Test Bank for Corporate Finance Canadian Edition 5th Edition by Berk, DeMarzo & Stangeland – Chapters 1–31 Questions with Answers 2026

TEST BANK FOR n n




Corporate Finance, Canadian Edition, 5th edition Berk
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Chapter 1-31
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Chapter 1 The Corporation n n n n




1.1 The Three Types of Firms n n n n




1) A sole proprietorship is owned by:
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A) one person n




B) two or more people
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C) shareholders
D) bankers
Answer: A
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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2) In Canada, which of the following organization forms accounts for the greatest number of
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firms?
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A) Limited Liability Partnership n n




B) Limited Partnership n




C) Sole Proprietorship n




D) PubliclyTraded Corporation n n




Answer: C
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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3) Which of the following organization forms earns the most revenue?
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A) Privately Owned Corporation n n




B) Limited Partnership n




C) Publicly Owned Corporation n n




D) LimitedLiabilityCompany n n




Answer: C
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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4) Which of the following is NOT an advantage of a sole proprietorship?
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A) Single taxation n




B) Ease of setup n n




C) Limited liability n




D) No separation of ownership and control
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Answer: C
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms
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,5) Which of the following statements regarding limited partnerships is TRUE?
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A) There is no limit on a limited partner's liability.
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B) A limited partner's liability is limited by the amount of his investment.
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C) A limited partner is not liable until all of the assets of the general partners have been
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exhausted.
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D) A general partner's liability is limited by the amount of his investment.
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Answer: B
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms
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6) Which of the following is/are an advantage(s) of incorporation?
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A) Access to capital markets n n n




B) Limited liability n




C) Unlimited life n




D) All ofthe above
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Answer: D
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms
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7) In Canada, a limited liability partnership, LLP, is essentially:
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A) a limited partnership without limited partners
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B) a limited partnership without a general partner
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C) just another name for a limited partnership
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D) just another name for a corporation
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Answer: B
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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8) In Canada, which of the following business organization forms cannot avoid double taxation?
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A) Limited Partnership n




B) Publicly Traded Corporation n n




C) Privately Owned Corporation n n




D) LimitedLiabilityCompany n n




Answer: B
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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9) In Canada, the dividend tax credit gives some relief by:
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A) effectively giving a lower tax rate on dividend income than on other sources of income
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B) effectively giving a higher tax rate on dividend income than on other sources of income
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C) effectively giving the same tax rate on dividend income as on other sources of income
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D) effectively giving a tax rate of zero on dividend income compared to other sources of income
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Answer: A
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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,10) Which of the following statements is most correct?
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A) An advantage to incorporation is that it allows for less regulation of the business.
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B) An advantage of a corporation is that it is subject to double taxation.
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C) Unlike a partnership, a disadvantage of a corporation is that it has limited liability.
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D) Corporations face more regulations when compared to partnerships. n n n n n n n




Answer: D
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms
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11) In Canada, the distinguishing feature of a corporation is that:
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A) there is no legal difference between the corporation and its owners
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B) it is a legally defined, artificial being, separate from its owners
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C) it spreads liability for its corporate obligations to all shareholders
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D) it provides limited liability only to small shareholders
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Answer: B
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms
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12) Which of the following is/are subject to double taxation in Canada?
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A) Corporation
B) Partnership
C) Sole proprietorship n




D) Both A and B n n n




Answer: A
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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13) Canada Revenue Agency, CRA, allows an exemption from double taxation for certain flow
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through entities where all income produced by the business flows to the investors and virtually no
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earnings are retained within the business. These entities are called:
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A) Canadian Federal Crown Corporations n n n




B) Canadian Controlled Corporations n n




C) Income Trust Corporations n n




D) Foreign Controlled Corporations n n




Answer: C
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Diff: 1 Type: MC
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Topic: 1.1 The Three Types of Firms
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, 14) In 2006, the Canadian government effectively neutralized the tax advantages that had existed for
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most income trusts, relative to firms set up as corporations. The advantages that existed for income
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trusts prior to these changes were that:
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A) income trusts avoided double taxation in that the Canada Revenue Agency did not collect
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corporate taxes but rather collected only personal taxes from income trust unit holders
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B) income trusts effectively afforded unlimited liabilityto unit holders while corporate
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shareholders could face unlimited liability
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C) while double taxation existed for both income trusts and corporations, the net tax paid by
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income trust unit holders was in most cases less than that paid by corporate shareholders
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D) the changes introduced in 2006 eliminated double taxation for corporations, thereby making the
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taxation of income trusts and corporations substantially equivalent
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Answer: A n




Explanation: The 2006 changes imposed new taxes on most income trusts to mirror the total tax
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revenue received from corporations. As a result with no material tax advantage, these firms reverted
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from income trusts back to a corporate structure. The exception was Real Estate Investment Trusts
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(REIT) which are exempted from the changes imposed on all other trusts.
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms n n n n n n




15) One of the major characteristics of a limited liability partnership, LLP, in Canada is:
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A) the limitation on a partner's liability is only in cases related to actions of negligence by other
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partners or those supervised by other partners
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B) any partner will not be liable for his or her negligence at any time
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C) any partners will be only liable for other partners' negligence
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D) noneof theabove n n n




Answer: A
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Diff: 2 Type: MC
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Topic: 1.1 The Three Types of Firms n n n n n n




16) You own 100 shares of a publicly traded Canadian Corporation. The corporation earns $5.00 per
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share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute
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the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40% and
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your personal tax rate on (both dividend and non-dividend) income is 30%, then how much money is
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left for you after all taxes have been paid?
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A) $210
B) $300
C) $350
D) $500
Answer: A n




Explanation: EPS × number of shares × (1 - Corporate Tax Rate) × (1 - Individual Tax Rate) n n n n n n n n n n n n n n n n n




$5.00 per share × 100 shares × (1 - .40) × (1 - .30) = $210 Diff:
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Topic: 1.1 The Three Types of Firms n n n n n n




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