Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MBA 601 > Module 1 LO 1-3 > Flashcards

Module 1 LO 1-3 Flashcards

1
Q

The advantages of a sole proprietorship is:

  • easy to raise a lot of capital
  • complete control
  • limited liability
  • you are liable for debts and lawsuits
A

Complete Control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

the primary reason for starting a corporation is:

  • to limit your taxes
  • to raise a lot of capital
  • to gain more control over the business
  • all of the above
A

to raise a lot of capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

a corporation is its own separate entity:

true or false

A

true

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

in a corporation, the owner is also the manager

true or false

A

false

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

if you are an investor in a corporation, Limited Liability means:

  • personally liable
  • only liable for your investment
  • you can be personally sued
  • none of the above
A

you are only liable for your investment in the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are disadvantages of a corporate entity?

all that apply:

  • limited liability
  • double taxation
  • increased regulation
  • less control
A
  • double taxation
  • increased regulation
  • less control
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

If a corporation had earnings of $40k and paid all of this out as a dividend to the owners, how much tax would the federal government collect? Assume a 20% tax rate and a 15% dividend tax rate:

$12,800
$14,000
$27,000
$8,000

A

$12,800

· Corporate level income taxes = 40,000 x 20% = 8,000

· Shareholders level dividend taxes = (40,000 -8,000) x 15% = 4,800. Note that dividends are after income tax earnings.

In total, the government collects 8,000+4,800 = $12,800 taxes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

If a corporation had earnings of $40k and paid all of this out as a dividend to the owners, how much tax would the corporate entity pay the federal government? Assume a 20% tax rate and a 15% dividend tax rate:

$12,800
$14,000
$4,800
$14,000

A

Corporate level income taxes = 40,000 x 20% = 8,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

simplest form of business form

A

sole proprietorship

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Sole Proprietorship

A

owner = manager
complete control
personally liable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

partnership

A

owners = managers
raise more capital
complete control
still personally liable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

corporation advantages

A

most access to capital

limited liability - only responsible and liable for your investment

easy ownership transfer - continuity

corporation is now a legal entity separate from owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

corporation disadvantages

A

owner no longer manages - agency problem

regulations

double taxations

less control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

raise public funds you…

A

sell bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

stocks and bonds are

A

securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

stock and bonds involve

A

transactions
investor - buyer
seller - corporation or issuer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

when a person invests in a stock you are entitled to

A

earnings as dividends or reinvestments

voting rights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Person investing in stocks =

A

buying ownership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

advantages to person investing in stocks

A

unlimited upside

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

disadvantage of to person investing in stock

A

payout amount is unknown
payout timing is unknown (market takes a long time to recognize the value)

depends on how the company goes, some corps do not pay dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

alternative to purchasing a stock is purchasing a

A

bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

purchasing or investing in a bond

A

lending company money

you will get your money back and with interest payments - you know by contract what you will get and when

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

bond advantages for investors

A

fixed payout
interest payment
payout time is defined

24
Q

bond certificate for investors includes

A

price, time, and rate of interest

25
Q

order of bond payment for investors

A

pay stockholder before they pay dividends

26
Q

bond disadvantages to person investing in bonds

A

limited upside - payout is fixed of face value of the bond

no voting privilege - now ownership, you only lend

27
Q

advantages of companies issuing stocks

A

financial flexibility - you don’t have to return the capital

you can re-invest into company and no interest payments

28
Q

disadvantages of companies issuing stocks

A

unlimited upside - you give ownership away in your company- specially if its successful

29
Q

Key for corporations is to

A

issue stocks and then bonds as it grows

30
Q

advantages of companies issuing bonds

A

limited upside - not a lot of owners

financial leverage - increased returns. when price goes up it appreciates and you have a higher return on equity

it can be magnified as a loss as well

31
Q

disadvantages of companies issuing bonds

A

decreased financial flexibility - you must make interest payments and you can be forced to file for bankruptcy

32
Q

is a stock better than a bond?

A

depends on the risk.

if you need the money quickly, bonds > stocks

if you have a long time then stock > bond

33
Q

corps usually invest on

A

stock because its a better deal for the company but worst deal for investor

34
Q

corps make more money in _____ than ____

A

bonds

stocks

35
Q

primary advantages of investing in stock are:

all that apply:

  • less risk than a bond
  • unlimited upside
  • uncertain future payout
  • voting rights
  • priority over bondholders in bankruptcy
A
  • unlimited upside

- voting rights

36
Q

primary advantages of investing in bonds are:

all that apply:

  • easier to value than stock
  • known payment amount
  • know when you are going to get paid
  • less risk than investing in stock
  • priority over stockholders in bankruptcy
  • more upside potential than stock
A
  • easier to value than stock
  • known payment amount
  • know when you are going to get paid
  • less risk than investing in stock
  • priority over stockholders in bankruptcy
37
Q

when companies issue stock they give up:

  • ownership and the right to future earnings
  • financial flexibility
  • control
A
  • ownership and the right to future earnings

- control

38
Q

advantages of issuing bonds are:

  • limited upside
  • financial leverage
  • financial flexibility
A
  • limited upside

- financial leverage

39
Q

is it riskier for a company to issue stocks or bonds?

A

bonds

Companies issuing bonds are actually borrowing from public investors. So bonds are liabilities to the issuing companies. As long as you borrow, you have the potential risk of not being able to pay back (e.g. principal and/or interests).

40
Q

Investing in stock means

A

getting ownership in a particular business

evidenced by certificate that you own a part

41
Q

when you invest in a stock, what do you own??

A

the earnings of a company.

entitled to the company’s earnings

42
Q

expenses are the

A

costs to provide goods or services

-employees or inventory

43
Q

if Revenues are higher than expenses

A

you have profit or earnings or net income

44
Q

revenues are

A

money received

45
Q

if you retain net income

A

you hire more employees or better goods

46
Q

when you give back to the owner you

A

distribute dividends

47
Q

dividends and reinvesting earnings depends on

A

the lifecycle of the company

48
Q

a share of stock entitles you to:

  • percentage of the company’s assets
  • the rights to the goods the company sells
  • a percentage of the earnings of the company
  • both A and C
A

-a percentage of the earnings of the company

49
Q

the cost of providing goods and services to customers is called:

  • expenses
  • revenues
  • earnings
  • losses
A

-expenses

50
Q

benefits (money) that a company receives from customers are called:

  • revenues
  • earnings
  • profit
  • revenue or profit
A

-revenues

51
Q

revenues - expenses =

  • earnings
  • profit
  • net income
  • all of the above
A

-all of the above

52
Q

a company must pay our the profits it earns to stockholders:

true or false

A

false

53
Q

an ordinary dividend is:

  • a distribution of earnings to stockholders
  • a return of the investor’s original investment
  • an expense of the company
  • none of these
A

-a distribution of earnings to stockholders

54
Q

companies that are growing quickly usually issue dividends

true or false

A

false

55
Q

you can make money investing in stocks by:

  • collecting dividends
  • taking assets form the company
  • stock price appreciation
  • collecting interest payments
A
  • collecting dividends

- stock price appreciation

MBA 601 (16 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions