Which one of the following is an unintended result of the Sarbanes-Oxley Act?

41. The Sarbanes-Oxley Act of 2002 is a governmental response to:
A. decreasing corporate profits.
B. the terrorists attacks on 9/11/2001.
C. a weakening economy.
D. deregulation of the stock exchanges.
E. management greed and abuses.

Refer to section 1.3

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.3
Topic: Sarbox
 

42. Which one of the following is an unintended result of the Sarbanes-Oxley Act?
A. more detailed and accurate financial reporting
B. increased management awareness of internal controls
C. corporations delisting from major exchanges
D. increased responsibility for corporate officers
E. identification of internal control weaknesses

Refer to section 1.3

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.3
Topic: Sarbox
 

43. A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:
A. must continue to provide audited financial statements to the public.
B. must continue to provide a detailed list of internal control deficiencies on an annual basis.
C. can provide less information to its shareholders than it did prior to "going dark".
D. can continue publicly trading its stock but only on the exchange on which it was previously listed.
E. ceases to exist.

Refer to section 1.3

AACSB: Ethics
Difficulty: Intermediate
Learning Objective: 1-4
Section: 1.3
Topic: Sarbox
 

44. Which of the following are results related to the enactment of the Sarbanes-Oxley Act of 2002?
I. increased foreign stock exchange listings of U.S. stocks
II. decreased compliance costs
III. increased privatization of public corporations
IV. increased public disclosure by all corporations
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only

Refer to section 1.3

AACSB: Ethics
Difficulty: Intermediate
Learning Objective: 1-4
Section: 1.3
Topic: Sarbox
 

45. Which one of the following actions by a financial manager is most apt to create an agency problem?
A. refusing to borrow money when doing so will create losses for the firm
B. refusing to lower selling prices if doing so will reduce the net profits
C. refusing to expand the company if doing so will lower the value of the equity
D. agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales
E. increasing current profits when doing so lowers the value of the firm's equity

Refer to section 1.4

AACSB: Ethics
Difficulty: Intermediate
Learning Objective: 1-4
Section: 1.4
Topic: Agency problem
 

46. Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.
I. compensation based on the value of the stock
II. stock option plans
III. threat of a company takeover
IV. threat of a proxy fight
A. I and II only
B. III and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV

Refer to section 1.4

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Agency problem
 

47. Which form of business structure is most associated with agency problems?
A. sole proprietorship
B. general partnership
C. limited partnership
D. corporation
E. limited liability company

Refer to section 1.4

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Agency problem
 

48. Which one of the following is an agency cost?
A. accepting an investment opportunity that will add value to the firm
B. increasing the quarterly dividend
C. investing in a new project that creates firm value
D. hiring outside accountants to audit the company's financial statements
E. closing a division of the firm that is operating at a loss

Refer to section 1.4

AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Agency cost
 

49. Which one of the following is least likely to be an agency problem?
A. increasing the size of a firm
B. concentrating on maximizing current profits
C. closing a division with net losses
D. increasing the market value of the firm's shares
E. obtaining a patent for a new product

Refer to section 1.4

AACSB: Ethics
Difficulty: Intermediate
Learning Objective: 1-4
Section: 1.4
Topic: Agency cost
 

50. Which one of the following is a means by which shareholders can replace company management?
A. stock options
B. promotion
C. Sarbanes-Oxley Act
D. agency play
E. proxy fight

Refer to section 1.4

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Proxy fight
 

51. Which one of the following grants an individual the right to vote on behalf of a shareholder?
A. proxy
B. by-laws
C. indenture agreement
D. stock option
E. stock audit

Refer to section 1.4

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Proxy
 

52. Which one of the following parties has ultimate control of a corporation?
A. chairman of the Board
B. board of directors
C. chief executive officer
D. chief operating office
E. shareholders

Refer to section 1.4

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Corporate responsibility
 

53. Which of the following parties are considered stakeholders of a firm?
I. employee
II. long-term creditor
III. government
IV. common stockholder
A. I only
B. IV only
C. I and III only
D. II and IV only
E. II, III, and IV only

Refer to section 1.4

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Stakeholder
 

54. Which of the following represent cash outflows from a corporation?
I. issuance of securities
II. payment of dividends
III. new loan proceeds
IV. payment of government taxes
A. I and III only
B. II and IV only
C. I and IV only
D. I, II, and IV only
E. II, III, and IV only

Refer to section 1.5

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.5
Topic: Cash outflows
 

55. Which of the following are cash flows from a corporation into the financial markets?
I. repayment of long-term debt
II. payment of government taxes
III. payment of loan interest
IV. payment of quarterly dividend
A. I and II only
B. I and III only
C. II and IV only
D. I, III, and IV only
E. I, II, and III only

Refer to section 1.5

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.5
Topic: Cash flows
 

56. Which one of the following is a primary market transaction?
A. sale of currently outstanding stock by a dealer to an individual investor
B. sale of a new share of stock to an individual investor
C. stock ownership transfer from one shareholder to another shareholder
D. gift of stock from one shareholder to another shareholder
E. gift of stock by a shareholder to a family member

Refer to section 1.5

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.5
Topic: Primary market
 

57. Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:
A. took place in the primary market.
B. occurred in a dealer market.
C. was facilitated in the secondary market.
D. involved a proxy.
E. was a private placement.

Refer to section 1.5

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.5
Topic: Secondary market
 

58. Public offerings of debt and equity must be registered with which one of the following?
A. New York Board of Governors
B. Federal Reserve
C. NYSE Registration Office
D. Securities and Exchange Commission
E. Market Dealers Exchange

Refer to section 1.5

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.5
Topic: SEC
 

59. Which one of the following statements is generally correct?
A. Private placements must be registered with the SEC.
B. All secondary markets are auction markets.
C. Dealer markets have a physical trading floor.
D. Auction markets match buy and sell orders.
E. Dealers arrange trades but never own the securities traded.

Refer to section 1.5

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.5
Topic: Auction and dealer markets
 

60. Which one of the following statements concerning stock exchanges is correct?
A. NASDAQ is a broker market.
B. The NYSE is a dealer market.
C. The exchange with the strictest listing requirements is NASDAQ.
D. Some large companies are listed on NASDAQ.
E. Most debt securities are traded on the NYSE.

Refer to section 1.5

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.5
Topic: NYSE and NASDAQ