Review session 1 - questions

Review session 1 - questions - Review session #1 Fall 2008...

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Review session #1 Fall 2008 Prof. Isabelle Bajeux-Besnainou Chapter 1 Firm organization 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. Firm organization 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. Corporate form Which of the following statements is CORRECT? a. One drawback of forming a corporation is that it 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 this makes it more difficult for the firm’s investors to transfer their ownership interests.
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Goal of firm 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. Miscellaneous concepts Which of the following statements is CORRECT? a. One disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability. b. Using restrictive covenants in debt agreements is an effective way to reduce agency conflicts between stockholders and managers. c. Managers generally welcome hostile takeovers since the company seeking to do the taking over generally offers a price for the stock that is higher than the price before the takeover action started. d.
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Review session 1 - questions - Review session #1 Fall 2008...

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