Bam 313 Final Exam

BAM 313 Final Exam
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1. The CEO of High Tech International decides to change an accounting method at the end of the current year. The change results in reported profits increasing by 5%, but the company’s cash flows are not changed. If capital markets are efficient, then:
a. The stock price will increase only if the accounting change will also result in higher profits in the next year.
b. The stock price will increase due to higher profits.
c. The stock price will decrease because accounting method changes are not permitted under generally accepted accounting principles.
d. The stock price will not be affected by the accounting change.
2. S-type corporations have all of the following advantages EXCEPT
a. The owners have limited liability.
b. All owners must be people, no corporations.
c. Distributions are taxed twice, similar to corporate dividend payments.
d. They are taxed as partnerships.
3. Assume that you went to Las Vegas and hit the jackpot for $5 million. Further assume that you were offered a choice to receive the $5 million today, or receive it in two years. According to one of the principles of finance, which would you take?
a. You would be indifferent as to when you would receive the $5 million.
b. $5 million in two years because you would be afraid of spending it all right away
c. $5 million today because it would be worth more than if you would receive it in two years
d. $5 million in two years because it would be worth more than if you would receive it today
4. In terms of the costs to organize each, which of the following sequences is correct, moving from highest to lowest cost?
a. corporation, limited partnership, general partnership, sole proprietorship
b. sole proprietorship, general partnership, corporation, limited partnership
c. general partnership, sole proprietorship, limited partnership, corporation
d. sole proprietorship, general partnership,...