Fin 335 CH 1 - AN OVERVIEW OF FINANCIAL MANAGEMENT 1 Which...

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1 . Which of the following statements is CORRECT? a. One of the disadvantages of incorporating your business is that you become subject to liabilities in the event of bankruptcy. b. Sole 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. Sole proprietorships and partnerships generally have a tax advantage over corporations. 2 . Which of the following statements is CORRECT? 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 sole 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. 3 . Which of the following statements is CORRECT? a. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a partnership. b. Corporations face fewer regulations than sole proprietorships. c. One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, at both the firm level and the owner level. d. It is generally less expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. e. If a partnership goes bankrupt, each partner is exposed to liabilities only up the amount of his or her investment in the business. 4 . Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT? a. Cheers’ shareholders (the ex-partners) will now be exposed to less liability. b. Cheers will now be subject to fewer regulations. c. Assuming Cheers is profitable, none of its income will be subject to federal income taxes. d. Cheers’ investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. e. Cheers will find it more difficult to raise additional capital. 5 . Which of the following statements is CORRECT? Chapter 1: An Overview of Financial Management Page 1 AN OVERVIEW OF FINANCIAL MANAGEMENT
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a. Corporations generally face fewer regulations than sole proprietorships. b. Corporate shareholders are exposed to unlimited liability. c. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. d.
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This note was uploaded on 09/23/2009 for the course FINANCE FIN 221 taught by Professor Dyer during the Fall '09 term at University of Illinois at Urbana–Champaign.

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Fin 335 CH 1 - AN OVERVIEW OF FINANCIAL MANAGEMENT 1 Which...

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