B) False
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A) Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships.
B) Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers.
C) Bond covenants are an effective way to resolve conflicts between shareholders and managers.
D) Because of their simplified organization,it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations.
E) One advantage to forming a corporation is that the owners of the firm have limited liability.
G) B) and E)
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A) Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management.
B) The efficiency of the U.S.economy would probably be increased if hostile takeovers were absolutely forbidden.
C) The managers of established,stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers.
D) In general,it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe,stable investments and into risky investments,especially those that primarily involve research and development.
E) Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.
G) B) and E)
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A) Maximize its expected total corporate income.
B) Maximize its expected EPS.
C) Minimize the chances of losses.
D) Maximize the stock price per share over the long run,which is the stock's intrinsic value.
E) Maximize the stock price on a specific target date.
G) C) and D)
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B) False
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B) False
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A) One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy.
B) Proprietorships are subject to more regulations than corporations.
C) In any partnership,every partner has the same rights,privileges,and liability exposure as every other partner.
D) Corporations of all types are subject to the corporate income tax.
E) Proprietorships and partnerships generally have a tax advantage over corporations.
G) A) and D)
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A) A hostile takeover is the main method of transferring ownership interest in a corporation.
B) A corporation is a legal entity created by a state,and it has a life and existence that is separate from the lives and existence of its owners and managers.
C) Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
D) Limited liability is an advantage of the corporate form of organization to its owners (stockholders) ,but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
E) Although the 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,i.e. ,bondholders can sue the firm's managers if the firm defaults on its debt.
G) A) and D)
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B) False
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B) False
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B) False
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A) In a typical partnership,liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business.
B) In a limited partnership,the limited partners have voting control,while the general partner has operating control over the business,and the limited partners are individually responsible,on a pro rata basis,for the firm's debts in the event of bankruptcy.
C) A slow-growth company,with little need for new capital,would be more likely to organize as a corporation than would a faster growing company.
D) Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability,the need to reorganize when a partner dies,and the illiquidity (difficulty buying and selling) of partnership interests.
E) A major disadvantage of a partnership relative to a corporation is the fact that federal income taxes must be paid by the partners rather than by the firm itself.
G) C) and D)
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A) One drawback of forming a corporation is that it generally subjects the firm to additional regulations.
B) One drawback of forming a corporation is that it subjects the firm's investors to increased personal liabilities.
C) One drawback of forming a corporation is that it makes it more difficult for the firm to raise capital.
D) One advantage of forming a corporation is that it subjects the firm's investors to fewer taxes.
E) One disadvantage of forming a corporation is that it is more difficult for the firm's investors to transfer their ownership interests.
G) C) and D)
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A) Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything,bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects.
B) Since bondholders receive fixed payments,they do not share in the gains if risky projects turn out to be highly successful.However,they do share in the losses if risky projects fail and drive the firm into bankruptcy.Therefore,bondholders generally prefer to see corporate managers invest in low risk/low return projects rather than high risk/high return projects.
C) One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays,thereby eliminating the double taxation investors would face in a partnership.
D) One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor.
E) Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.
G) D) and E)
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B) False
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A) Corporations generally face fewer regulations.
B) Less of a corporation's income is generally subject to federal taxes.
C) Corporate shareholders are exposed to unlimited liability,but this factor is offset by the tax advantages of incorporation.
D) Corporate investors are exposed to unlimited liability.
E) Corporations generally find it easier to raise large amounts of capital.
G) B) and C)
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B) False
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A) One of the advantages of the corporate form of organization is that it avoids double taxation.
B) It is easier to transfer one's ownership interest in a partnership than in a corporation.
C) One of the disadvantages of a proprietorship is that the proprietor is exposed to unlimited liability.
D) One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights,i.e. ,"one person,one vote."
E) Corporations of all types are subject to the corporate income tax.
G) A) and C)
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B) False
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B) False
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