Question 1

Assume for a moment that the shareholders in a corporation have unlimited liability for corporate debts.If so,what impact would this have on the functioning of primary and secondary markets for ordinary equity?

Accepted Answer

With unlimited liability,you would be very careful which stocks you invest in.In particular,you would not invest in companies you expected to be unable to satisfy their financial obligations.Both the primary and secondary markets for equity would be severely hampered if this rule existed.It would be very difficult for a young,untested business to acquire enough capital to grow.

Question 2

The owners of a limited liability company prefer:&#10;A)being taxed like a corporation.&#10;B)having liability exposure similar to that of a sole proprietor.&#10;C)being taxed personally on all business income.&#10;D)having liability exposure similar to that of a general partner.&#10;E)being taxed like a corporation with liability like a partnership.&#10;

Accepted Answer

being taxed personally on all business income.

Question 3

Which type of business organization has all the respective rights and privileges of a legal person?&#10;A)Sole proprietorship.&#10;B)General partnership.&#10;C)Limited partnership.&#10;D)Corporation.&#10;E)Limited liability company.&#10;

Accepted Answer

Only a corporation has all the respective rights and privileges of a legal person, including the ability to enter into contracts, sue and be sued, and own property.

Question 4

The articles of incorporation:&#10;A)can be used to remove company management.&#10;B)are amended annually by the company shareholders.&#10;C)set forth the number of shares that can be issued.&#10;D)set forth the rules by which the corporation regulates its existence.&#10;E)can set forth the conditions under which the firm can avoid double taxation.&#10;

Accepted Answer

The articles of incorporation typically include details such as the number of shares the corporation is authorized to issue.

Question 5

Which one of the following business types is best suited to raising large amounts of capital?&#10;A)Sole proprietorship.&#10;B)Limited liability company.&#10;C)Corporation.&#10;D)General partnership.&#10;E)Limited partnership.&#10;

Accepted Answer

Corporations are the best suited for raising large amounts of capital because they can issue stocks and bonds, which can be bought by investors to raise funds. They also have the ability to attract investment from institutions such as banks and venture capitalists. Limited liability companies and partnerships, on the other hand, have limited options for raising funds and may have difficulty attracting large investments. Sole proprietorships do not have a separate legal existence from their owners and therefore cannot issue stocks or bonds to raise capital.

Question 6

Which of the following are disadvantages of a partnership?
I.limited life of the firm
II.personal liability for firm debt
III.greater ability to raise capital than a sole proprietorship
IV.lack of ability to transfer partnership interest

A)I and II only.
B)III and IV only.
C)II and III only.
D)I,II,and IV only.
E)I,III,and IV only.

Accepted Answer

I. Limited life of the firm - Partnerships have limited life as they dissolve when one partner leaves, dies, or retires from the business.

II. Personal liability for firm debt - Partners are personally liable for the debts and legal obligations of the firm, even if it means using personal assets to pay off the debt.

III. Greater ability to raise capital than a sole proprietorship - This is not a disadvantage; it is actually an advantage of a partnership as more partners mean more capital injection.

IV. Lack of ability to transfer partnership interest - Partnerships have restricted transferability of ownership interest as they require the unanimous consent of all existing partners.

Question 7

Which one of the following statements is correct concerning the organizational structure of a corporation?&#10;A)The vice president of finance reports to the chairman of the board.&#10;B)The chief executive officer reports to the board of directors.&#10;C)The controller reports to the president.&#10;D)The treasurer reports to the chief executive officer.&#10;E)The chief operations officer reports to the vice president of production.&#10;

Accepted Answer

The chief executive officer (CEO) is the highest-ranking officer in a corporation and is typically responsible for the overall performance of the organization. Therefore, the CEO reports to the board of directors, which represents the shareholders and is responsible for setting the strategic direction of the company. Options A, C, D, and E are incorrect as they provide incorrect reporting lines for these positions.

Question 8

A partnership:&#10;A)is taxed the same as a corporation.&#10;B)agreement defines whether the business income will be taxed like a partnership or a corporation.&#10;C)terminates at the death of any general partner.&#10;D)has less of an ability to raise capital than a proprietorship.&#10;E)allows for easy transfer of interest from one general partner to another.&#10;

Accepted Answer

The answer of A partnership:&#10;A)is taxed the same as a...

