Q: Which formula correctly calculates market capitalization?

$$\text{Market Cap} = \text{Number of Shares Outstanding} \times \text{Share Price}$$

Question 1

Which of the following is a principal limitation of a sole proprietorship?

Accepted Answer

There is no separation between the firm and the owner.

Question 2

A partnership ends in the event of which of the following?

Accepted Answer

The withdrawal or death of any single partner.

Question 3

Which type of partnership allows some partners to have limited liability and no management authority?

Accepted Answer

Limited partnership

Question 4

Which statement best describes the liability of shareholders in a corporation?

Accepted Answer

Shareholders are not liable for any obligations the corporation enters into.

Question 5

A corporation has 3.6 million shares outstanding, each priced at $10. What is its market capitalization?

Accepted Answer

$36 million

Question 6

Which of the following best describes double taxation in the context of corporations?

Accepted Answer

Corporation pays tax on profits, and shareholders pay tax on dividends received.

Question 7

A corporation earns $5.00 per share before taxes. The corporate tax rate is 35% and your personal tax rate on dividends is 24%. How much do you receive after all taxes are paid?

Accepted Answer

$2.47

Question 8

If a Real Estate Investment Trust (REIT) distributes $5.00 per unit and your personal tax rate is 46%, how much do you receive after taxes for units held outside your TFSA?

Accepted Answer

$2.70

Question 9

Which of the following is NOT a main task of the financial manager?

Accepted Answer

Set the corporation's tax rate

Question 10

What is the overriding goal of a firm's management according to corporate finance principles?

Accepted Answer

Maximize shareholder wealth

Question 11

Which of the following best describes the principal-agent problem?

Accepted Answer

Managers putting their own interests ahead of shareholders'

Question 12

In the stock market, what is the difference between the ask price and the bid price called?

Accepted Answer

Ask spread

Question 13

Which type of order will transact immediately at the best available price?

Accepted Answer

Market order

Question 14

Which of the following is a function of financial institutions?

Accepted Answer

Moving funds through time

Question 15

If you buy 500 shares at $$14.80 per share and sell them at 15.08 $$per share, what is your total gain (ignoring commissions)?

Accepted Answer

$140.00

Question 16

Which of the following is a trade-off between using market orders and limit orders?

Accepted Answer

Market orders guarantee execution but not price; limit orders guarantee price but not execution.

Question 17

Which formula correctly calculates market capitalization?

Accepted Answer

$$	ext{Market Cap} = 	ext{Number of Shares Outstanding} 	imes 	ext{Share Price}$$

Question 18

A corporation earns $5.00 per share before taxes. The corporate tax rate is 34%, and the personal tax rate on dividends is 28%. How much is left for the shareholder after all taxes?

Accepted Answer

$2.38

Question 19

Which of the following is NOT a characteristic of a sole proprietorship?

Accepted Answer

Separation between firm and owner

Question 20

Which of the following is a real-world application of finance for individuals?

Accepted Answer

Evaluating the terms for a home mortgage

Fundamentals of Corporate Finance: Chapter 1 – Corporate Finance and the Financial Manager

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