caused by inefficient operations that
result from poor management. See 1-3: What Goal(s) Should Businesses
Pursue?
POINTS: 1

Name: Class: Date:
goal should be.
OTHER: Executive compensation|Takeover|Financial performance
91. Having the manager's compensation tied to the company's performance increases the agency problem that corporations
face.
a. True
b. False
ANSWER: False
FEEDBACK: Correct The potential conflict between two parties—the principals (outside
Incorrect The potential conflict between two parties—the principals (outside
POINTS: 1
goal should be.
OTHER: Agency problem|Executive compensation
92. Managers of firms that use alternative accounting techniques to inflate current earnings are likely to generate long-
term benefits to the shareholders of the firm.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Financial managers who attempt to maximize earnings might not maximize
value because earnings maximization is a shortsighted goal. See 1-3: What

Name: Class: Date:
Incorrect Financial managers who attempt to maximize earnings might not maximize
value because earnings maximization is a shortsighted goal. See 1-3: What
POINTS: 1
goal should be.
OTHER: Net income|Financial management
93. In a competitive marketplace, "good ethics" is a wonderful idea but an impractical standard, because there are simply
too few benefits to be gained from maintaining high business ethics.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Most executives of major firms in the United States believe that there is a
positive correlation between ethics and long-run profitability because ethical
behavior prevents fines and legal expenses, builds public trust, attracts
business from customers who appreciate and support ethical policies, attracts
and keeps employees of the highest caliber, and supports the economic
viability of the communities where these firms operate. See 1-4: What Roles do
Ethics and Governance Play in Business Success?
Incorrect Most executives of major firms in the United States believe that there is a
positive correlation between ethics and long-run profitability because ethical
behavior prevents fines and legal expenses, builds public trust, attracts
business from customers who appreciate and support ethical policies, attracts
and keeps employees of the highest caliber, and supports the economic
viability of the communities where these firms operate. See 1-4: What Roles do
Ethics and Governance Play in Business Success?
POINTS: 1
DIFFICULTY: Easy
businesses.
Name: Class: Date:
94. No firm can take cost-increasing, socially responsible actions in a competitive marketplace and expect to continue to
effectively compete, even if those cost-increasing actions yield significant benefits to the firm.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Firms that develop governance structures that make it easier to identify and
correct accounting problems and potentially unethical or fraudulent practices
perform better than firms that have poor governance policies. See 1-4: What
Incorrect Firms that develop governance structures that make it easier to identify and
correct accounting problems and potentially unethical or fraudulent practices
perform better than firms that have poor governance policies. See 1-4: What
POINTS: 1
DIFFICULTY: Easy
businesses.
95. Cultural differences do not impact the multinational corporations as they expand into different geographic regions.
a. True
b. False
ANSWER: False
FEEDBACK: Correct Even within geographic regions long considered fairly homogeneous, different
countries have distinctive cultural heritages that shape values and influence the
role of business in the society. See 1-5: Forms of Businesses in Other
Countries
Incorrect Even within geographic regions long considered fairly homogeneous, different
countries have distinctive cultural heritages that shape values and influence the
role of business in the society. See 1-5: Forms of Businesses in Other
Countries
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:
OTHER: Global business environment|Multinational corporations|International sociocultural
differences
96. Exchange rate risk is the risk that the cash flows from a foreign project will be worth less than those same cash flows
denominated in the parent company's home currency.
a. True
b. False
ANSWER: True
FEEDBACK: Correct Cash flows in various parts of a multinational corporate system are often
denominated in different currencies. An analysis of exchange rates and the
effects of fluctuating currency values must be included in all multinational
Incorrect Cash flows in various parts of a multinational corporate system are often
denominated in different currencies. An analysis of exchange rates and the
effects of fluctuating currency values must be included in all multinational
POINTS: 1
DIFFICULTY: Easy
OTHER: Global business environment|Multinational corporations|Exchange rates
97. The term multinational corporation is used to describe a firm that operates in two or more countries.
a. True
b. False
ANSWER: True
FEEDBACK: Correct Large firms, both in the United States and in other countries, generally do not
operate in a single country; rather, they conduct business throughout the world.
The term multinational corporation is used to describe a firm that operates in
two or more countries. See 1-5: Forms of Businesses in Other Countries
Incorrect Large firms, both in the United States and in other countries, generally do not
operate in a single country; rather, they conduct business throughout the world.

Name: Class: Date:
The term multinational corporation is used to describe a firm that operates in

two or more countries. See 1-5: Forms of Businesses in Other Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: Global business environment|Multinational corporations
98. Nations do not have the sovereignty to takeover (expropriate) the assets of a firm without compensation.
a. True
b. False
ANSWER: False
FEEDBACK: Correct A nation is free to place constraints on the transfer of corporate resources and
even to expropriate—that is, take for public use—the assets of a firm without
compensation. See 1-5: Forms of Businesses in Other Countries
Incorrect A nation is free to place constraints on the transfer of corporate resources and
even to expropriate—that is, take for public use—the assets of a firm without
compensation. See 1-5: Forms of Businesses in Other Countries
POINTS: 1
DIFFICULTY: Easy
OTHER: Global business environment|Multinational corporations|Political risk
99. Industrial groups are organizations comprised of companies in different industries with common ownership interests,
which include firms necessary to sell and manufacture products.
a. True
b. False
ANSWER: True

Name: Class: Date:
FEEDBACK: Correct In some parts of the world, firms belong to industrial groups, which are
organizations comprised of companies in different industries that have common
ownership interests and, in some instances, shared management. See 1-5:
Incorrect In some parts of the world, firms belong to industrial groups, which are
organizations comprised of companies in different industries that have common
ownership interests and, in some instances, shared management. See 1-5:
POINTS: 1
DIFFICULTY: Easy
OTHER: Global business environment|Multinational corporations|International sociocultural
differences

