Some fundamental multiple-choice questions derived from this chapter:
1. What were the three main costs associated with the management of the Petroleum Corporation of America, as analyzed in the book?
A) Financing costs, value of warrants, and future managerial salaries
B) Underwriting costs, legal fees, and management bonuses
C) Marketing expenses, administrative costs, and shareholder dividends
D) Research and development, employee wages, and operational costs
2. What were the limitations on the value of managerial judgment in the Petroleum Corporation?
A) Directors were not obligated to devote themselves exclusively to the enterprise.
B) The corporation focused only on petroleum investments.
C) Limited number of investment opportunities.
D) Both A and B
3. What principle governed the sale of stock to the public by reputable houses of issue before the late 1920s, as mentioned in the book?
A) The enterprise must be well established with a strong financial record
B) The stock should offer high dividends and growth potential
C) Stocks should only be offered to sophisticated investors
D) Stocks should be primarily sold to institutional investors
4. Which of the following statements is true regarding the financial schemes like the one used by Petroleum Corporation of America?
A) They were highly beneficial for the stock buyer.
B) The total cost for management was excessive in relation to the value of the services rendered.
C) The cost was clearly disclosed to the stock buyers.
D) They relied on the profitability of the corporation's investments.
5. What was a major issue with investment-trust financing as practiced in the late 1920s and 1930s?
A) It strictly followed the established criteria of reputable stock flotations.
B) The interests of the security buyer were adequately protected.
C) Compensation for financing and management lacked accepted standards of reasonableness.
D) It was based on arm’s-length bargaining between corporation and banker.
Answers: ADABC