BA 318 - weekly quizzes 1-5 || 100% Valid Solutions.
Which of the following statements about the corporate form of business organization is true?
a) The corporate form has the disadvantage of double taxation relative to a sole proprietorship.
b) The corporate form is preferred over the sole proprietorship because a corporation is easier to
form and faces less regulation.
c) Sole proprietorships are the most common form of business organization because liability is
limited to the amount invested in the business by the sole proprietor.
d) The corporate form has the advantage of unlimited liability. correct answers a
The goal of the firm should be:
a) maximization of market share.
b) maximization of shareholder wealth.
c) maximization of profits (net income per share).
d) maximization of sales. correct answers b
Which of the following statements are true regarding "Agency Problem"?
a) Managers might attempt to benefit themselves in terms of salary and perquisites at the expense
of shareholders.
b) The agency problem results from the separation of management and the ownership of the firm.
c) The agency problem may interfere with the implementation of maximizing shareholder
wealth.
d) all of these correct answers d
The corporation is a legal entity separate from it owners; thus it is possible for the corporation to
continue even upon the death of one or more shareholders. (T/F) correct answers T
Capital structure decisions include all of the following EXCEPT:
,a) Deciding what assets to purchase.
b) Deciding the total amount of debt the firm should take on.
c) Deciding how to pay for long term projects.
d) Deciding the mix of debt and equity for the firm. correct answers a
Short-term assets and short-term liabilities are referred to as the firm's:
a) cash flow.
b) working capital.
c) financing mix.
d) capital budget.
e) capital structure. correct answers b
Any situation where a potential conflict can arise between the firm's owners and its managers is
referred to as a(n):
a) compensation issue.
b) agency problem.
c) control issue.
d) personnel conflict.
e) organizational problem. correct answers b
Anyone other than the firm's stockholders or creditors that might have a claim on the cash flows
of a firm is called a:
a) provisional partner.
b) residual owner.
c) shareholder.
d) stakeholder.
c) liaison. correct answers d
, Capital budgeting is the process of:
a) determining how to raise the money required to fund a project.
b) planning and managing a firm's long-term investments.
c) deciding the amount of earnings that a firm should retain.
d) choosing how much cash to keep on hand. correct answers b
The capital structure of a firm refers to the firm's:
a) available cash.
b) buildings and equipment.
c) long-term debt and equity.
d) current assets and liabilities.
e) combination of assets. correct answers c
Which of the following are advantages of the corporate form of organization?
I. ability to raise large sums of capital
II. ease of ownership transfer
III. corporate taxation
IV. unlimited firm life
a) II, III, and IV only
b) I, II, III, and IV
c) III and IV only
d) I and II only
e) I, II, and IV only correct answers e
The shareholders of common stock of a corporation:
a) receive tax-free income because profits are taxed at the corporate level.
b) are protected from any losses exceeding their equity investment in the firm.
Which of the following statements about the corporate form of business organization is true?
a) The corporate form has the disadvantage of double taxation relative to a sole proprietorship.
b) The corporate form is preferred over the sole proprietorship because a corporation is easier to
form and faces less regulation.
c) Sole proprietorships are the most common form of business organization because liability is
limited to the amount invested in the business by the sole proprietor.
d) The corporate form has the advantage of unlimited liability. correct answers a
The goal of the firm should be:
a) maximization of market share.
b) maximization of shareholder wealth.
c) maximization of profits (net income per share).
d) maximization of sales. correct answers b
Which of the following statements are true regarding "Agency Problem"?
a) Managers might attempt to benefit themselves in terms of salary and perquisites at the expense
of shareholders.
b) The agency problem results from the separation of management and the ownership of the firm.
c) The agency problem may interfere with the implementation of maximizing shareholder
wealth.
d) all of these correct answers d
The corporation is a legal entity separate from it owners; thus it is possible for the corporation to
continue even upon the death of one or more shareholders. (T/F) correct answers T
Capital structure decisions include all of the following EXCEPT:
,a) Deciding what assets to purchase.
b) Deciding the total amount of debt the firm should take on.
c) Deciding how to pay for long term projects.
d) Deciding the mix of debt and equity for the firm. correct answers a
Short-term assets and short-term liabilities are referred to as the firm's:
a) cash flow.
b) working capital.
c) financing mix.
d) capital budget.
e) capital structure. correct answers b
Any situation where a potential conflict can arise between the firm's owners and its managers is
referred to as a(n):
a) compensation issue.
b) agency problem.
c) control issue.
d) personnel conflict.
e) organizational problem. correct answers b
Anyone other than the firm's stockholders or creditors that might have a claim on the cash flows
of a firm is called a:
a) provisional partner.
b) residual owner.
c) shareholder.
d) stakeholder.
c) liaison. correct answers d
, Capital budgeting is the process of:
a) determining how to raise the money required to fund a project.
b) planning and managing a firm's long-term investments.
c) deciding the amount of earnings that a firm should retain.
d) choosing how much cash to keep on hand. correct answers b
The capital structure of a firm refers to the firm's:
a) available cash.
b) buildings and equipment.
c) long-term debt and equity.
d) current assets and liabilities.
e) combination of assets. correct answers c
Which of the following are advantages of the corporate form of organization?
I. ability to raise large sums of capital
II. ease of ownership transfer
III. corporate taxation
IV. unlimited firm life
a) II, III, and IV only
b) I, II, III, and IV
c) III and IV only
d) I and II only
e) I, II, and IV only correct answers e
The shareholders of common stock of a corporation:
a) receive tax-free income because profits are taxed at the corporate level.
b) are protected from any losses exceeding their equity investment in the firm.