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appointed; begs Sir ——, will not go till he comes, which will not
exceed half an hour.” The card was purposely wrote upon to the view
of every one, which added dignity to our new-made knight’s former
consequence, and ordering the porter to be discharged at the bar, he
sat a few minutes; when ringing the bell he ordered the waiter to tell
his master to come to him, who soon appearing, he desired him to sit
and fill a glass of wine, and entering into a familiar conversation with
him, in a short time enquired if there was ever a shop near where he
could purchase a gold chain to his watch, and at the same time
produced the property of lord ——, which being in a neat shagreen
box, looked at a distance like a shagreen case; the vintner being
willing to oblige a neighbour, told him he could recommend a dealer
in those things, who had great choice, and lived only in the next
street.—Our knight begg’d he would send for him, with orders to
bring some watch chains with him: the vintner immediately
dispatched a waiter to the person who soon arrived with a box, and
producing some very curious watch chains, my gentleman at last
fixed upon one, which came to 5l. 1s. The spark offered him four for
it, but the tradesman being a quaker, told him he never asked more
than he intended to take, but however he was still offered 4l. 1s. and
the tradesman refusing was dismissed.—In five minutes the sharper
rang for the master of the tavern, and told him what had passed,
adding he greatly liked the chain, and would purchase it, but should
take it as a favour if he would go to the man, and see if he could not
get it for the money, but if not to bring it with him, and at the same
time desired he would tell the tradesman to bring a cornelian seal
with a Homer’s head for the impression; away went the landlord, and
soon after brought the chain with him, but told our genius he could
not prevail upon him to take any thing less than he had asked; that
he had never a cornelian with a Homer, but had sent to a friend in
the next street who he believed had one, and he would bring him
word in ten minutes: during the landlord’s absence, this ingenious
gentleman had taken out the watch and left the shagreen box upon
the shelf over the fire-place, in full view of the landlord, who might
suppose it was the real watch. Upon looking at the chain, the spark
pretended it was not the same he had shewn him before, the
landlord told him it was possible he might mistake by candle-light,
and offered to go and change it—but the sharper said he would go
himself, as he had some suspicion the quaker had a mind to impose
upon him, and saying the watch he supposed would be safe upon
the shelf, went out of the room, and the landlord shutting the door,
told him he would take care no body should come in during his
absence. Our successful sharper now bent his course to Cheapside
with all speed, leaving the shagreen box to pay the vintner his
reckoning, and the quaker for his watch chain.
The luxuriancy of my ingenious conductor’s invention in the progress
of this adventure astonished me greatly, but I’ll forbear to trouble you
with my reflections now, and hasten with him to the play-house.
Being arrived in Cheapside, he takes a coach and orders himself to
be drove to the Rose in Bridges-street Covent Garden, and the
coach stopping at the door the coachman descended to let him out,
but was ordered to go into the tavern and enquire if Mr. —— was in
the house; the enquiry through every room he knew must take up
some minutes, and give him time to let himself out at the other side
of the coach, which he effected with great privacy and expedition,
and immediately set forward for Covent Garden play-house, taking
his way up Bow-street, purposely avoiding, as I apprehended, the
scene of his morning adventure.—Here Sable was interrupted in his
narrative, by the arrival of his owner, who brought in with Him an old
cloaths-man, and handing the black narrator down delivered him to
this new vamper of old commodities; who after perusing him with
great attention and sagacity, shaking his head declared he could not
give any thing for it, adding, “it had been so much used, it would not
hold together for a single day’s wear”; and as for repairing it, he said
it was impossible from the rottenness of it, nor could it be converted
into patches, as in fact, he said, it consisted of nothing else but
patches; and returning it to the owner, desired him to keep it as a
curiosity, swearing he never saw such a thing in his life: upon this
Sable was once more conducted to the wardrobe, and hung on the
peg he had been removed from.
Sable (half recovered from his fright) soon was heard to utter these
words.—My loved companion, and adopted son, indulge me a few
minutes to recover my breath.—White with great tenderness, begged
he would make no apology, for though he was exceeding anxious to
know what had caused the fright he was in, he would not think of
being gratified till he was perfectly recovered—after a few minutes
pause the frighted veteran thus broke forth.—Where is the
philosophy, the calm resignation, I fancied I could meet my last hour
with? alas! I find I have learned nothing that is worth retaining, since
I have not learned to bear the near approach of my dissolution
without trembling; why should I wish to exist, or linger in this decayed
and miserable state, when the momentary shock of death is
succeeded by a total annihilation?—Here White interrupting him,
begged to know the cause of such sad reflections. My son, returned
Sable, bear with the infirmities of age; the frequency of
contemplating on death, believe me, greatly lessens its terrors:—the
danger is now over, and my fears are subsided—. Here Sable
recounted his late adventure with the dealer in old cloaths,—which
having concluded, he proceeded in the relation of the many and
surprizing changes of fortune—(But here, reader, lest thou should
imagine this digression from the chain of adventures as related by
our Black Hero, is an artifice calculated to extend this work, and that
no such interruption ever happened, but what was made by
ourselves, on purpose to eke out this part of our performance, we do
assure thee, that nothing but sacred truth obliged us to relate it, and
which we shall at all times think ourselves bound in justice to do;
therefore, courteous reader, if thou shouldst meet in the progress of
this entertaining history, with instances of a similar nature, we advise
thee not to pronounce them fiction; for were we inclined to enlarge
this performance, the bare recital of numberless minutes, which we
have and shall suppress, would extend it to volumes; and if thou will
favour us with thy company to the end of this work, thou wilt find
such little arts were needless, the sage’s narrative alone affording us
ample matter for thy entertainment, and which thou may’st find
faithfully recorded in the following pages—The sharper, resumed
Sable, being arrived at the play-house, and going to the box-door, he
overtook a company of ladies and gentlemen, who were going into
the house, and stepping before them, ordered the box-keeper to
open the door, saying the servant belonging to the company would
pay for all—the box-keeper seeing the company behind, imagined
our spark of the party, therefore without hesitation lets him in: as
soon as he was within he posts himself in such a manner as to hear
what passed at the box-door without being seen, the company being
come up were surprized to find themselves charged with one more
than they knew of, and disowning acquaintance with my adventurer,
refused to pay for him; the box-keeper not having time to go in
search of him then, ordered an under box-keeper to look sharp for
him as he came out; our spark hearing this seemed very well
satisfied—which was much more than I was—and after going from
box to box, he at length seated himself in one of the corner green
