1) Toll and Katy formed a Business consulting firm. Mack, acting upon the negligent
business advice of Toll, made an investment. Consequently Mack lost all his
investment money. If Mack sues, he can never recover money from Katy personally
if the business consulting firm is:
a) A general partnership with some liability insurance coverage
b) A limited partnership and Katy is the general partner
c) An LLP
d) All of the above
< Assume that the mentioned business organizations are allowed to operate in the
jurisdiction where the business consulting firm is operating>
2) Jack is a financial manager of the Tiger Corp, whose shares are traded in public.
Jack has an accounting background and is working hard only to maximize the book-
keeping value of the corporation.
a) Jack is doing his managerial job in a way that a reasonable shareholder
would like him to do.
b) Jack is shirking in his managerial tasks.
c) Persons like Jack are the ones that end up coloring up financial statements.
d) Jack may or may not be working for the shareholders’ best interest.
3) Caroline wants to start her own business of boutique dress. She wants minimum
regulatory restrictions to run her business with a minimum possible personal
liability. Her best business organization option is:
a) Sole proprietorship with all available insurance for the business.
b) Sole proprietorship with no insurance for the business.
c) Form an LLP with her friend Jacqueline; no insurance for the business.
d) Form a corporation; no insurance for the business.
4) Maribel, an accountant is preparing a financial statement for X-tract consulting
corporation. She needs to know which one of the following is a real asset. Help her.
a) An IOU ( “I owe you”) from corporation Z-bird.
b) A share of stock issued by Royal Bank
c) A mortgage loan taken out to buy a new home. d) After one year of rigorous advertisement in the provincial prime channel,
customers now generally believe that ‘‘X-tract’ really knows what they are
5) You are a business consultant. Gorgon is a financial manager who comes to you
seeking this advice: ‘What is an appropriate corporate goal that I can always
pursue?’ What would you say?
a) Increase market share of the corporation
b) Expand corporation’s profits
c) Minimize corporation’s costs
d) Maximize corporation’s market value
e) There is no single corporate goal that a manager can always pursue.
6) Hannan Professional Corp does Family, Real Estate and Business Law. One day,
Jumbo walks in there to get legal representation in buying a real estate. Jumbo does
not personally know the lawyer, Mr. Hannan. He fears that Mr. Hannan might charge
for hours without actually working in those hours. Which statement is most
a) This is a unique example of a Professional Corp’s problem.
b) This is a great example of a lawyerly problem.
c) Mr. Hannan can offer a contingency fee agreement to calm down Jumbo’s
d) The problem that Jumbo is encountering is analogous to the problem that
directors encounter with managers in a corporation.
e) None of the above.
7) Jamal incorporated a corporation that just went public. It is selling shares now.
The best choice?
a) Most likely these corporate shares will be traded OTC.
b) Most likely these corporate shares will be traded ATS.
c) Jamal has done the right thing by engaging in the secondary market.
d) People buying shares of this IPO are taking a risk.
Ans: d) People buying shares of this IPO are taking a risk.
Lecture 8) Manna has purchased a contract which gives him the right to buy Z shares at a
certain price at a certain time in future.
a) This is an example of call option.
b) This is an example of put option.
c) Manna has taken a long position in futures contract.
d) Manna has taken a short position in futures contract.
Ans: a) This is an example of call option.
9) Which of the following funds’ manager is likely to charge the highest fee?
a) Actively managed mutual fund.
b) Passively managed mutual fund.
c) Hedge fund
d) Private equity fund
Ans: c) Hedge fund
10) Rhonda and Roland are working hard to save for their children’s university
education. They don’t need more cash for current consumption but expects to face
big tuition bills in 2020. If they come to you for investment advice, which one of the
followings do you think would be the best advice to them? Keep in mind their
a) You should avoid investing in stocks that pay generous current cash dividends.
b) You should be risk takers in investing so that there is a chance that they will have
sufficient savings in 2020.
c) You should only consider the bond market for investment.
d) It will be prudent for you to choose financial manager(s) who can invest at a
superior rate of return on their behalf.
Check point 2.5
11) Apple Leaf Inc. borrows $500 million by issuing new long-term bonds. It places
$100 million of the proceeds in the bank and uses $400 million to buy new
machinery. Then in Apple Leaf’s Balance Sheet:
a) Shareholder’s equity would increase.
b) Shareholder’s equity would decrease.
c) Cash and equivalents would decrease by $100 million.
d) Long term debt would decrease by $ 500 million.
e) Property and equipment would increase by $ 400 million.
Checkpoint 3.1 12) Venus Research has developed a revolutionary auto production process that
enables it to produce cars 10% more efficiently than its competitors. It has invested
$10 billion in building its new plant. To finance the investment, Venus borrowed $3
Billion and raised the remaining funds by selling new shares. There are currently
100 million shares of stock outstanding.
If the auto plant had a market val