,Corporate WFinance, W4e W(Berk W/ WDeMarzo)
WChapter W1 W The WCorporation
1.1 The WFour WTypes Wof WFirms
1) A Wsole Wproprietorship Wis Wowned Wby:
A) one Wperson.
B) two Wof Wmore Wpersons.
C) shareholders.
D) bankers.
WAnswer:
WA WDiff: W1
Section: W 1.1 WThe WFour WTypes
Wof WFirms WSkill: W Definition
2) Which Wof Wthe Wfollowing Worganization Wforms Wfor Wa Wbusiness Wdoes WNOT Wavoid Wdouble Wtaxation?
A) Limited Wpartnership
B) "C" Wcorporation
C) "S" Wcorporation
D) Limited Wliability
Wcompany WAnswer: W B
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
3) Which Wof Wthe Wfollowing Worganization Wforms Waccounts Wfor Wthe Wmost Wrevenue?
A) "S" Wcorporation
B) Limited Wpartnership
C) "C" Wcorporation
D) Limited Wliability
Wcompany WAnswer: W C
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
4) Which Wof Wthe Wfollowing Worganization Wforms Waccounts Wfor Wthe Wgreatest Wnumber Wof Wfirms?
A) "S" Wcorporation
B) Limited Wpartnership
C) Sole Wproprietorship
D) "C"
Wcorporation
WAnswer: W C
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
,5) Which Wof Wthe Wfollowing Wis WNOT Wan Wadvantage Wof Wa Wsole Wproprietorship?
A) Single Wtaxation
B) Ease Wof Wsetup
C) Limited Wliability
D) No Wseparation Wof Wownership Wand
Wcontrol WAnswer: W C
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
6) Which Wof Wthe Wfollowing Wstatements Wregarding Wlimited Wpartnerships Wis WTRUE?
A) There Wis Wno Wlimit Won Wa Wlimited Wpartner's Wliability.
B) A Wlimited Wpartner's Wliability Wis Wlimited Wby Wthe Wamount Wof Wtheir Winvestment.
C) A Wlimited Wpartner Wis Wnot Wliable Wuntil Wall Wthe Wassets Wof Wthe Wgeneral Wpartners Whave Wbeen
Wexhausted.
D) A Wgeneral Wpartner's Wliability Wis Wlimited Wby Wthe Wamount Wof Wtheir
Winvestment. WAnswer: W B
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
7) Which Wof Wthe Wfollowing Wis/are Wan Wadvantage Wof Wincorporation?
A) Access Wto Wcapital Wmarkets
B) Limited Wliability
C) Unlimited Wlife
D) All Wof Wthe
Wabove WAnswer:
W D
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
8) Which Wof Wthe Wfollowing Wstatements Wis Wmost Wcorrect?
A) An Wadvantage Wto Wincorporation Wis Wthat Wit Wallows Wfor Wless Wregulation Wof Wthe Wbusiness.
B) An Wadvantage Wof Wa Wcorporation Wis Wthat Wit Wis Wsubject Wto Wdouble Wtaxation.
C) Unlike Wa Wpartnership, Wa Wdisadvantage Wof Wa Wcorporation Wis Wthat Whas Wlimited Wliability.
D) Corporations Wface Wmore Wregulations Wwhen Wcompared Wto
Wpartnerships. WAnswer: W D
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
9) A Wlimited Wliability Wcompany Wis Wessentially:
A) a Wlimited Wpartnership Wwithout Wlimited Wpartners.
B) a Wlimited Wpartnership Wwithout Wa Wgeneral Wpartner.
C) just Wanother Wname Wfor Wa Wlimited Wpartnership.
D) just Wanother Wname Wfor Wa
Wcorporation. WAnswer: W B
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
10) The Wdistinguishing Wfeature Wof Wa Wcorporation Wis Wthat:
A) their Wis Wno Wlegal Wdifference Wbetween Wthe Wcorporation Wand Wits Wowners.