boxes, in which was only an old gentleman; but on the latter account
our number was encreased by the addition of two ladies of the town,
and two gentlemen—the sharper prudently sat as far back in the box
as he could, to avoid being seen, I concluded.—The entertainment
being ended, and the company preparing to depart, to my
amazement, this bold adventurer seizes a red rocqueleau that was
hung in the box, and was going to put it on—when the old gentleman
told him, with great politeness, he fancied he had made a mistake,
for the rocqueleau belonged to him.—The sharper, with astonishing
effrontery, replyed, by your leave, Sir, ’tis you that mistake, for the
rocqueleau is mine.—Your rocqueleau? returned the gentleman,
indeed it is, replied this son of impudence. Sir, says the stranger, as
you have the appearance of a gentleman, I cannot think you mean
any thing more than a jest; but let me tell you, Sir, added he, I am not
used to be treated so with impunity.—Sir, returned the sharper, it is
not my custom to jest with men of your appearance, nor do I expect
such treatment from you.—Why sure, says the gentleman, you will
not pretend to persuade me seriously that this is not my rocqueleau?
That this rocqueleau is mine, Sir, says my companion, I do aver, and
will maintain my property,—adding this is the strangest piece of
impudence that ever was practised.—Indeed, says the gentleman,
so it is, if you pretend to say this is your rocqueleau, when I brought
it in, and hung it up before you came.—The sharper alledged he
brought it in, and hung it up on his coming in.—This strange dispute
whose property the rocqueleau was, created much mirth in the ladies
and gentlemen in the box, but created far different sensations in me,
who saw no possibility of our hero’s maintaining his assertion with
any credit, consequently there was little probability of my escaping a
horse-pond, or some such dire mishap, especially as I saw the old
gentleman begin to wax warm.—But to proceed,—the owner of the
rocqueleau persisted in claiming it, and the sharper as strongly
insisted on its being his—in conclusion, my ingenious companion
asked him, if he could point out any mark or any thing whereby it
might be determined by the company that it was his.—The
gentleman replied, he knew of no mark upon it, for that it was never
on his back before that afternoon, being quite new; upon that my
gentleman exclaimed Amazement! that a man of your years should
undertake to play the sharper with no other abilities than bare
impudence.—Zounds, returned the strange gentleman, you are a
sharper, and since you talk of marks, by what mark do you know it—
let us see how you will prove it to be yours—make that appear, Sir,
exulting and appealing to the company, who yet could not tell what to
make of the affair, sometimes inclining one way, and sometimes
another.—Why, Sir, says the impostor, I would have come to that at
first, but that I was willing to see what ingenious device you would
make use of to support your unjust pretensions; but as I see you
take advantage of the coolness of my temper, and confidently think
to bully me out of my property, I will submit to the company to
determine whom the rocqueleau belongs to, and, continues he, I
believe I shall put an end to the dispute very shortly to your
confusion; and then turning to the company, told them if the
rocqueleau was his there were two X’s marked in the inside near the
bottom: the gentlemen looked and found two X’s mark’d in the place
our ingenious sharper had directed.—The old gentleman stood
petrified with amazement—but recovering himself, swore still the
rocqueleau was his, but how those damned X’s came there he could
not tell.—The rocqueleau being adjudged the property of our hero,
he now put it on, telling the old gentleman, his age should protect
him from punishment, and advised him to leave off a profession he
seemed unable to succeed in. The gentleman knowing the
rocqueleau was his, still urged strongly he brought it in with him, and
that it was his.—The ladies now began to revile him,—whom he
treated in very free terms; the gentlemen stood up for their doxies,
and the loser of the rocqueleau had no friends, but abused every
one in the box with being accomplices in robbing him; upon which
the ladies fell upon him, and seizing his large powered wig, boxed
him about the face with it till he was almost blind, and then flinging it
into the pit, among the people who were gathered under the box with
the noise that began to be made, the old gentleman’s full-bottom
was soon disposed of as well as his rocqueleau.—Our adventurer
took this opportunity to quit the box, and with the addition of the
rocqueleau, and by timely using his handkerchief as he passed the
box-keeper, went away without suspicion of being the person who
bilked him on his coming in.—You will, no doubt wonder, says Sable,
how this genius could come by the knowledge of the private marks
upon the rocqueleau, and your wonder will be no less when I tell you
that he himself put them there, whilst the old gentleman was
engaged with the performance on the stage: for he, whose study it
was to refine upon sharping, never wanted materials, in the various
adventures he might meet with, consequently he was as expert with
his needle in sewing the two X’s upon the rocqueleau, as a surgeon
would be in using his lancet on a sudden emergency.—But to finish
with this gentleman.—This last exploit being ended, he takes me
through many alleys and dark passages; at length ascending a mean
stair-case as high as he could, he gave the signal of admittance, and
the door was opened, when there appeared to my sight, sitting round
a table, four persons, one in the habit of a clergyman, another in the
character of a farmer; a third was a laced beau, and the fourth an
honest looking tradesman, and I observed every one had before him
watches, rings, swords, snuff-boxes, purses with money, and other
things of value, which I afterwards found were the several labours of
the day, which had been gained by these honest looking gentlemen
in the same capacity as my adventurer—but our ingenious spark
producing the watch by Tompion, gold chain, rocqueleau, and an
exceeding good hat instead of a bad one, he was deemed the most
meritorious of the whole fraternity for that day. A division being
made, and the several characters fixed for the succeeding day
(when my companion was to assume the appearance of a country
farmer) they all adjourned to a tavern, where they spent the evening
in recounting the methods they had taken in acquiring the valuable
collection I had seen upon the table; on leaving the tavern each took
a separate road, my adventurer taking me to the place from whence
we last came, and I understood the rendezvous of the next day was
to be at the parson’s lodging, which I found they changed nightly.—In
the morning early this industrious gentleman conducted me to my old
habitation in Monmouth-Street, unhurt, after all the perils of the
preceding day, to my great satisfaction, where after suffering the
corroding brush, and racking press as usual, I was at liberty to
indulge my reflections, and the last day’s expedition afforded me
ample matter. Gods! exclaimed Sable, could I have credited that
such things were really practised, had I not been a witness to them!
Is it not, says the sage adventurer to his gay companion, greatly to
be lamented, that men of such excellent talents, should prostitute
them to such hurtful purposes to the community, and reversing
morality, industriously pursue evil, that they may boast of blemishes
they should rather blush for; as he amongst these pillagers of
society, is esteemed the most worthy who is the most wicked. But I
will not, continued Sable, spend the precarious minutes in making
reflections which your own perspicuity will furnish you with, but
proceed in the detail of my next adventure.
I was next, continued Sable, ordered by a tall long visaged person to
be tried upon him, and the Monmouth-Street merchant pronounced
