Question 1

Which of the following statements is correct?

Accepted Answer

A)  In a partnership,liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business. 
B)  Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business. 
C)  A fast growth company would be more likely to set up a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulties attracting capital in part because of the other disadvantages of the partnership form of business,including impermanence of the organization. 
E)  A major disadvantage of a partnership as a form of business organization is the high cost and practical difficulties of its formation. 
A)  In a partnership,liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business. 
B)  Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business. 
C)  A fast growth company would be more likely to set up a partnership for its business organization than would a slow-growth company. 
D)  Partnerships have difficulties attracting capital in part because of the other disadvantages of the partnership form of business,including impermanence of the organization. 
E)  A major disadvantage of a partnership as a form of business organization is the high cost and practical difficulties of its formation. D

Question 2

Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners.

Accepted Answer

A) True 
 B)False  True

Question 3

In a competitive marketplace,if managers deviate too far from making decisions that are consistent with stockholder wealth maximization,they risk being disciplined by the market.Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

Accepted Answer

A) True 
 B)False  True

Question 4

Stock price maximization should be the most important goal for the managers of a corporation.

Accepted Answer

A) True 
 B)False

Question 5

The proper goal of the financial manager should be to maximize the firm's expected profit,because this will add the most wealth to each of the individual shareholders (owners)of the firm.

Accepted Answer

A) True 
 B)False

Question 6

Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.

Accepted Answer

A) True 
 B)False

Question 7

Although firms have ethical responsibilities to their employees and customers,they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Accepted Answer

A) True 
 B)False

Question 8

If a firm has a single owner,we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Accepted Answer

A) True 
 B)False

Question 9

Carter Corporation has some money to invest,and its treasurer is choosing between City of Chicago municipal bonds and U.S.Treasury bonds.Both have the same maturity,and they are equally risky and liquid.If Treasury bonds yield 6 percent,and Carter's marginal income tax rate is 40 percent,what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?

Accepted Answer

A)  2.40% 
B)  3.60% 
C)  4.50% 
D)  5.25% 
E)  6.00% 
A)  2.40% 
B)  3.60% 
C)  4.50% 
D)  5.25% 
E)  6.00%

Question 10

The fact that a percentage of the interest income received by one corporation is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is correct?

Accepted Answer

A)  A good goal for a corporate manager is maximization of expected EPS. 
B)  Most business in the U.S.is conducted by corporations;corporations' popularity results primarily from their favorable tax treatment. 
C)  A good example of an agency relationship is the one between stockholders and managers. 
D)  Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability,but investors in the other types of businesses are not. 
E)  Firms in highly competitive industries find it easier to exercise "social responsibility" than do firms in oligopolistic industries. 
A)  A good goal for a corporate manager is maximization of expected EPS. 
B)  Most business in the U.S.is conducted by corporations;corporations' popularity results primarily from their favorable tax treatment. 
C)  A good example of an agency relationship is the one between stockholders and managers. 
D)  Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability,but investors in the other types of businesses are not. 
E)  Firms in highly competitive industries find it easier to exercise "social responsibility" than do firms in oligopolistic industries.

Question 12

Four of the disadvantages of a partnership are (1)unlimited liability, (2)limited life of the organization, (3)difficulty of transferring ownership,and (4)difficulty in attracting large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 13

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are advantages of a corporation except

Accepted Answer

A)  unlimited life 
B)  limited liability 
C)  easy transfer of ownership 
D)  All of the above are advantages 
A)  unlimited life 
B)  limited liability 
C)  easy transfer of ownership 
D)  All of the above are advantages

Question 15

A hostile takeover involves an attempt by one group of stockholders to solicit votes from other stockholders in order to put a new management team into place and is usually motivated by low stock price.

Accepted Answer

A) True 
 B)False

Question 16

The riskiness inherent in a firm's earnings per share (EPS)depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is correct?

