MITBch14 - CHAPTER 14 1REAL FIRMS AND THEIR FINANCING...

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C HAPTER 14 1R EAL FIRMS AND THEIR FINANCING : S TOCKS AND B ONDS T RUE -F ALSE Q UESTIONS CORPORATIONS AND THEIR FINANCING 1. Corporations produce most of the output in the United States. ANSWER: T, E, R 2. The sales of corporations in the U.S. economy amount to more than two-thirds of GDP. ANSWER: T, M, R 3. Most of the corporations listed among the Fortune 500 are monopolies. ANSWER: F, M, R 4. Most American firms are corporations. ANSWER: F, M, R 5. Unlimited liability is a distinct advantage of the proprietorship. ANSWER: F, E, R 6. The basic disadvantage of a proprietorship is unlimited liability. ANSWER: T, E, R 7. A partnership requires the agreement of most or all partners to any major decision. ANSWER: T, E, R 8. A corporation has legal status like an individual citizen. ANSWER: T, E, R 9. Corporate profits are taxed twice. ANSWER: T, E, R 10. A corporation is the most preferable type of firm if the investor wants to limit liability. ANSWER: T, E, R 11. Owners of a corporation have limited liability for the debts of the business. ANSWER: T, E, R 12. A corporation has greater access to capital than does a proprietorship or a partnership. ANSWER: T, M, A 169
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170 Chapter 14/Real firms and their financing: Stocks and Bonds 13. A problem of corporate management is that it may not act in the best interests of the owners. ANSWER: T, M, A 14. A corporation is dissolved upon the death of a major stockholder. ANSWER: F, E, R 15. Double taxation is a problem for partnerships and corporations. ANSWER: F, M, R 16. One disadvantage of corporations is the double taxation of income to the owners. ANSWER: T, E, R 17. Corporations are able to pursue opportunities that pay lower profit rates than those pursued by  proprietorships and partnerships. ANSWER: F, M, A FINANCING CORPORATE ACTIVITY: STOCKS AND BONDS 18. Business firms are prohibited by law from borrowing money from banks. ANSWER: F, E, R 19. The sale of new stocks by a corporation is one source of investment funds. ANSWER: T, E, R 20. “Common stock” is the type sold to small investors. ANSWER: F, E, R 21 . Corporations must always pay dividends to their shareholders. ANSWER: F, M, R 22. If a firm goes bankrupt, the bondholders will get paid back before the stockholders get any money. ANSWER: T, M, R 23. “Junk bonds” have been given this name because they are considered more risky than other types of  bonds. ANSWER: T, M, R 24. A stockholder’s investment is usually riskier than a bondholder’s.
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