that if I had been cut out on purpose for him, I could not have fitted
him better; on this I was engaged by him for the day. I soon
discovered by some detached pieces of poetry in blank verse, and
other papers of the like nature put into my pocket, that I was
accompanying an author.—His wan and dead complexion made me
at first imagine him to be a person confined to a sedentary life, but
notwithstanding his unfavourable aspect, I could conceive strong
marks of the gentleman, and likewise imagined him to be a scholar,
though the rays of learning which beamed from his countenance,
seemed to be clouded by misfortune and care.—But to proceed,
three times did this son of Apollo attend the door of a certain great
man, before he could gain admittance: the first time the servant said
his master was dressing, the second time he was busy, and the third
we were so fortunate as to be shewn into a small antechamber, with
directions to sit down, and my comrade should be informed when he
could speak with this very great man, whom, but for the situation of
the house, I should have imagined was a prime minister: at last, after
waiting above an hour, my companion was desired to walk into a
parlour, where was sitting by the fire side, surrounded by half a
dozen little kittens, an old man (gentleman I cannot with propriety
term him). Without asking the gentleman to sit, he began,—Well, sir,
what do you want with me? I wait upon you, sir, replied the author, in
relation to a play I some time ago left in your hands.—How long
since? says this well mannered gentleman. Fifteen months, Sir,
replied the author—O, is that all, says he,—well, and pray, what is
this extraordinary play of yours, continues he; a tragedy, I suppose?
It is a tragedy, Sir, answered the author, still standing, (which gave
me an opportunity of remarking a letter that lay upon the table
directed to the manager of one of the theatres). What do you call it?
says this important gentleman. It is called ——, replied the author,—
and hope it has met with your approbation, continued he.—O, to be
sure, says the sneering manager, without reading it.—I imagined,
says the author, you would have been kind enough to have indulged
me with a couple of hours out of fifteen months to have perused it, or
if you did not intend to peruse it, you would have returned it me
again. Ay, ay, says the manager; you shall have it again, take it away
with you in God’s name—(looking among a parcel of papers) I don’t
mean, Sir, returned the author, to take it from you unless you should
reject it, after you have read it.—Why, Sir, says the manager, did not
you this moment ask me to return it? If you had no intention to
peruse it, says the author. Peruse it! replies the manager—why, Sir,
do you think I have nothing else to do than as soon as ever people of
your way of living have wrote a thing, to play it immediately? what, I
suppose, continues he, you think I should read it, alter it, expunge,
and add to it, then rehearse it and so perform it, that you might
receive the benefit all in ten days or a fortnight?—No, no, Sir you are
too quick for me; let’s see where is this thing (looking over a bundle
of manuscript plays)—what is the procession in your play, continued
the manager? I shall best find it by that, for they are all marked.—
There is no procession at all in mine, Sir, says the author. No
procession! Sir, says the amazed manager, what do you mean?—
perhaps you call it—a solemn dirge—a triumph—or an—ovation—or
—There is nothing at all of the kind Sir, says the author, in my play,
nor did I apprehend, says he, it was absolutely necessary to.—
Necessary? interrupted the manager,—pray, Sir, what would nine out
of ten of the tragedies that have come out within these 20 years
have been good for, if it had not been for the processions; but if
yours has no procession, adds he, I am sure it is not amongst these;
(laying the papers he had been looking over down)—but we shall
find it presently somewhere, I warrant you—a procession not
necessary!—(looking for the play).—By this time the author began to
entertain a most sovereign contempt for him, as I judged from his
countenance.—At length the manager produced the play, but in such
a condition! some part wanting half a leaf, some a quarter, others
three quarters, and what remained was in tatters, and strangely
smeared and stained, having been frequently used no doubt in
taking the tea-kettle off the fire, and other such worthy employments,
as I saw him take it from under a coffee pot that stood in the window.
—The author at first was astonished when he saw it, but recovering
himself, calmly said, he believed it had been perused, for by the
appearance of it, it seemed to have been often in his hands; and
opening it.—Really, Sir, says the author, you have been in a mistake,
for it is evident you have read it over, and have expunged several
pages of it, (shewing him the dismembered play)—and, continues
he, dare say you will be able to get through it in a short time,
therefore will continue it in your hands, and hope you will be so
obliging as to add to it—No, no, Sir, replied the manager, I shall give
myself no farther trouble about it; as for the leaves being torn, some
of the servants can give you the best account of them.—If, continued
he, there had been a procession in it.—Here he was interrupted, by
the arrival of a person with a Harlequin’s dress, and the author laying
the mangled play upon the table, took his leave, giving place to
Harlequin—a circumstance that ought not to give him much pain, as
it is no more than what the best dramatic authors both ancient and
modern, have frequently done.
This tragic gentleman having conducted me home, continued Sable,
I was again deposited among my old acquaintance, the occasional
gentlemen, from whose conversation I received much useful
knowledge and rational entertainment. But to proceed—.
My next excursion, resumed Sable, was with a person who
conducted me from my habitation in Monmouth-Street, to an
indifferent apartment in an alley near Chancery-Lane where he
adorned himself with the military ensigns, a cockade and sword, and
marched with me to a tavern in the city, where being shewn into a
room, he left word if any body enquired for an officer, to shew them
in to him, and seating himself he drew from his pocket a letter, in
which were these words in an excellent woman’s hand.—“Dear cap.
—— my papa has received your letter, and tells me he shall meet
you at the time and place you have appointed—I shall be impatient
to know the result of this interesting conversation, and hope it will
prove favourable to you—”. This letter was directed to be left at a
coffee-house in the Strand for my companion. He did not wait long
before a plain decent looking tradesman was introduced to him—My
comrade received him with an affected politeness, which was
returned by the stranger, with an aukward civility: being both seated,
the coldness of the weather was the first topic of conversation, the
tradesman making a sorrowful observation on the dearness of
provisions, and that coals were risen that day; the military gentleman
joined in lamenting the hardness of the times, and concluded the
subject by pitying the poor; the stranger then filled a bumper, and
knocking his glass against the captain’s drank to their better
acquaintance, which having taken off, Mr. Sirloin, (that being the
stranger’s name) after a few minutes silence on both sides, began
the discourse, by saying to my companion, that he believed he had
received, a letter from him in relation to his daughter Susan. The
captain answered, he should make no ceremony in telling him that
he professed a regard for the young lady.—Young lady, says Mr.
Sirloin, I beg, Sir, you’ll not young lady my daughter.—Susan is a
good likely girl for that matter, but as for being a young lady, I don’t
know what title she has to that. Indeed her mother, who has had the
whole management of her, has always filled the girls head with a