B) it Wis Wa Wlegally Wdefined, Wartificial Wbeing, Wseparate Wfrom Wits Wowners.
C) it Wspreads Wliability Wfor Wits Wcorporate Wobligations Wto Wall Wshareholders.
D) provides Wlimited Wliability Wonly Wto Wsmall
Wshareholders. WAnswer: W B
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof WFirms
, Skill: W Conceptual
11) Which Wof Wthe Wfollowing Ware Wsubject Wto Wdouble Wtaxation?
A) Corporation
B) Partnership
C) Sole Wproprietorship
D) A Wand
WB
WAnswer:
WA WDiff: W1
Section: W 1.1 WThe WFour WTypes
Wof WFirms WSkill: W Conceptual
12) You Wown W100 Wshares Wof Wa W"C" Wcorporation. W The Wcorporation Wearns W$5.00 Wper Wshare
Wbefore Wtaxes. W Once Wthe Wcorporation Whas Wpaid Wany Wcorporate Wtaxes Wthat Ware Wdue, Wit Wwill
Wdistribute Wthe Wrest Wof Wits Wearnings Wto Wits Wshareholders Win Wthe Wform Wof Wa Wdividend. W If
Wthe Wcorporate Wtax Wrate Wis W40% Wand Wyour Wpersonal Wtax Wrate Won W(both Wdividend Wand Wnon-
dividend) Wincome Wis W30%, Wthen Whow Wmuch Wmoney Wis Wleft Wfor Wyou Wafter Wall Wtaxes Whave
Wbeen Wpaid?
A) $210
B) $300
C) $350
D) $500
Answer: W A
Explanation: W A) WEPS W× Wnumber Wof Wshares W× W(1 W- WCorporate WTax WRate) W× W(1 W- WIndividual
WTax WRate)
$5.00 Wper Wshare W× W100 Wshares W× W(1 W- W.40) W× W(1 W- W.30) W= W$210
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Analytical
WChapter W1 W The WCorporation
1.1 The WFour WTypes Wof WFirms
1) A Wsole Wproprietorship Wis Wowned Wby:
A) one Wperson.
B) two Wof Wmore Wpersons.
C) shareholders.
D) bankers.
WAnswer:
WA WDiff: W1
Section: W 1.1 WThe WFour WTypes
Wof WFirms WSkill: W Definition
2) Which Wof Wthe Wfollowing Worganization Wforms Wfor Wa Wbusiness Wdoes WNOT Wavoid Wdouble Wtaxation?
A) Limited Wpartnership
B) "C" Wcorporation
C) "S" Wcorporation
D) Limited Wliability
Wcompany WAnswer: W B
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
3) Which Wof Wthe Wfollowing Worganization Wforms Waccounts Wfor Wthe Wmost Wrevenue?
A) "S" Wcorporation
B) Limited Wpartnership
C) "C" Wcorporation
D) Limited Wliability
Wcompany WAnswer: W C
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
4) Which Wof Wthe Wfollowing Worganization Wforms Waccounts Wfor Wthe Wgreatest Wnumber Wof Wfirms?
A) "S" Wcorporation
B) Limited Wpartnership
C) Sole Wproprietorship
D) "C"
Wcorporation
WAnswer: W C
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
,5) Which Wof Wthe Wfollowing Wis WNOT Wan Wadvantage Wof Wa Wsole Wproprietorship?
A) Single Wtaxation
B) Ease Wof Wsetup
C) Limited Wliability
D) No Wseparation Wof Wownership Wand
Wcontrol WAnswer: W C
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
6) Which Wof Wthe Wfollowing Wstatements Wregarding Wlimited Wpartnerships Wis WTRUE?
A) There Wis Wno Wlimit Won Wa Wlimited Wpartner's Wliability.
B) A Wlimited Wpartner's Wliability Wis Wlimited Wby Wthe Wamount Wof Wtheir Winvestment.