Question 9

One thing lenders sometimes require when loaning money to a small corporation is an assignment of the ordinary equity as collateral on the loan.Then,if the business fails to repay its loan,the ownership of the stock certificates can be transferred directly to the lender.Why might a lender want such an assignment?
What advantage of the corporate form of organization comes into play here?

Accepted Answer

The answer of One thing lenders sometimes require when loaning...

Question 10

Which of the following help convince managers to work in the best interest of the shareholders?
I.compensation based on the value of the equity
II.share option plans
III.threat of a proxy fight
IV.threat of conversion to a partnership

A)I and II only.
B)II and III only.
C)I,II and III only.
D)I and III only.
E)I,II,III,and IV.

Accepted Answer

Compensation based on the value of equity and share option plans directly align the interest of managers and shareholders because if the company performs well, the equity value will increase, and this will benefit the shareholders as well as the managers. Additionally, the threat of a proxy fight ensures that managers are held accountable for their actions and are constantly trying to increase shareholder value. Finally, the threat of conversion to a partnership gives shareholders the power to remove managers who are not acting in their best interest. Hence, all the given options help convince managers to work in the best interest of the shareholders.

Question 11

The treasurer and the controller of a corporation generally report to the:&#10;A)board of directors.&#10;B)chairman of the board.&#10;C)chief executive officer.&#10;D)president.&#10;E)vice president of finance.&#10;

Accepted Answer

The answer of The treasurer and the controller of a...

Question 12

A stakeholder is:&#10;A)any person or entity that owns shares of a corporation.&#10;B)any person or entity that has voting rights based on share ownership of a corporation.&#10;C)a person who initially started a firm and currently has management control over the cash flows of the firm due to his/her current ownership of company equity.&#10;D)creditor to whom the firm currently owes money and who consequently has a claim on the cash flows of the firm.&#10;E)any person or entity other than a shareholder or creditor who potentially has a claim on the cash flows of the firm.&#10;

Accepted Answer

The answer of A stakeholder is:&#10;A)any person or entity that...

Question 13

A general partner:&#10;A)has less legal liability than a limited partner.&#10;B)has more management responsibility than a limited partner.&#10;C)faces double taxation whereas a limited partner does not.&#10;D)cannot lose more than the amount of his/her equity investment.&#10;E)is the term applied only to corporations which invest in partnerships.&#10;

Accepted Answer

The answer of A general partner:&#10;A)has less legal liability than...

Question 14

Which one of the following statements concerning a sole proprietorship is correct?&#10;A)The life of the firm is limited to the life span of the owner.&#10;B)The owner can generally raise large sums of capital quite easily.&#10;C)The ownership of the firm is easy to transfer to another individual.&#10;D)The company must pay separate taxes from those paid by the owner.&#10;E)The legal costs to form a sole proprietorship are quite substantial.&#10;

Accepted Answer

The answer of Which one of the following statements concerning...

Question 15

Corporate Governance Regulation is intended to:&#10;A)protect financial managers from investors.&#10;B)not have any affect on foreign companies.&#10;C)reduce corporate revenues.&#10;D)protect investors from corporate abuses.&#10;E)decrease audit costs for firms.&#10;

Accepted Answer

The answer of Corporate Governance Regulation is intended to:&#10;A)protect financial...

Question 16

In a limited partnership:&#10;A)each limited partner's liability is limited to his net worth.&#10;B)each limited partner's liability is limited to the amount he put into the partnership.&#10;C)each limited partner's liability is limited to his annual salary.&#10;D)there is no limitation on liability; only a limitation on what the partner can earn.&#10;E)None of the above.&#10;

Accepted Answer

The answer of In a limited partnership:&#10;A)each limited partner's liability...

Question 17

Sole proprietorships are predominantly started because:&#10;A)they are easily and cheaply setup.&#10;B)the proprietorship life is limited to the business owner's life.&#10;C)all business taxes are paid as individual tax.&#10;D)All of the above.&#10;E)None of the above.&#10;

Accepted Answer

The answer of Sole proprietorships are predominantly started because:&#10;A)they are...

Question 18

Do you think agency problems arise in sole proprietorships and/or partnerships?

Accepted Answer

The answer of Do you think agency problems arise in...

Deck 2: Corporate Governance