Question 1

Helen owns 10.2% of the stock of the Median Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Helen receive, disregarding tax?

Accepted Answer

B) Helen will receive ownership dividend payment proportional to her ownership of 10.2%: 11eaabab_c0cc_1923_b90e_85e62e823255_TB5536_11

Question 2

Which of the following is unique for an S corporation?

Accepted Answer

D

Question 3

Partnerships are the most common type of business firm in the world.

Accepted Answer

Sole proprietorships are the most common type of business firm in the world due to their simplicity and the ease with which they can be established.

Question 4

Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property?

Accepted Answer

A corporation is a legal entity that is separate from its owners. This means that it can enter into contracts, acquire assets, and incur obligations in its own name, rather than in the names of its shareholders. As a result, the corporation, rather than its owners, bears the responsibility for fulfilling these obligations. Additionally, the corporation's property is protected against seizure because it is owned by the corporation, not its shareholders.

Question 5

What is the most common type of firm in the United States and the world?

Accepted Answer

Sole proprietorships are the most common type of firm in both the United States and the world due to their simplicity and the minimal legal requirements needed to establish them.

Question 6

Which of the following features of a corporation is LEAST accurate?

Accepted Answer

While earnings from a corporation can be taxed separately from the owners' personal income, they are not always taxed only once. Double taxation can occur when a corporation distributes profits as dividends to shareholders, which are then taxed again as personal income for the shareholders.

Question 7

Which of the following is typically the major factor in limiting the growth of sole proprietorships?

Accepted Answer

In sole proprietorships, the single owner is personally liable for all debts, which limits the amount of money that can be raised. This can hinder the growth of the business. Options A, B, and D are not typically major factors in limiting the growth of sole proprietorships.

Question 8

You are a shareholder in a corporation which has elected subchapter S tax treatment. The corporation announces a profit of $6 per share, of which it retains $1 for reinvestment and distributes the rest as dividend payments. Given that the personal tax rate is 35%, how much tax must you pay per share?

Accepted Answer

C) Tax paid by shareholder of S 11eaabab_c0cc_6749_b90e_adf71f03d8d9_TB5536_11

Question 9

Which of the following types of firms does NOT have limited liability?

Accepted Answer

Sole proprietorships do not have limited liability because the owner is personally liable for all the debts and obligations of the business.

Question 10

Financial decisions require that you weigh alternatives in strictly monetary terms.

Accepted Answer

Financial decisions often involve considering non-monetary factors such as risk, personal values, and the impact on stakeholders, in addition to monetary terms.

Question 11

Joe is a general partner in a limited partnership firm, while Jane is a limited partner in the same firm. Which of the following statements regarding their respective relationships to the firm is correct?

Accepted Answer

Jane, as a limited partner, has her liability for the firm's debts limited to the amount of her investment in the firm. This means she is not personally liable beyond what she has invested.

Question 12

What is the major advantage corporations have over other business entities?

Accepted Answer

A corporation has several advantages over other forms of businesses.

A) It is easier for a corporation to raise capital than other forms of businesses. This is because a corporation can offer shares of its stock to investors, which can provide a significant amount of funding.

B) A corporation is treated as a separate legal entity for tax and legal purposes. This means that the corporation is responsible for its own debts and liabilities, and its shareholders are typically not personally liable for the corporation's debts.

C) A corporation's shares can be freely traded among its shareholders. This provides a level of liquidity that is not available in other forms of businesses, such as partnerships or sole proprietorships.

Therefore, all of these advantages make the corporation a more attractive business form for many entrepreneurs and investors.

Question 13

A C corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $6.00 dividend?

Accepted Answer

C) Corporate tax = $8.30 × 39% = $3.24, 11eaabab_c0cc_8e5a_b90e_7bc6168c5f8d_TB5536_11 11eaabab_c0cc_8e5b_b90e_cfc55ac7b7fb_TB5536_11

Question 14

What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership?

Accepted Answer

The major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership is that the owners of a limited liability company can take an active role in running the company. Limited partners in a limited partnership, on the other hand, are passive investors and cannot take an active role in the management of the business.

Question 15

Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. If the corporate tax rate was 35% and dividend earnings were taxed at 12.5%, what was the value of the dividend earnings received after-tax by a holder of 100,000 shares of Valiant Corp.?

Accepted Answer

A) Corporate tax paid on $3.4 earnings = $3.4 × 0.35 = 1.190; earnings after- 11eaabab_c0cc_1924_b90e_d30e0ad6461e_TB5536_11 earnings distributed as 11eaabab_c0cc_4035_b90e_d93f4ee3957e_TB5536_11 taxes paid on dividends by a 11eaabab_c0cc_4036_b90e_995c36416458_TB5536_11 after-tax dividends per 11eaabab_c0cc_4037_b90e_cb34d4f93ef7_TB5536_11 hence a holder of 100,000 shares receives 11eaabab_c0cc_4038_b90e_13a5873a9ef0_TB5536_11

Question 16

The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly.

Accepted Answer

The Valuation Principle is used to make costs and benefits comparable by converting them into a common unit of measurement, such as dollars, so that they can be accurately evaluated and compared.

Question 17

Which of the following best describes why the Valuation Principle is a key concept in making financial decisions?

Accepted Answer

The Valuation Principle provides a framework for making financial decisions by ensuring that costs and benefits are comparable and can be weighed appropriately. This is crucial in making informed choices about investments, purchases, and other financial decisions. While the other options may be relevant in certain contexts, they do not accurately capture the key role that the Valuation Principle plays in financial decision-making.

Question 18

In which of the following ways is a limited liability company like a corporation?

Accepted Answer

Both limited liability companies and corporations offer limited liability protection to their owners. This means that the owners are not personally liable for the company's debts and obligations beyond their initial investment. Option A is incorrect, as corporations were developed earlier than limited liability companies. Option B is incorrect, as LLCs are taxed differently from partnerships. Option D is incorrect, as LLCs can choose to be member-managed or manager-managed, but corporations are typically governed by a board of directors.

Question 19

Over four-fifths of all U.S. business revenue is generated by which type of firm?

Accepted Answer

Corporations generate over four-fifths of all U.S. business revenue. This is because corporations typically have large-scale operations and access to significant financial resources, allowing them to generate higher levels of revenue compared to other types of firms.

Question 20

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

Accepted Answer

Corporations are able to raise large amounts of capital by selling ownership shares (stocks) to outside investors, which has helped them to become dominant in the business world.

Quiz 1: Corporate Finance and the Financial Manager