parcel of nonsense. Your plain way of thinking, returned the captain,
I highly approve, but her education entitles her to.—Ay, interrupted
Mr. Sirloin, that was against my will too, but my wife would have it so,
and so she was sent to a boarding school; to be sure, continued he,
as she was but a half boarder, I came into it for peace and quietness,
but if it was to do again—for added he, she has learned nothing but
to talk of gentility and fashions, and dancings, and plays, and I don’t
know what.—These things, Sir, answered the captain, are
accomplishments which are necessary in every woman who has any
pretensions to marry genteelly.—Therefore, Sir, returned Mr. Sirloin,
unnecessary for my daughter; for I am sure—I don’t know what
pretensions she has to think of marrying genteelly, or out of her
sphere.—I am a plain man, Sir, as you see, continues he, and to be
sure would do every thing for the best for my daughter, and no doubt
should like very well to see my daughter made a gentle-woman of;
but then, adds he, how it that to be? that’s the question—for my part
I don’t see now a days that gentlemen let ’em have ever so good a
fortune, are willing to take a girl for love alone—no offence I hope to
you, Sir,—By no means Sir, replied the captain, I assure you, Sir, I
esteem your sentiments; and though love is the chief ingredient in a
happy marriage, yet to make it quite compleat, a little fortune is
necessary.—Now I rather think, says Mr. Sirloin, as times go, that
fortune is looked upon as the chief ingredient—you’ll excuse me, Sir,
I am a blunt man—Pray, Sir, make no apology, replied the captain.—
Well, Sir, says Mr. Sirloin, let us now enter upon the business we met
upon.—You say you have a regard for my daughter, I suppose you
mean love. I do, Sir, answered the captain.—You are an officer, Sir,
my daughter tells me.—Yes, Sir, returned the captain, but, to deal
ingenuously with you, I am only a younger brother, therefore I can’t
boast of any great fortune, a thousand pounds or so, besides my
commission,—with which, continues he, I am capable of appearing
as a gentleman, and hope I have always acted as such.—A
thousand pound, says Mr. Sirloin, is a great deal of money in my
opinion; I don’t know what you may think of it: as for your
commission, says he, that’s quite out of my way, and therefore I
know nothing of it; and now, Sir, continues he, as you have told me
who you are, it is but fair that I should tell you who I am.—I am, adds
he, a butcher by trade, and by industry and frugality, I make shift to
maintain myself and family with what I call credit, for I make it a rule,
never to bespeak any thing for myself or any of my family, but what I
know I can afford, nor let any thing be wore, or made use of, till I
have paid for it.—I pay my landlord his rent every quarter day, and I
don’t owe any man a shilling in the world, and so now, Sir, if you like
me for a father-in-law, without farther ceremony here’s my hand,—
and done’s the word. This close way of doing business, says Sable, I
found disconcerted my martial conductor, who evaded closing with
the proposal, saying such a thing as marriage, required a little more
consideration than a bet at a cock-match or a horse-race.—Why look
you, Sir, says Mr. Sirloin, this is my way of doing business; if I see a
bullock in the market, which I think is for my purpose, I go and
examine him, and if I find that he’ll do, I enquire his price, and if its
about the mark, I bid money for him, and if my money is accepted, I
have the beast; but if not, we part, and there’s no harm done, you
know; now apply that, Sir.—Well, Sir, returned the captain, to make a
matter of trade of this affair, as I profess a regard for your daughter, if
you will give me a fortune with her I will marry her, notwithstanding
the disgrace it will be to my family.—Fortune, Sir! says Mr. Sirloin,
what fortune do you expect me to give? I suppose, Sir, says the
captain, you intend to give her a fortune equal to her education and
appearance in the world.—As for her education and appearance in
the world, says Mr. Sirloin, I have told you how that came about, and
that it was not my fault, and now I’ll tell you what I’ll give you with
her: I’ll spend a few guineas in a wedding dinner with all my heart;
but as for fortune, I assure you I have none to give.—You certainly
are in jest, Sir, says the captain, as you have educated and drest
your daughter in the character of a lady of fortune. Zounds, Sir, says
Mr. Sirloin, I tell you my wife has had the whole management of her,
and that it is not my fault.—This very thing, adds he, have I told my
wife over and over: for, says I, what tradesman do you think will have
her, as she will to be sure expect to live in the manner she has been
brought up, and if she does not, says I, then she will be unhappy;
and what tradesman is there, says I, that can afford, or if he could,
wou’d think it proper, to keep her like a lady? and what gentleman,
says I, will take a butcher’s daughter without a farthing, only because
the girl, says I, has a notion of dress and politeness, as they call it?
so that, says I, the girl will be brought up to be fit for nothing, and in
the end, says I, turn whore; but it signified nothing; for my wife said
her daughter should be brought up and drest as well as Mr. Spigot,
the ale-house-man’s daughter, who was no better than she was, and
that something might happen.
Here Mr. Sirloin was interrupted by the sudden entrance of the wife
of his bosom, who was followed by Miss Sirloin, as I soon found her
to be.—The slayer of oxen was at once astonished and intimidated
on seeing his wife; Mr. Sirloin, says the lady, on her entrance, I am
surprized at your impolitic behaviour. I have heard every word you
have said, and any one would imagine you had no more sense that
the beasts you kill, to tell a gentleman the circumstances of your
family in the manner you have, Mr. Sirloin is a monstrous thing.—Mr.
Sirloin declared he had said nothing but the truth, and added that
listeners seldom heard any good of themselves. Mrs. Sirloin
returned, that he was a poor mean spirited wretch, and had not a
grain of ambition in him. Mr. Sirloin replied, he believed it might be
better, if some folks had less, and for his part he did not see what
business people in his sphere had to do with ambition; for, says he,
they are generally getting into some scrape or another.
Miss, during the altercation betwixt her Papa and Mama, had drawn
near the captain, who took very little notice of her: Mrs. Sirloin now
addressed herself to the captain, and told him, she hoped he would
excuse Mr. Sirloin’s want of politeness, and assured him, that though
it was true, her daughter was not the largest fortune in the parish,
neither was she the least, adding, that as Suky was their only child,
she would be entitled to every farthing that would be left on their
deaths, and which she durst say would amount to near a hundred
pound. To be sure, continues she, if Mr. Sirloin was but a pushing
man, he might be able to leave her many hundreds.
Mr. Sirloin said, he understood the captain was in love with Susan,
and said he should think with that and the thousand pound he had,
they might live very happy. The captain replied, that it was true, he
had a great regard for Miss Sirloin, and that his fortune was about a
thousand pound; but that as he was of one of the best families in
Dorsetshire, it wou’d be a disgrace to it to marry into Mr. Sirloin’s
family, unless it was made up by a fortune; and that he had been told
Miss Sirloin wou’d be worth a thousand pound, and which by her
dress, and the company she kept, he thought could be no less. Mr.
Sirloin declared, that whoever said he cou’d give his daughter a
thousand pound was a scandalous person; as for her dress and
company, do you, speaking to his wife, answer for that.
The waiter now told Mr. Sirloin, a person would be glad to speak to
him, and on his going out, Mrs. Sirloin told the captain, that she
