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Multiple Choices

1. Which of the following businesses is the least likely to be operated as a partnership?
a. Accounting firms
b. Doctors’ offices
c. Lawyers’ offices
d. Steel foundry
3. Which statement about sole proprietorships is false?
a. The business has unlimited liability.
b. The business is easy to set up.
c. The business is hard to sell.
d. The income is taxed at a corporate rate.
8. What is the most important purpose of share incentive plans?
a. Compensate straight salary
b. Align the interests of managers and shareholders
c. Reward management
d. Boost the share price
9. Which statement about the areas of disagreement between managers and shareholders is
incorrect?
a. Performance appraisal: Managers use market prices while shareholders use accounting
numbers like return on investment or cash.
b. Investment analysis: Managers use the internal rate of return of the best division while
shareholders use weighted average cost of capital.
c. The order of financing: Managers prefer retentions to debt and prefer debt to new equity
while shareholders prefer debt first.
d. Risk concern: Managers’ main concern is the preservation of the firm while shareholders’
main concern is their portfolios.
10. Which of the following is not a concern related to capital budgeting?
a. the percentage of debt financing in the capital structure
b. whether or not to replace old equipment to boost output
c. whether to purchase or lease machinery
d. inventory level
11. Who is the person in charge of the pure finance job (cash and credit management, risk
management, etc.) in a company?
a. Controller
b. Treasurer
c. Chief operating officer
d. Accountant