Exam 6: Business Organizations and the Tax Environment

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

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

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

All of the following are advantages of a corporation except

____ decisions are decisions as to how much of current earnings to pay out as dividends rather than to retain for reinvestment in the firm.

Which of the following statements is correct?

A corporation with a marginal tax rate of 34 percent would receive what after-tax dividend yield on a 12 percent coupon rate preferred stock bought at par, assuming a 70 percent dividend exclusion?

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

The corporate charter of a firm includes all of the following information except

Although over half of all corporations select the S corporation status when filing taxes, these firms generate only around 25 percent of the total revenues provided by corporations.

A loss incurred by a corporation

Which of the following statements is correct?

In a limited liability partnership only the general partner can participate in the management of the business.

Most firms today use executive stock options, as opposed to other incentive methods, to induce management to act in the best interests of stockholders.

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

In 2014, Craig and Kathy Koehler owned a small business which was held as a proprietorship in Kathy's name.They were thinking of incorporating if that would lower their total tax liability.The Koehlers expected the company to earn $100,000 before taxes next year.They planned to take out salaries of $45,000, and to reinvest the rest in the business.Their personal deductions total $8,150 and they will file a joint return for their personal income.(1) What is their expected total tax liability as a proprietorship? (2) As a corporation? (3) Based on current taxes, should they incorporate?

Your corporation has the following cash flows: If the applicable income tax rate is 40 percent, and if 70 percent of dividends received are exempt from taxes, what is the corporation's tax liability?

Profit maximization does not always lead to wealth maximization because

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.