presumed his intentions had been honourable, and that his
addresses had not been made to her daughter altogether for the
lucre of gain, the captain protested his love was intirely disinterested;
but that he could not on account of his family, think of entering into
an alliance with Mr. Sirloin without a fortune.—Mr. Sirloin was now
returned, and rubbing his hands, asked if the captain was willing to
accept of his daughter or not; the captain strongly urged, that the
disgrace it would be to his family would not permit him to engage any
farther. Pray, Sir, says Mr. Sirloin, what is this great family you talk so
much of?—I am, answered the captain, of the family of the Fortune-
hunters, which is as ancient a one as any in the kingdom. Mr. Sirloin
asked him if he did not know one John Trott.—The captain upon this
appeared extremely confounded, but, stammer’d out he knew no
such person; upon this Mr. Sirloin rang the bell, and asked the waiter
if he knew that gentleman, pointing to the captain,—yes, replied the
waiter, very well, his name is John Trott; he was a footman to ’squire
——, and was discharged for some misdemeanors about half a year
ago; and speaking to the new-made captain, said; you know me very
well, Mr. Trott, don’t you? the captain replied, he never saw him
before to his knowledge.—Come, come, Mr. Trott, says the waiter
don’t wink at me, I’ll not see any body imposed upon, I know you
very well. Mr. Sirloin’s choler being now raised to the highest degree,
he could not contain himself any longer; but pulling off his wig and
coat, told my unfortunate companion, that though he had imposed
upon him, he would take no advantages of him but wou’d box him
fairly; but the martial hero declined the combat; upon which Mr.
Sirloin, giving a loose to his hands and feet together, employed them
both so fast upon my unluky comrade, that it was hard to determine
which of them went the fastest, and my passive conductor seemed
resolved to see whether his patience, or Mr. Sirloin’s strength would
hold out the longest; and Mr. Sirloin being a corpulent man, was at
length obliged to give over his labour for want of breath, and thereby
the captain’s principle of non-resistance, obtained a complete victory
over the active vigour of the enraged butcher.
Mr. Sirloin, having a little recovered himself from the fatigue the
violent exertion of his strength had occasioned, now turned to his
wife and daughter, and told the latter, that for the future she should
be under his direction, and bid her see that to-morrow, she appeared
in the shop as his daughter, with a coloured apron before her, and
dispose of those dangling things at her elbows or he’d burn ’em: the
two ladies having seen such manifest proofs of Mr. Sirloin’s prowess
were intimidated into silence, not even daring to exercise those
dreadful weapons their tongues, which were now for the first time, I
believed, subdued.
The captain during this had employed himself in wiping the dirt which
had been left by Mr. Sirloin’s shoes off him, every now and then
saying this was fine treatment for a Gentleman.
Mr. Sirloin now opened the door, and ordered the martial captain to
leave the room, who seemed very glad to obey him, Mr. Sirloin
complimenting him with two or three very handsome kicks at his
departure.
The fruits of this adventure, continued Sable, were pretty equally
divided betwixt me and my unfortunate associate, though I believe
the marks of Mr. Sirloin’s favours, continued a considerable time
longer upon the unsuccessful captain than upon me, a circumstance
which instead of creating envy in me, proved rather a matter of
consolation.
The address and deportment of this assumed military gentleman,
continued Sable, did not at first discover to me any thing that
resembled the gentility of an officer in the army, nor did his lodging
correspond with such a character, therefore I imagined he was only
in reality, like me a gentleman pro tempore.
The descendant of the ancient family of Fortune-Hunters, continued
Sable, having conducted me again to my former lodging in
Monmouth-Street, and a variety of brushes having been used upon
me, like a Hackney-horse after a day’s journey, I remained some
time without any remarkable adventure happening to me; at length,
continued Sable, a member of Comus’s court, but better known by
the significant appellation of a Choice Spirit, conducted me to a
tavern in the Strand, where I found a number of gentlemen, and the
better sort of tradesmen, assembled together, whom I soon learned
were the members of a society that met once a week, and that this
was their anniversary feast-day. It being in the morning, they were
now met together to take a walk, or to spend the time in some
amusement, that might best conduce to create an appetite, to enable
them to do honour to the approaching entertainment. My companion
singled out one, who from his broad sleek face, and rotundity of
belly, seemed to have signalized himself at the destruction of many a
feast, and by the jocular speeches of several of the members,
together with his own expressions, boasting of his excellence in the
masticating way, I was fully confirmed that his being so uncommonly
well larded, was owing to his superior merit in the science of eating.
My conductor proposed a walk to this gentleman, but he objected to
it, on account of the fatigue it would be to him, and that it might
disorder his stomach, which he declared was in excellent order, but
said he had no objection to take a little air up the river, and which he
fancied, with now and then a glass of wine and bitters, they might
carry with them, would strengthen his appetite; this proposal was
accepted by my comrade, and two other gentlemen agreed to
accompany them; accordingly at Somerset-stairs a boat was hired,
and the watermen ordered to row them up to Putney.
During our voyage this son of Comus regaled the worthy disciples of
Epicurus, with some gingerbread nuts he had brought with him, at
first he refused to eat any, fearing he said they would damp his
appetite, but my spark telling him, they were an excellent stomachic,
and that there was a particular ingredient in them that was an enemy
to every thing that clogged the stomach, he was prevailed upon to
beguile the time with feeding on the appetite-creating gingerbread,
which he did very plentifully, ever and anon diluting with a glass of
wine and bitters. The last speech of my companion, together with his
taking the nuts he himself ate, and those he gave the other two
gentlemen, from a different pocket than that out of which he regaled
the well-larded gentleman with, made me conclude the gingerbread
teemed with some jest.
By the time we arrived at Putney, continued Sable, our fat
companion had emptied the pocket of my humorous conductor, of all
the stomachic gingerbread, declaring it was the best he had ever
tasted. We landed at Putney, where we staid only to get a fresh
cargo of wine, and them returned to the general rendezvous, where
being arrived, and the champion come within sight of the table, that
was by this time prepared ready for the guests, he said he believed
he should make a very hearty dinner, for that though he had eat a
large quantity of some excellent gingerbread nuts, yet he felt a kind
of a gnawing in his stomach. Soon the feast was ushered in, and my
companion guessing that it would not be long before the mine
sprung, prudently retired to another part of the table to avoid the
explosion.
The company being all seated, each helped himself to what he
chose, and presently casting my eyes upon our companion and
gingerbread-eater, I saw him labouring most furiously to bring down
a pyramid of turbot he had raised upon his plate, at every other
mouthful drinking a small glass of wine, saying, by that means he
should be able to eat as much again; having accomplished the
destruction of the first plate full, he had again heaped it to its former
size, and by a vigorous attack, again threatened its downfall; but now
