• Quiz 1

Quiz 1    

99 Questions     

Instructor Verified Answers Included         

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1.  In most corporations, the CFO ranks under the CEO.

a.  True

b.  False

 

2.  The Chairman of the Board must also be the CEO.

a.  True

b.  False

 

3.  The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.

a.  True

b.  False

 

4.  Partnerships and proprietorships generally have a tax advantage over corporations.

a.  True

b.  False

 

5.  A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

a.  True

b.  False

 

6.  An advantage of the corporate form of organization is that corporations are generally less highly regulated than proprietorships and partnerships.

a.  True

b.  False

7.  Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.

a.  True

b.  False

 

8.  One advantage of the corporate form of organization is that it avoids double taxation.

a.  True

b.  False

 

9.  It is generally harder to transfer one’s ownership interest in a partnership than in a corporation.

a.  True

b.  False

 

10. One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.

a.  True

b.  False

 

11. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax. However, its stockholders will have to pay personal taxes on the firm’s net income.

a.  True

b.  False

 

12. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.

a.  True

b.  False

 

13. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.

a.  True

b.  False

 

14. The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.

a.  True

b.  False

 

15. One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm’s investors to transfer their ownership interests.

a.  True

b.  False

 

16. Organizing as a corporation makes it easier for the firm to raise capital. This is because corporations’ stockholders are not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than partnership interests.

a.  True

b.  False

 

17. In order to maximize its shareholders’ value, a firm’s management must attempt to maximize the stock price in the long run, or the stock’s “intrinsic value.”

a.  True

b.  False

 

18. If management operates in a manner designed to maximize the firm’s expected profits for the current year, this will also maximize the stockholders’ wealth as of the current year.

a.  True

b.  False

 

19. In order to maximize its shareholders’ value, a firm’s management must attempt to maximize the expected EPS.

a.  True

b.  False

 

20. In order to maximize its shareholders’ value, a firm’s management must attempt to maximize the stock price on a specific target date.

a.  True

b.  False

21. As a result of financial scandals occurring during the past decade, there has been a strong push to improve business ethics.

a.  True

b.  False

 

22. There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to provide it to stockholders because they are the owners of the firm, not outsiders.

a.  True

b.  False

 

23. A stock’s market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock’s market price would equal its intrinsic value.

a.  True

b.  False

 

24. If a stock’s market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

a.

Quiz 1

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