Financial Management Principles and Applications 8th Edition By Sheridan Titman test bank

Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: B
What is the chief disadvantage of the sole proprietorship as a form of business organisation when compared to the corporate form?
 Sole proprietorships are subject to double taxation of profits
 The cost of formation
 Inadequate profit sharing
 Owners have unlimited liability
Difficulty: Moderate
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
Which of the following is true for limited partnerships?
 Only limited partners can manage the business.
 All partners must have limited liability.
 General and limited partners can appear in the name of the firm.
 Limited partners may sell their interest in the company.
Difficulty: Moderate
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
The true owners of the corporation are the [blank].
 holders of debt issues of the firm
 preferred stockholders
 board of directors of the firm
 common stockholders
Difficulty: Basic
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
In terms of organisational costs, which of the following sequences is generally correct, moving from lowest to highest cost?
 General partnership, sole proprietorship, limited partnership, corporation
 Sole proprietorship, general partnership, limited partnership, corporation
 Corporation, limited partnership, general partnership, sole proprietorship
 Sole proprietorship, general partnership, corporation, limited partnership
Difficulty: Complex
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: B
Assume that you are starting a business. Further, assume that the business is expected to grow very quickly and a great deal of capital will be needed soon. After reading the chapter, which type of business organisation would you choose?
 Corporation
 General partnership
 Limited liability company
 Limited partnership
Difficulty: Complex
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: A
One advantage of a corporation is [blank].
unlimited liability
the life of the business is tied to the status of the investors
the classical tax system
ease of raising capital
Difficulty: Moderate
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
Which of the following is a characteristic of a corporation?
 It allows one or more partners to have limited liability.
 It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply.
 It prohibits the limited partners from participating in the management of the partnership.
 It is legally owned by its current set of shareholders.
Difficulty: Moderate
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
Limited liability companies (LLCs) differ from limited partnerships in that [blank].
 owners of the LLC are subject to double taxation
 owners of the LLC have unlimited liability for the firm’s debt
 owners of the LLC are not liable for the firm's debt
 owners of the LLC may not exceed 12 in number
Difficulty: Moderate
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: C
Which of the following types of business forms is least risky to investors?
 Sole proprietorship
 Limited partnership
 General partnership
 A public company
Difficulty: Moderate
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
Which form of organisation is free of initial legal requirements?
 Sole proprietorship
 Private company
 Corporation
 Public company
Difficulty: Basic
AACSB: 6. Reflective thinking
Learning Objective: 1.2 Identify the key differences between the three major legal forms of business
Answer: D
In a [blank], the life of the partnership is tied to the life of the general partner.