the gingerbread I suppose, began to operate, for before he had
destroyed one quarter of the plate full, he began to make strange
faces, and twined his body about, as if he sat upon something that
made him uneasy, which he continued for several minutes, at length
a noise was heard to issue from his bowels, like the sound of distant
thunder, and immediately starting from his chair, with great haste left
the room, and so precipitate was his flight, that by his hasty rising, he
overthrew one of his next neighbours, who endeavouring to save
himself, pulled down a large bason of oyster sauce, that stood before
him, which first falling upon his face, from thence had formed a
rivulet down a crimson sattin waistcoat he had on.
By the time this unfortunate gentleman had wiped himself, Mr.
Feastlove (that being the fat gentleman’s name) was returned, and
having asked pardon of the company in general for his abrupt
departure, and the gentleman whom he had thrown down in
particular, for the damage done to him, he again sat down, declaring
he was never taken so in all his life.—A clean plate being brought
him, he once more fill’d it with turbot, and having drank two glasses
of wine, began to give evident tokens of a perfect recovery, but by
the time he had disposed of half of it, his countenance began to wax
pale, and the contortions of his body declared he sat very uneasy,
and the rumbling noise in his bowels soon after alarmed the
company, and seemed to be the signal for a second flight, upon
which the gentlemen who sat on each side of him moved as far from
him as they could, lest in his retreat, he might again overturn one of
them; however, he yet continued upon his chair frowning and eating;
after drinking a glass of wine, the noise in his bowels increased, but
yet he was loath to leave the feast, though he had laid down his knife
and fork and sat grinning horridly upon his chair, with his hands upon
each knee, as if he had really been in an action not decent to be
mentioned; but fearing, I suppose, that worse would ensue, he
angrily rose from his chair, and once more hasted out of the room,
cursing and wondering as he went what could be the matter with
him.
This second unwilling departure, created much mirth in the company,
and gave birth to many jokes at the expence of the ill-fated
champion. It was not long before he returned, and fixing his eyes
upon my companion, swore he believed he had given him a dose of
physic in the gingerbread, and with a stern countenance declared, if
it really was so, he would resent it severely. My companion told him
he had no reason to attribute his disorder to the nuts he had given
him, for that he himself and two gentlemen then present had eat of
them, and found no such effects; upon this the company was
unanimous in opinion, that it must be owing to something else he
had eat in the morning. Mr. Feastlove vowed that he had refrained
from eating any thing that morning on account of the feast; every one
then concluded the turbot did not agree with him, and Mr. Feastlove
began to imagine that was the cause, therefore determined to try
something else, and again sitting down, he filled a plate with ham
and fowl, seeming determined to make up the time and loss he had
suffered by the turbot, on those dishes. The quick dispatch he made
with the legs and wings of a fowl and a slice of ham, now, assured
the company that he was again restored to his usual health and
vigour, and they congratulated him on his recovery. Mr. Feastlove
said it was very surprising that turbot, which was a fish that he was
extravagantly fond of, should serve him so now, particularly, and that
he believed he should be able to make a tolerable dinner, but he had
scarce devoured two thirds of the ham and fowl he had helped
himself to, before he very gravely laid down his knife and fork, and
with a mixture of sorrow and anger, protested he found the disorder
was again coming upon him,—and in a few minutes the former
convulsions of his face returned, which caused much mirth in the
company, though they endeavoured to conceal it as much as
possible.—He was now advised to drink a glass of wine made hot,
which he did, and again seized his knife and fork, and was dissecting
a fowl, but the hot wine, like a bason of water gruel, aiding the physic
that was lodged in the gingerbread, caused such a ferment within
him, that he seemed at a loss to tell which way it would operate upon
him; sometimes it appeared as if he had a fit of the cholick, and by
and by, as if he had taken a vomit, and just as two fine haunches of
venison appeared smoaking before him, he rose from his chair, and
cursing his guts, speeded down stairs.
This third retreat surprized the company much, though they did not
seem to be very sorry, it being observed he could very well afford to
lose what he did. The unhappy eater, of the appetite-creating nuts,
continued Sable, being returned, he again vented his rage against
the gingerbread, swearing nothing else could have affected him so,
but my companion, and the two gentlemen who had likewise eat
gingerbread (though indeed not out of the same pocket) being in
good health, it was determined by the company, that it could not
possibly be the cause.—Mr. Feastlove said he could not tell how it
was, but he was sure he had taken physick that day, and swore it
was a strong dose too;—and again sat down and swore a great oath,
he would not leave the room again till he had fully dined, and though
he had been forced from the turbot, and the ham and fowls, yet
nothing should make him leave the venison, while he had power to
force a bit down.—Thus resolved he fell most voraciously upon the
haunches of venison, depriving them of two full pounds at least,
which after heating over a lamp with currant jelly and other sauce, he
began to send down to keep peace in his Corporation, and for a
considerable time I concluded the venison would prevent any farther
tumult;—but before one third had been dispatched to keep the
rebellious powers in awe, an alarm was begun, and the noise of
contention was heard again to rumble from within the globose belly
of the afflicted hero, and in a few minutes the noise encreasing,
declared the battle raged with great violence, but true to the cause,
he scorned to be subdued.
A gentleman now recommended a glass of brandy to Mr. Feastlove,
which he approving, he for a minute refrained from eating, and took
off a large glass, and then fell too again, being determined, he said,
to weather the storm, and the horrid faces he frequently made, and
extraordinary motions of his body, declared he was very strongly
summoned to depart the room again;—but soon the brandy, instead
of putting an end to the intestine broil, made it ten times worse,—and
just as he was opening his mouth to receive a small slice of venison,
not larger than a moderate sized mutton chop, the gingerbread
proved victorious, and drove fish, flesh and fowl, with other
auxiliaries, out of the field of battle, and they lay in great disorder,
scattered over the table, and endangered the eyes of the opposite
gentlemen; nor was this all, for during this disaster, another party
had forced open the Sally-port, and sought refuge in the breeches of
the persevering hero.—The company now rose in great confusion,
and a quantity of snuff was destroyed; those taking it now who
perhaps never took any before. To conclude this terrible affair, the
gingerbread-eater, after being pretty well recovered from this last
unfortunate affair, was sent home some pounds lighter than he
usually came from a feast.
The tragic-comic scene being ended, continued Sable, this worthy
member of Comus’s court, repaired to the rendezvous of the Choice
Spirits, where he was heartily received, and recounting to them his
day’s exploit, set them in a roar of laughter, at the expence of Mr.
Feastlove, who little dreamt, I believe, of taking a dose of physic on
the feast-day of the society, though ’tis probable this Choice Spirit

