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Week 1 Quiz1

Quiz by Chi Truong

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5 questions
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  • Q1
    Which of the following provides INCORRECT description of lemon problem
    With severe lemon problem, good entrepreneurs leave the market and only bad entrepreneurs remain in the market.
    Lemon problem leads to too high required rate of return for good entrepreneur and too low required rate of return for bad entrepreneur
    Lemon problem is an asymmetric information problem in which investors have more information than entrepreneurs about the value of business investment opportunities.
    Lemon problem means that if investors require a 6% rate of return to finance a spaceship project managed by Richard Branson (from Virgin Blue), they also require only 6% rate of return to finance the same project managed by an unknown graduate from an average university.
    90s
  • Q2
    Which of the following statement is CORRECT?
    In a listed company, the board of directors is the owner of the company and play the role of the principal. The CEO is the manager of the company and plays the role of the agent.
    In a listed company, shareholders are the owners of the company and play the role of the agent. The CEO is hired to manage the company on behalf of shareholders and plays the role of the principal.
    In a listed company, shareholders are the owners of the company and play the role of the principal. The CEO is hired to manage the company on behalf of shareholders and plays the role of the agent.
    In a listed company, shareholders are the managers of the company and play the role of the principal. The CEO is the owner of the company and plays the role of the agent.
    90s
  • Q3
    Which of the following provides INCORRECT description of agency problem
    None of the above statements is incorrect
    The agency problem arises when the agent acts for his own benefit instead of acting for the best interest of the principal.
    A consequence of the agency problem is that the company does not achieve its potential profitability and shareholders obtain low rate of return by investing in the company
    Agency problem is the problem that occurs after investors have invested in the company.
    90s
  • Q4
    Which of the following provides INCORRECT description of the measures used to alleviate lemon problem
    Potential investors can be provided with financial reports on the information on the current financial status of the company
    Audited financial reports and financial reports that are prepared according to some accounting standards are more credible
    In listed companies, the CEO is responsible for the accuracy of financial reports
    Analysis from financial analysis helps to reduce the information gap between potential investors and company managers
    90s
  • Q5
    Which of the following statement about accounting principles is INCORRECT?
    Consistency means the same accounting policies and procedures should be used from one period to another period.
    Going concern means the company is assumed to operate in the foreseeable future, and assets are valued based on historical costs
    Accrual accounting means income is recognized when cash is received
    Materiality means only information that changes the decisions of users is reported
    90s

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