Fundamentals of Financial Management: Concise 11th Edition by Eugene F. Brigham test bank
The more capital a firm is likely to require, the smaller the probability that it will be organized as a corporation.
c.
It is generally easier to transfer one's ownership interest in a partnership than in a corporation.
d.
One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.
e.
Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
ANSWER:
d
43. Which of the following statements is CORRECT?
a.
Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations.
b.
Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate one of these forms rather than as a corporation. However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships.
c.
Due to legal considerations related to ownership transfers and limited liability, which affect the ability to attract capital, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' less favorable tax treatment.
d.
Large corporations are taxed more favorably than proprietorships.
e.
Corporate stockholders are exposed to unlimited liability.
ANSWER:
c
44. Which of the following statements is CORRECT?
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.
ANSWER:
b
45. Which of the following statements is CORRECT?
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.
ANSWER:
d
46. The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to
a.
Maximize managers' own interests, which are by definition consistent with maximizing shareholders' wealth.
b.
Maximize the firm's expected EPS, which must also maximize the firm's price per share.
c.
Minimize the firm's risks because most stockholders dislike risk. In turn, this will maximize the firm's stock price.