Question 1

Although firms have ethical responsibilities to their employees and customers,they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Accepted Answer

A) True 
 B)False

Question 2

A loss incurred by a corporation

Accepted Answer

A)   Must be carried forward unless the company has had 2 loss years in a row.
B)   Can be carried back 2 years,then carried forward up to 20 years following the loss.
C)   Can be carried back 5 years and forward 3 years.
D)   Cannot be used to reduce taxes in other years except with special permission from the IRS.
E)   Can be carried back 3 years or forward 15 years,whichever is more advantageous to the firm.F) C) and E)
G) B) and C)

Question 3

In a competitive marketplace,if managers deviate too far from making decisions that are consistent with stockholder wealth maximization,they risk being disciplined by the market.Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

Accepted Answer

A) True 
 B)False  True

Question 4

Four of the disadvantages of a partnership are (1)unlimited liability, (2)limited life of the organization, (3)difficulty of transferring ownership,and (4)difficulty in attracting large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct?

Accepted Answer

A)   In a partnership,liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business.
B)   Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business.
C)   A fast growth company would be more likely to set up a partnership for its business organization than would a slow-growth company.
D)   Partnerships have difficulties attracting capital in part because of the other disadvantages of the partnership form of business,including impermanence of the organization.
E)   A major disadvantage of a partnership as a form of business organization is the high cost and practical difficulties of its formation.F) All of the above
G) A) and C) D

Question 6

Which of the following statements is correct?

Accepted Answer

A)   A good goal for a corporate manager is maximization of expected EPS.
B)   Most business in the U.S.is conducted by corporations;corporations' popularity results primarily from their favorable tax treatment.
C)   A good example of an agency relationship is the one between stockholders and managers.
D)   Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability,but investors in the other types of businesses are not.
E)   Firms in highly competitive industries find it easier to exercise "social responsibility" than do firms in oligopolistic industries.F) C) and D)
G) B) and C)

Question 7

The proper goal of the financial manager should be to maximize the firm's expected profit,because this will add the most wealth to each of the individual shareholders (owners)of the firm.

Accepted Answer

A) True 
 B)False

Question 8

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Accepted Answer

A) True 
 B)False

Question 9

Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.

Accepted Answer

A) True 
 B)False

Question 10

Stock price maximization should be the most important goal for the managers of a corporation.

Accepted Answer

A) True 
 B)False

Question 11

Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners.

Accepted Answer

A) True 
 B)False  True

Question 12

Which of the following are important in determining the value of the firm?

Accepted Answer

A)   Expected future cash flows.
B)   Timing of future cash flows.
C)   Riskiness of future cash flows.
D)   All of the above.E) None of the above
F) A) and B)

Question 13

The fact that a percentage of the interest income received by one corporation is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are advantages of a corporation except

Accepted Answer

A)   unlimited life
B)   limited liability
C)   easy transfer of ownership
D)   All of the above are advantagesE) B) and D)
F) B) and C)

Question 15

Carter Corporation has some money to invest,and its treasurer is choosing between City of Chicago municipal bonds and U.S.Treasury bonds.Both have the same maturity,and they are equally risky and liquid.If Treasury bonds yield 6 percent,and Carter's marginal income tax rate is 40 percent,what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?

Accepted Answer

A)   2.40%
B)   3.60%
C)   4.50%
D)   5.25%
E)   6.00%F) A) and E)
G) C) and E)

Question 16

If a firm has a single owner,we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Accepted Answer

A) True 
 B)False

Question 17

The disadvantages associated with a proprietorship are similar to those under a partnership.One exception to this is due to the formal nature of the partnership agreement and the commitment of the partners' personal assets.As a result,partnerships do not have difficulty raising large amounts of capital.

Accepted Answer

A) True 
 B)False

Question 18

The riskiness inherent in a firm's earnings per share (EPS)depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Accepted Answer

A) True 
 B)False

Question 19

A hostile takeover involves an attempt by one group of stockholders to solicit votes from other stockholders in order to put a new management team into place and is usually motivated by low stock price.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is correct?

Accepted Answer

A)   A hostile takeover is a primary method of transferring ownership interest in a corporation.
B)   The corporation is a legal entity created by the state and is a direct extension of the legal status of its owners and managers,that is,the owners and managers are the corporation.
C)   Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
D)   In part due to limited liability and ease of ownership transfer,corporations have less trouble raising money in financial markets than other organizational forms.
E)   Although stockholders of the corporation are insulated by limited legal liability,the legal status of the corporation does not protect the firm's managers in the same way.F) B) and E)
G) C) and D)

Exam 6: Business Organizations and the Tax Environment

Although firms have ethical responsibilities to their employees and customers,they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Correct Answer
verified

A loss incurred by a corporation

Correct Answer
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In a competitive marketplace,if managers deviate too far from making decisions that are consistent with stockholder wealth maximization,they risk being disciplined by the market.Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

Correct Answer
verified
True

Four of the disadvantages of a partnership are (1)unlimited liability, (2)limited life of the organization, (3)difficulty of transferring ownership,and (4)difficulty in attracting large amounts of capital.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
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D

Which of the following statements is correct?

Correct Answer
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The proper goal of the financial manager should be to maximize the firm's expected profit,because this will add the most wealth to each of the individual shareholders (owners)of the firm.

Correct Answer
verified

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Correct Answer
verified

Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.

Correct Answer
verified

Stock price maximization should be the most important goal for the managers of a corporation.

Correct Answer
verified

Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners.

Correct Answer
verified
True

Which of the following are important in determining the value of the firm?

Correct Answer
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The fact that a percentage of the interest income received by one corporation is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing.

Correct Answer
verified

All of the following are advantages of a corporation except

Correct Answer
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Correct Answer
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If a firm has a single owner,we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Correct Answer
verified

Correct Answer
verified

The riskiness inherent in a firm's earnings per share (EPS)depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Correct Answer
verified

A hostile takeover involves an attempt by one group of stockholders to solicit votes from other stockholders in order to put a new management team into place and is usually motivated by low stock price.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Exam 6: Business Organizations and the Tax Environment

Although firms have ethical responsibilities to their employees and customers,they do not have a parallel social responsibility because socially responsible actions involve costs without corresponding benefits which are not wealth maximizing.

Correct AnswerverifiedShow Answer

A loss incurred by a corporation

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTrue

Four of the disadvantages of a partnership are (1)unlimited liability, (2)limited life of the organization, (3)difficulty of transferring ownership,and (4)difficulty in attracting large amounts of capital.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedD

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The proper goal of the financial manager should be to maximize the firm's expected profit,because this will add the most wealth to each of the individual shareholders (owners)of the firm.

Correct AnswerverifiedShow Answer

Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts.

Correct AnswerverifiedShow Answer

Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.

Correct AnswerverifiedShow Answer

Stock price maximization should be the most important goal for the managers of a corporation.

Correct AnswerverifiedShow Answer

Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners.

Correct AnswerverifiedTrue

Which of the following are important in determining the value of the firm?

Correct AnswerverifiedShow Answer

The fact that a percentage of the interest income received by one corporation is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing.

Correct AnswerverifiedShow Answer

All of the following are advantages of a corporation except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm has a single owner,we can say that the proper goal of a financial manager would be to maximize the firm's earnings per share.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The riskiness inherent in a firm's earnings per share (EPS)depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Correct AnswerverifiedShow Answer

A hostile takeover involves an attempt by one group of stockholders to solicit votes from other stockholders in order to put a new management team into place and is usually motivated by low stock price.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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True

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D

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True

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