midterm - FRIDAY, SEPTEMBER 23, 2011 Answers (unofficial,...

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FRIDAY, SEPTEMBER 23, 2011 Answers (unofficial, submitted) 1. (TCO A) Which of the following statements is CORRECT? (Points : 10) It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. Corporations face fewer regulations than sole proprietorships. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 2. (TCO G) A security analyst obtained the following information from Prestopino Products’ financial statements: • Retained earnings at the end of 2009 were $700,000, but retained earnings at the end of 2010 had declined to $320,000. • The company does not pay dividends. • The company’s depreciation expense is its only non-cash expense; it has no amortization charges. • The company has no non-cash revenues. • The company’s net cash flow (NCF) for 2010 was $150,000.
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This note was uploaded on 04/07/2012 for the course FINANANCE FI 515 taught by Professor Johnson during the Spring '12 term at DeVry San Antonio.

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midterm - FRIDAY, SEPTEMBER 23, 2011 Answers (unofficial,...

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