Fundamentals of Financial Management: Concise 11th Edition by Eugene F. Brigham test bank

 
e. 
The firm will find it more difficult to raise additional capital to support its growth.

 
ANSWER:  
a


 
37. Which of the following statements is CORRECT?
 
a. 
Corporations generally face fewer regulations than proprietorships.

 
b. 
Corporate shareholders are exposed to unlimited liability.

 
c. 
It is usually easier to transfer ownership in a corporation than in a partnership.

 
d. 
Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

 
e. 
There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.

 
ANSWER:  
c


 
38. Which of the following could explain why a business might choose to operate as a corporation rather than as a proprietorship or a partnership?
 
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.

 
ANSWER:  
e


 
39. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
 
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.

 
ANSWER:  
d


 
40. Which of the following statements is CORRECT?
 
a. 
In most corporations, the CFO ranks above the CEO.

 
b. 
By law in most states, the chairman of the board must also be the CEO.

 
c. 
The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.

 
d. 
The CFO generally reports to the firm's chief accounting officer, who is normally the controller.

 
e. 
The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility.

 
ANSWER:  
c


 
41. Which of the following statements is CORRECT?
 
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.

 
ANSWER:  
a


 
42. Which of the following statements is CORRECT?
 
a. 
If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.

 
b.