C) A Wlimited Wpartner Wis Wnot Wliable Wuntil Wall Wthe Wassets Wof Wthe Wgeneral Wpartners Whave Wbeen
Wexhausted.
D) A Wgeneral Wpartner's Wliability Wis Wlimited Wby Wthe Wamount Wof Wtheir
Winvestment. WAnswer: W B
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
7) Which Wof Wthe Wfollowing Wis/are Wan Wadvantage Wof Wincorporation?
A) Access Wto Wcapital Wmarkets
B) Limited Wliability
C) Unlimited Wlife
D) All Wof Wthe
Wabove WAnswer:
W D
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
8) Which Wof Wthe Wfollowing Wstatements Wis Wmost Wcorrect?
A) An Wadvantage Wto Wincorporation Wis Wthat Wit Wallows Wfor Wless Wregulation Wof Wthe Wbusiness.
B) An Wadvantage Wof Wa Wcorporation Wis Wthat Wit Wis Wsubject Wto Wdouble Wtaxation.
C) Unlike Wa Wpartnership, Wa Wdisadvantage Wof Wa Wcorporation Wis Wthat Whas Wlimited Wliability.
D) Corporations Wface Wmore Wregulations Wwhen Wcompared Wto
Wpartnerships. WAnswer: W D
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
9) A Wlimited Wliability Wcompany Wis Wessentially:
A) a Wlimited Wpartnership Wwithout Wlimited Wpartners.
B) a Wlimited Wpartnership Wwithout Wa Wgeneral Wpartner.
C) just Wanother Wname Wfor Wa Wlimited Wpartnership.
D) just Wanother Wname Wfor Wa
Wcorporation. WAnswer: W B
Diff: W1
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Conceptual
10) The Wdistinguishing Wfeature Wof Wa Wcorporation Wis Wthat:
A) their Wis Wno Wlegal Wdifference Wbetween Wthe Wcorporation Wand Wits Wowners.
B) it Wis Wa Wlegally Wdefined, Wartificial Wbeing, Wseparate Wfrom Wits Wowners.
C) it Wspreads Wliability Wfor Wits Wcorporate Wobligations Wto Wall Wshareholders.
D) provides Wlimited Wliability Wonly Wto Wsmall
Wshareholders. WAnswer: W B
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof WFirms
, Skill: W Conceptual
11) Which Wof Wthe Wfollowing Ware Wsubject Wto Wdouble Wtaxation?
A) Corporation
B) Partnership
C) Sole Wproprietorship
D) A Wand
WB
WAnswer:
WA WDiff: W1
Section: W 1.1 WThe WFour WTypes
Wof WFirms WSkill: W Conceptual
12) You Wown W100 Wshares Wof Wa W"C" Wcorporation. W The Wcorporation Wearns W$5.00 Wper Wshare
Wbefore Wtaxes. W Once Wthe Wcorporation Whas Wpaid Wany Wcorporate Wtaxes Wthat Ware Wdue, Wit Wwill
Wdistribute Wthe Wrest Wof Wits Wearnings Wto Wits Wshareholders Win Wthe Wform Wof Wa Wdividend. W If
Wthe Wcorporate Wtax Wrate Wis W40% Wand Wyour Wpersonal Wtax Wrate Won W(both Wdividend Wand Wnon-
dividend) Wincome Wis W30%, Wthen Whow Wmuch Wmoney Wis Wleft Wfor Wyou Wafter Wall Wtaxes Whave
Wbeen Wpaid?
A) $210
B) $300
C) $350
D) $500
Answer: W A
Explanation: W A) WEPS W× Wnumber Wof Wshares W× W(1 W- WCorporate WTax WRate) W× W(1 W- WIndividual
WTax WRate)
$5.00 Wper Wshare W× W100 Wshares W× W(1 W- W.40) W× W(1 W- W.30) W= W$210
Diff: W2
Section: W 1.1 WThe WFour WTypes Wof
WFirms WSkill: W Analytical