Accepted Answer

A)  A hostile takeover is a primary method of transferring ownership interest in a corporation. 
B)  The corporation is a legal entity created by the state and is a direct extension of the legal status of its owners and managers,that is,the owners and managers are the corporation. 
C)  Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. 
D)  In part due to limited liability and ease of ownership transfer,corporations have less trouble raising money in financial markets than other organizational forms. 
E)  Although stockholders of the corporation are insulated by limited legal liability,the legal status of the corporation does not protect the firm's managers in the same way. 
A)  A hostile takeover is a primary method of transferring ownership interest in a corporation. 
B)  The corporation is a legal entity created by the state and is a direct extension of the legal status of its owners and managers,that is,the owners and managers are the corporation. 
C)  Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. 
D)  In part due to limited liability and ease of ownership transfer,corporations have less trouble raising money in financial markets than other organizational forms. 
E)  Although stockholders of the corporation are insulated by limited legal liability,the legal status of the corporation does not protect the firm's managers in the same way.

Question 18

The disadvantages associated with a proprietorship are similar to those under a partnership.One exception to this is due to the formal nature of the partnership agreement and the commitment of the partners' personal assets.As a result,partnerships do not have difficulty raising large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following are important in determining the value of the firm?

Accepted Answer

A)  Expected future cash flows. 
B)  Timing of future cash flows. 
C)  Riskiness of future cash flows. 
D)  All of the above. 
A)  Expected future cash flows. 
B)  Timing of future cash flows. 
C)  Riskiness of future cash flows. 
D)  All of the above.

Question 20

A loss incurred by a corporation

Accepted Answer

A)  Must be carried forward unless the company has had 2 loss years in a row. 
B)  Can be carried back 2 years,then carried forward up to 20 years following the loss. 
C)  Can be carried back 5 years and forward 3 years. 
D)  Cannot be used to reduce taxes in other years except with special permission from the IRS. 
E)  Can be carried back 3 years or forward 15 years,whichever is more advantageous to the firm. 
A)  Must be carried forward unless the company has had 2 loss years in a row. 
B)  Can be carried back 2 years,then carried forward up to 20 years following the loss. 
C)  Can be carried back 5 years and forward 3 years. 
D)  Cannot be used to reduce taxes in other years except with special permission from the IRS. 
E)  Can be carried back 3 years or forward 15 years,whichever is more advantageous to the firm.

Which of the following statements is correct?

Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners.

In a competitive marketplace,if managers deviate too far from making decisions that are consistent with stockholder wealth maximization,they risk being disciplined by the market.Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

Stock price maximization should be the most important goal for the managers of a corporation.

The proper goal of the financial manager should be to maximize the firm's expected profit,because this will add the most wealth to each of the individual shareholders (owners)of the firm.

Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.

Although firms have ethical responsibilities to their employees and customers,they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

If a firm has a single owner,we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

The fact that a percentage of the interest income received by one corporation is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing.

Which of the following statements is correct?

Four of the disadvantages of a partnership are (1)unlimited liability, (2)limited life of the organization, (3)difficulty of transferring ownership,and (4)difficulty in attracting large amounts of capital.

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

All of the following are advantages of a corporation except

A hostile takeover involves an attempt by one group of stockholders to solicit votes from other stockholders in order to put a new management team into place and is usually motivated by low stock price.

The riskiness inherent in a firm's earnings per share (EPS)depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Which of the following statements is correct?

Which of the following are important in determining the value of the firm?

A loss incurred by a corporation

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters

Exam 6: Business Organizations and the Tax Environment

Which of the following statements is correct?

Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners.

Stock price maximization should be the most important goal for the managers of a corporation.

The proper goal of the financial manager should be to maximize the firm's expected profit,because this will add the most wealth to each of the individual shareholders (owners)of the firm.

Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.

Although firms have ethical responsibilities to their employees and customers,they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

If a firm has a single owner,we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

The fact that a percentage of the interest income received by one corporation is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing.

Which of the following statements is correct?

Four of the disadvantages of a partnership are (1)unlimited liability, (2)limited life of the organization, (3)difficulty of transferring ownership,and (4)difficulty in attracting large amounts of capital.

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

All of the following are advantages of a corporation except

A hostile takeover involves an attempt by one group of stockholders to solicit votes from other stockholders in order to put a new management team into place and is usually motivated by low stock price.

The riskiness inherent in a firm's earnings per share (EPS)depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Which of the following statements is correct?

Which of the following are important in determining the value of the firm?

A loss incurred by a corporation

An Overview of Finance

Financial Assets Instruments

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment and Securities

Investment Analysis and Valuation Techniques

Filters