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by Eugene F. Brigham and Joel F. Houston
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,1. An Overview of Financial Management.
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True / False bgbg bgbg
Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F statements
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are
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Multiple Choice: True/False bgbg bgbg
1. In most corporations, the CFO ranks under the CEO.
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a. True
b. False
ANSWER: True b g b g
2. The Chairman of the Board must also be the CEO.
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a. True
b. False
ANSWER: False b g b g
3. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the
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highest
bgbg ranking individual. The CEO generally works under the board and its chairman, and the board
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generally has the
bgbg authority to remove the CEO under certain conditions. The CEO, however, cannot
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remove the board, but he or she
bgbg can endeavor to have the board voted out and a new board voted in
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should a conflict arise. It is possible for a
bgbg bgbg person to simultaneously serve as CEO and chairman of the
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board, though many corporate control experts believe
bgbg bgbg it is bad to vest both offices in the same person.
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a. True
b. False
ANSWER: True b g b g
4. Partnerships and proprietorships generally have a tax advantage over corporations. bgbg bgbg bgbg bgbg bgbg bgbg bgbg bgbg bgbg
a. True
b. False
ANSWER: True b g b g
5. A disadvantage of the corporate form of organization is that corporate stockholders are more
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exposed to
bgbg personal liabilities in the event of bankruptcy than are investors in a typical
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partnership.
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a. True
b. False
ANSWER: False b g b g
6. An advantage of the corporate form of organization is that corporations are generally less
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highly
bgbg regulated than proprietorships and partnerships.
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a. True
b. False
ANSWER: False b g b g
,7. Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.
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a. True
b. False
ANSWER: True b g b g
8. One advantage of the corporate form of organization is that it avoids double taxation.
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a. True
b. False
ANSWER: False b g b g
9. It is generally harder to transfer one's ownership interest in a partnership than in a corporation.
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a. True
b. False
ANSWER: True b g b g
10. One danger of starting a proprietorship is that you may be exposed to personal liability if the business
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goes
bgbg bankrupt. This problem would be avoided if you formed a corporation to operate the business.
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a. True
b. False
ANSWER: True b g b g
11. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax.
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However, its
bgbg stockholders will have to pay personal taxes on the firm's net income.
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a. True
b. False
ANSWER: True b g b g
12. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all
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Federal
bgbg taxes. This provision was put into the Federal Tax Code in order to encourage the
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formation of small
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a. True
b. False
ANSWER: False b g b g
13. It is generally less expensive to form a corporation than a proprietorship because, with a
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proprietorship,
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a. True
b. False
ANSWER: False b g b g
14. The more capital a firm is likely to require, the greater the probability that it will be organized as a
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corporation.
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a. True
b. False
ANSWER: True b g b g
, 15. One disadvantage of forming a corporation rather than a partnership is that this makes it more
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difficult for
bgbg the firm's investors to transfer their ownership interests.
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a. True