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Midterm Study Guide Fin 5170 Fall 2009 The exam will consist on multiple choice

Midterm Study Guide Fin 5170 Fall 2009 The exam will consist on multiple choices, and problems and may be an essay question. I will ask a maximum of two questions taken from the following material covered in class: Chapter 1 Describe the concept of agency problems and different ways to ameliorate agency problems in a corporation Chapter 3 Example 3.7 (pages 65-66) Use the concept of arbitrage to explain the price of Security A in table 3.8, and Security B in table 3.9). Compute the risk premium of both securities. Example 3.10 in page 72 Example 3.11 in page 74 Problems 14, 17, 18 (pages 78-80) You will also have the opportunity to answer several questions from the next pages: C h a p t e r 1 - T h e C o r p o r a t i o n 1 . 1 T h e F o u r T y p e s o f F i r ms 2 ) Wh i c h o f t h e f o l l o w i n g o r g a n i z a t i o n f o r ms f o r a b u s i n e s s d o e s n o t a v o i d d o u b l e t a x a t i o n ? A ) L i mi t e d P a r t n e r s h i p B ) " C " C o r p o r a t i o n C ) " S " C o r p o r a t i o n D ) L i mi t e d L i a b i l i t y C o mp a n y A n s w e r : B 3 ) Wh i c h o f t h e f o l l o w i n g o r g a n i z a t i o n f o r ms h a s t h e mo s t r e v e n u e ? A ) " S " C o r p o r a t i o n B ) L i mi t e d P a r t n e r s h i p C ) " C " C o r p o r a t i o n D ) L i mi t e d L i a b i l i t y C o mp a n y A n s w e r : C 4 ) Wh i c h o f t h e f o l l o w i n g o r g a n i z a t i o n f o r ms a c c o u n t s f o r t h e g r e a t e s t n u mb e r o f fi r ms ? A ) " S " C o r p o r a t i o n B ) L i mi t e d P a r t n e r s h i p C ) S o l e P r o p r i e t o r s h i p D ) " C " C o r p o r a t i o n A n s w e r : C 5 ) Wh i c h o f t h e f o l l o w i n g i s N O T a n a d v a n t a g e o f a s o l e p r o p r i e t o r s h i p ? A ) S i n g l e t a x a t i o n B ) E a s e o f s e t u p C ) L i mi t e d l i a b i l i t y D ) N o s e p a r a t i o n o f o w n e r s h i p a n d c o n t r o l A n s w e r : C 6 ) Wh i c h o f t h e f o l l o w i n g s t a t e me n t s r e g a r d i n g l i mi t e d p a r t n e r s h i p s i s t r u e ? A ) T h e r e i s n o l i mi t o n a l i mi t e d p a r t n e r ' s l i a b i l i t y . B ) A l i mi t e d p a r t n e r ' s l i a b i l i t y i s l i mi t e d b y t h e a mo u n t o f t h e i r i n v e s t me n t . C ) A l i mi t e d p a r t n e r i s n o t l i a b l e u n t i l a l l t h e a s s e t s o f t h e g e n e r a l p a r t n e r s h a v e b e e n e x h a u s t e d . D ) A g e n e r a l p a r t n e r ' s l i a b i l i t y i s l i mi t e d b y t h e a mo u n t o f t h e i r i n v e s t me n t . A n s w e r : B 7 ) Wh i c h o f t h e f o l l o w i n g i s / a r e a n a d v a n t a g e o f i n c o r p o r a t i o n ? A ) A c c e s s t o c a p i t a l ma r k e t s B ) L i mi t e d l i a b i l i t y C ) U n l i mi t e d l i f e D ) A l l o f t h e a b o v e A n s w e r : D 9 ) A l i mi t e d l i a b i l i t y c o mp a n y i s e s s e n t i a l l y A ) a l i mi t e d p a r t n e r s h i p w i t h o u t l i mi t e d p a r t n e r s . B ) a l i mi t e d p a r t n e r s h i p w i t h o u t a g e n e r a l p a r t n e r . C ) j u s t a n o t h e r n a me f o r a l i mi t e d p a r t n e r s h i p . D ) j u s t a n o t h e r n a me f o r a c o r p o r a t i o n . A n s w e r : B 1 0 ) T h e d i s t i n g u i s h i n g f e a t u r e o f a c o r p o r a t i o n i s t h a t A ) t h e i r i s n o l e g a l d i ff e r e n c e b e t w e e n t h e c o r p o r a t i o n a n d i t uploads/Finance/ finance-study-guide.pdf