Chapter 1 Flashcards
Which of the following would be considered an advantage of the sole proprietorship form of business organization?
A) unlimited life B) pooled expertise C) wide access to capital D) unlimited personal liability E) income taxed at only one level
E) income taxed at only one level
Professional service firms (such as doctors or dentists) are likely to set up as:
A) corporations, to gain limited liability
B) partnerships, to gain tax advantages
C) sole proprietorships, to gain easy valuation
D) limited liability companies, to gain tax and liability benefits
E) all of the above
D) limited liability companies, to gain tax and liability benefits
Double taxation:
A) occurs when governments tax profits at the corporate level and dividends at the personal level
B) is the single greatest advantage of the corporation form of business
C) can mean savings in taxes if a given business activity is conducted through a corporation rather than through a partnership
D) only occurs in corporations that have preferred stock outstanding
E) none of the above
A) occurs when governments tax profits at the corporate level and dividends at the personal level
which of the following would be considered an advantage of the sole proprietorship form of organization?
A) wide access to capital markets B) unlimited liability C) a pool of expertise D) profits taxed at only one level E) none of the above
D) profits taxed at only one level
one common reason for partnerships to convert to a corporate form of organization is that the partnership:
A) faces rapidly growing financing requirements
B) wishes to avoid double taxation of profits
C) has issued all of its allotted shares
D) agreement expires after ten years of use
E) all of the above
A) faces rapidly growing financing requirements
when the management of a business is conducted by individuals other than owners, the business is more likely to be a:
A) corporation B) sole proprietorship C) partnership D) general partner E) none of the above
A) corporation
In a partnership form of organization, income tax liability, if any, is incurred by:
A) the partnership itself B) the partners individually C) Both the partnership and the partners D) neither the partnership nor the partners E) none of the above
B) the partners individually
which of the following is NOT an advantage to incorporating a business?
A) easier access to financial markets B) limited liability C) becoming a permanent legal entity D) profits taxed at the corporate level and the shareholder level E) all of the above
D) profits taxed at the corporate level and the shareholder level
A disadvantage of the sole proprietorship is the fact that the sole proprietor has:
A) limited liability for the debts of the firm
B) unlimited liability for the debts of the firm
C) expensive costs to establish the firm
D) growth of the firm at his/her discretion
E) none of the above
B) unlimited liability for the debts of the firm
In the large corporation the separation of management and ownership provides the following advantage(s):
A) as separate legal entity the corporation has unlimited life B) ease of share ownership transfer C) unlimited shareholder liability D) (A) and (B) E) (B) and (C)
D) (A) and (B)
Which of the following statements best distinguishes the difference between real and financial assets?
A) real assets have less value than financial assets
B) real assets are tangible; financial assets are not
C) financial assets represent claims to income that are generated by real assets
D) financial assets appreciate in value; real assets depreciate in value
E) none of the above
C) financial assets represent claims to income that are generated by real assets
which of the following would NOT be considered a real asset?
A) a corporate bond B) a machine C) gold D) a factory E) (A) and (C) only
A) a corporate bond
Which of the following are real assets?
A) a trademark B) a truck C) undeveloped land D)an experienced and hardworking sales force E) all of the above
E) all of the above
which of the following are real assets:
A) a share of stock B) the balance in the firms checking account C) a bank loan agreement D) all of the above E) none of the above
E) none of the above
which of the following are financial assets?
A) a share of stock B) the balance in a firms checking account C) a bank loan agreement D) commercial paper E) all of the above
E) all of the above
which of the following would be considered a capital budgeting decision?
A) planning to issue common stock rather than issuing preferred stock
B) a decision to expand into a new line of products, at a cost of $5 million
C) repurchasing shares of common stock
D) issuing debt in the form of long- term bonds
E) all of the above
B) a decision to expand into a new line of products, at a cost of $5 million
the steps involved in any capital budgeting process include:
A) evaluating projects B) deciding which projects to undertake C) identifying ideas for new investment projects D) all of the above E) none of the above
D) all of the above
an example of a firms financial decision would include:
A) acquisition of a competitive firm
B) how much to pay for a specific asset
C) the insurance of ten- year versus twenty- year bonds
D) whether or not to increase the price of its products
E) all of the above
C) the insurance of ten- year versus twenty- year bonds
firms issue securities or financial instruments (or claims) to raise capital. these claims are classified as:
A) stocks or bonds B) debt or equity C) continent claims on the value of the firm D) all of the above E) none of the above
D) all of the above
capital structure is defined as the major financing of the firm. the capital structure is divided:
A) between debt holders and creditors B) creditors and equity holders C) assets and liabilities D) all of the above E) none of the above
B) creditors and equity holders
firms can alter their capital structure by:
A) not accepting any capital budgeting projects B). investing in non- tangible assets C) issuing stock to repay debt D) becoming a limited liability company E) all of the above
C) issuing stock to repay debt
the term “ capital structure” refers to:
A) the manner in which a firm obtains its long- term sources of funding
B) the length of time needed to repay debt
C) whether the firm invests in capital budgeting projects
D) which specific assets the firm should invest in
E) all of the above
A) the manner in which a firm obtains its long- term sources of funding
large publicly- traded corporations are exposed to agency problems because of
A) the separation of ownership and control of the corporation
B) the board of directors has outside members
C) the high compensation of CEOs
D) all of the above
E) none of the above
A) the separation of ownership and control of the corporation
in which of the following organizations would the existence of the agency problems be least likely?
A) a sole proprietorship B) a partnership C) a corporation D) a closely held corporation E) all of the above
A) a sole proprietorship
