TEST BANK For Corporate Finance, 3rd Edition by Jonathan
Berk and Peter DeMarzo
,Corporate Finance, 3e
(Berk/DeMarzo)
Chapter 1 The Corporation
1.1 The Four Types of Firms
1) A sole proprietorship is owned
by: A) one person.
B) two of more persons.
C) shareholders.
D)
bankers.
Answer: A
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Definition
2) Which of the following organization forms for a business does NOT avoid double
taxation? A) Limited partnership
B) "C"
corporation C) "S"
corporation
D) Limited liability
company Answer: B
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
3) Which of the following organization forms accounts for the most
revenue? A) "S" corporation
B) Limited
partnership C) "C"
corporation
D) Limited liability
company Answer: C
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
4) Which of the following organization forms accounts for the greatest number of
firms? A) "S" corporation
B) Limited
partnership C) Sole
proprietorship D) "C"
corporation Answer:
C
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
,5) Which of the following is NOT an advantage of a sole
proprietorship? A) Single taxation
B) Ease of setup
C) Limited
liability
D) No separation of ownership and
control Answer: C
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
6) Which of the following statements regarding limited partnerships is
TRUE? A) There is no limit on a limited partner's liability.
B) A limited partner's liability is limited by the amount of their investment.
C) A limited partner is not liable until all the assets of the general partners have been
exhausted. D) A general partner's liability is limited by the amount of their investment.
Answer: B
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
7) Which of the following is/are an advantage of
incorporation? A) Access to capital markets
B) Limited
liability C)
Unlimited life D)
All of the above
Answer: D
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
8) Which of the following statements is most correct?
A) An advantage to incorporation is that it allows for less regulation of the
business. B) An advantage of a corporation is that it is subject to double taxation.
C) Unlike a partnership, a disadvantage of a corporation is that has limited
liability. D) Corporations face more regulations when compared to partnerships.
Answer: D
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
9) A limited liability company is essentially:
A) a limited partnership without limited
partners. B) a limited partnership without a
general partner. C) just another name for a
limited partnership.
D) just another name for a
corporation. Answer: B
, Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
10) The distinguishing feature of a corporation is that:
A) their is no legal difference between the corporation and its
owners. B) it is a legally defined, artificial being, separate from its
owners.
C) it spreads liability for its corporate obligations to all
shareholders. D) provides limited liability only to small
shareholders.
Answer: B
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
11) Which of the following are subject to double taxation?
A) Corporation
B) Partnership
C) Sole
proprietorship D) A
and B
Answer: A
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
12) You own 100 shares of a "C" corporation. The corporation earns $5.00 per share before
taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest
of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40%
and your personal tax rate on (both dividend and non-dividend) income is 30%, then how
much money is left for you after all taxes have been paid?
A) $210
B)
$300
C) $350
D)
$500
Answer: A
Explanation: A) EPS × number of shares × (1 - Corporate Tax Rate) × (1 - Individual Tax
Rate) $5.00 per share × 100 shares × (1 - .40) × (1 - .30) = $210
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Analytical
13) You own 100 shares of a Sub Chapter "S" corporation. The corporation earns $5.00 per
share before taxes. Once the corporation has paid any corporate taxes that are due, it will
distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate
tax rate is 40% and your personal tax rate on (both dividend and non-dividend) income is
Berk and Peter DeMarzo
,Corporate Finance, 3e
(Berk/DeMarzo)
Chapter 1 The Corporation
1.1 The Four Types of Firms
1) A sole proprietorship is owned
by: A) one person.
B) two of more persons.
C) shareholders.
D)
bankers.
Answer: A
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Definition
2) Which of the following organization forms for a business does NOT avoid double
taxation? A) Limited partnership
B) "C"
corporation C) "S"
corporation
D) Limited liability
company Answer: B
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
3) Which of the following organization forms accounts for the most
revenue? A) "S" corporation
B) Limited
partnership C) "C"
corporation
D) Limited liability
company Answer: C
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
4) Which of the following organization forms accounts for the greatest number of
firms? A) "S" corporation
B) Limited
partnership C) Sole
proprietorship D) "C"
corporation Answer:
C
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
,5) Which of the following is NOT an advantage of a sole
proprietorship? A) Single taxation
B) Ease of setup
C) Limited
liability
D) No separation of ownership and
control Answer: C
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
6) Which of the following statements regarding limited partnerships is
TRUE? A) There is no limit on a limited partner's liability.
B) A limited partner's liability is limited by the amount of their investment.
C) A limited partner is not liable until all the assets of the general partners have been
exhausted. D) A general partner's liability is limited by the amount of their investment.
Answer: B
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
7) Which of the following is/are an advantage of
incorporation? A) Access to capital markets
B) Limited
liability C)
Unlimited life D)
All of the above
Answer: D
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
8) Which of the following statements is most correct?
A) An advantage to incorporation is that it allows for less regulation of the
business. B) An advantage of a corporation is that it is subject to double taxation.
C) Unlike a partnership, a disadvantage of a corporation is that has limited
liability. D) Corporations face more regulations when compared to partnerships.
Answer: D
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
9) A limited liability company is essentially:
A) a limited partnership without limited
partners. B) a limited partnership without a
general partner. C) just another name for a
limited partnership.
D) just another name for a
corporation. Answer: B
, Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
10) The distinguishing feature of a corporation is that:
A) their is no legal difference between the corporation and its
owners. B) it is a legally defined, artificial being, separate from its
owners.
C) it spreads liability for its corporate obligations to all
shareholders. D) provides limited liability only to small
shareholders.
Answer: B
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Conceptual
11) Which of the following are subject to double taxation?
A) Corporation
B) Partnership
C) Sole
proprietorship D) A
and B
Answer: A
Diff: 1
Section: 1.1 The Four Types of
Firms Skill: Conceptual
12) You own 100 shares of a "C" corporation. The corporation earns $5.00 per share before
taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest
of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40%
and your personal tax rate on (both dividend and non-dividend) income is 30%, then how
much money is left for you after all taxes have been paid?
A) $210
B)
$300
C) $350
D)
$500
Answer: A
Explanation: A) EPS × number of shares × (1 - Corporate Tax Rate) × (1 - Individual Tax
Rate) $5.00 per share × 100 shares × (1 - .40) × (1 - .30) = $210
Diff: 2
Section: 1.1 The Four Types of
Firms Skill: Analytical
13) You own 100 shares of a Sub Chapter "S" corporation. The corporation earns $5.00 per
share before taxes. Once the corporation has paid any corporate taxes that are due, it will
distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate
tax rate is 40% and your personal tax rate on (both dividend and non-dividend) income is
