Question 1

In order to maximize its shareholders' value,a firm's management must attempt to maximize the expected EPS.

Accepted Answer

False

Question 2

Partnerships and proprietorships generally have a tax advantage over corporations.

Accepted Answer

Partnerships and proprietorships are taxed as pass-through entities where the profits and losses of the business are reported on the individual tax returns of the partners or owner. This avoids double taxation that corporations are subject to where profits are taxed at the corporate level and then again when distributed to shareholders as dividends.

Question 3

The more capital a firm is likely to require,the greater the probability that it will be organized as a corporation.

Accepted Answer

This is because corporations have access to more sources of financing (such as issuing stocks and bonds) than other forms of business organization, making it easier for them to raise large amounts of capital. Additionally, the limited liability protection afforded to shareholders in a corporation can be attractive to investors who are putting large sums of money into the business.

Question 4

It is generally harder to transfer one's ownership interest in a partnership than in a corporation.

Accepted Answer

In a partnership, ownership is tied to active participation in the business and requires the consent of all other partners. In a corporation, ownership is represented by shares of stock which can be easily bought or sold without the need for consent from other shareholders.

Question 5

The board of directors is the highest ranking body in a corporation,and the chairman of the board is the highest ranking individual.The CEO generally works under the board and its chairman,and the board generally has the authority to remove the CEO under certain conditions.The CEO,however,cannot remove the board,but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise.It is possible for a person to simultaneously serve as CEO and chairman of the board,though many corporate control experts believe it is bad to vest both offices in the same person.

Accepted Answer

The statement correctly describes the hierarchy and powers of the board of directors, chairman, and CEO in a corporation, as well as the possibility of one person holding both the CEO and chairman roles.

Question 6

In most corporations,the CFO ranks under the CEO.

Accepted Answer

Typically, the CFO (Chief Financial Officer) ranks below the CEO (Chief Executive Officer) in the organizational structure of a corporation.

Question 7

One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt.This problem would be avoided if you formed a corporation to operate the business.

Accepted Answer

As a sole proprietor, there is no legal separation between the individual and the business, so the owner is personally responsible for all the debts and obligations of the business. In contrast, a corporation offers limited liability protection to its shareholders, meaning that their personal assets are not at risk if the company faces financial difficulties or legal claims.

Question 8

If a corporation elects to be taxed as an S corporation,then it can avoid the corporate tax.However,its stockholders will have to pay personal taxes on the firm's net income.

Accepted Answer

When a corporation elects to be taxed as an S corporation, it becomes a pass-through entity and avoids paying corporate income tax. Instead, the corporation's income, deductions, and credits pass through to the individual shareholders, who report the income and deductions on their personal income tax returns and pay taxes at their individual tax rates.

Question 9

If a corporation elects to be taxed as an S corporation,then both it and its stockholders can avoid all Federal taxes.This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.

Accepted Answer

While S corporations do offer certain tax advantages for small businesses, both the corporation and its stockholders are still subject to Federal taxes on certain income and gains.

Question 10

Some partners in a partnership may have different rights,privileges,and responsibilities than other partners.

Accepted Answer

This is correct. Partners in a partnership agreement can negotiate and define the rights, privileges, and responsibilities for each partner. This can include differences in profit sharing, decision-making authority, and management responsibilities.

Question 11

One advantage of the corporate form of organization is that it avoids double taxation.

Accepted Answer

The answer of One advantage of the corporate form of...

Question 12

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price in the long run,or the stock's "intrinsic value."

Accepted Answer

Maximizing the stock price in the long run, or intrinsic value, is a key factor in maximizing shareholder value.

Question 13

In order to maximize its shareholders' value,a firm's management must attempt to maximize the stock price on a specific target date.

Accepted Answer

The answer of In order to maximize its shareholders' value,a...

Question 14

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests.

Accepted Answer

The answer of One disadvantage of forming a corporation rather...

Question 15

It is generally less expensive to form a corporation than a proprietorship because,with a proprietorship,extensive legal documents are required.

Accepted Answer

This statement is false. Forming a corporation generally requires more paperwork and legal fees than starting a proprietorship, which is why it may cost more.

Question 16

Organizing as a corporation makes it easier for the firm to raise capital.This is because corporations' stockholders are not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than partnership interests.

Accepted Answer

Organizing as a corporation provides limited liability to its stockholders and also makes it easier to transfer shares of stock, which ultimately makes it easier for the firm to raise capital.

Question 17

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

Accepted Answer

This statement is false. In a corporation, stockholders' personal liability is typically limited to the amount of their investment in the company. Investors in a partnership, on the other hand, have unlimited personal liability for the debts and obligations of the partnership.

Question 18

The Chairman of the Board must also be the CEO.

Accepted Answer

The Chairman of the Board and CEO roles can be separated, and in many cases, they are different individuals within a company.

Question 19

An advantage of the corporate form of organization is that corporations are generally less highly regulated than proprietorships and partnerships.

Accepted Answer

The statement is false. Corporations are generally more highly regulated than proprietorships and partnerships, as they must comply with various legal requirements and regulations such as filing annual reports and maintaining certain corporate formalities.

Question 20

If management operates in a manner designed to maximize the firm's expected profits for the current year,this will also maximize the stockholders' wealth as of the current year.

Accepted Answer

The answer of If management operates in a manner designed...

Quiz 1: An Overview of Financial Management