Multiple Choice: Conceptual Firm organization Answer: d EASY 1 . Which of the following statements is CORRECT? a. Sole proprietorships are subject to more regulations than corporations. b. In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner. c. Corporations of all types are subject to the corporate income tax. d. Sole proprietorships and partnerships generally have a tax advantage over corporations. Firm organization Answer: a EASY 2 . 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. Corporate form Answer: d EASY 3 . Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? a. Less of a corporation’s income is generally subject to taxes. b. Corporate shareholders are exposed to reduced liability, but this factor is offset by the tax advantages of incorporation. c. Corporate investors are exposed to unlimited liability. d. Corporations generally find it easier to raise capital. Goal of firm Answer: d MEDIUM 4 . 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. Chapter 1: An Overview of Financial Management Page 1 CHAPTER 1 AN OVERVIEW OF FINANCIAL MANAGEMENT
c. Minimize the chances of losses. d. Maximize the stock price per share over the long run, which is the stock’s intrinsic value. Conflicts of interest
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