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01: An Overview of Managerial Finance

c. the expectations of long-term investors in the company

3. Which of the following is true of the investment function of finance?

01: An Overview of Managerial Finance

4. Identify a true statement about the financial services provided by organizations.

01: An Overview of Managerial Finance

e. Correct. Persons working in financial services organizations help individuals

5. Financial services refer to functions provided by organizations that _____.

01: An Overview of Managerial Finance

ACCREDITING STANDARDS: Analytic

6. Which of the following functions deals with the management of money?

01: An Overview of Managerial Finance

8. Which of the following is true of financial institutions?

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01: An Overview of Managerial Finance

b. Correct. The success of financial institutions requires an understanding of

9. The investment function of finance helps in _____.

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01: An Overview of Managerial Finance

d. Incorrect. The investment function of finance determines the optimal mix of

10. The success of financial institutions requires an understanding of _____.

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01: An Overview of Managerial Finance

QUESTION TYPE: Multiple Choice

11. The treasurer of a company is a key subordinate of the _____.

12. The credit manager is supervised by the _____.

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01: An Overview of Managerial Finance

d. vice president of finance

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01: An Overview of Managerial Finance

FEEDBACK: a. Incorrect. Although organizational structures vary from company to company,

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01: An Overview of Managerial Finance

01: An Overview of Managerial Finance

16. Which of the following statements is true of corporate bylaws?

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01: An Overview of Managerial Finance

17. Which of the following statements is correct?

01: An Overview of Managerial Finance

more complex and time-consuming than a proprietorship or a partnership.

18. Which of the following statements is correct?

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01: An Overview of Managerial Finance

19. Which of the following statements is correct?

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01: An Overview of Managerial Finance

b. Incorrect. A proprietorship is an unincorporated business owned by one