Question 1

The corporation is the most effective form of organization in terms of raising capital.

Accepted Answer

Corporations have the ability to issue stocks and bonds to raise capital, which is not possible for other forms of organization such as partnerships or sole proprietorships. Additionally, shareholders in a corporation are not personally liable for the debts and liabilities of the entity, which can be a significant advantage when raising capital.

Question 2

Which of the following types of business forms is the most ideal in terms of attracting new capital?
A)Sole proprietorship
B)Limited partnership
C)General partnership
D)A public corporation

Accepted Answer

A public corporation is the most ideal in terms of attracting new capital as it can issue stocks and raise funds from the public through stock offerings. This form of business also offers limited liability to shareholders, making it a more attractive investment option for potential investors.

Question 3

The goal of the firm should be:
A)maximization of profits.
B)maximization of shareholder wealth.
C)maximization of consumer satisfaction.
D)maximization of sales.

Accepted Answer

Maximization of shareholder wealth aligns with the primary goal and responsibility of the firm to provide value for its investors by generating returns on their investments. While maximizing profits and sales are important goals, they may not necessarily result in long-term value creation for shareholders. Maximizing consumer satisfaction is also important for the success of the firm, but it may not always directly translate into financial success.

Question 4

Compare and contrast primary market and secondary market transactions as it relates to the flow of funds in the transactions.

Accepted Answer

The answer of Compare and contrast primary market and secondary...

Question 5

Which of the following is NOT a principle of basic financial management?
A)Risk/return tradeoff
B)Incremental cash flow counts
C)Efficient capital markets
D)Profit is king

Accepted Answer

While profit is important in financial management, it is not the only concern. Other principles, such as the risk/return tradeoff, incremental cash flow counts, and efficient capital markets, also play important roles in effective financial management.

Question 6

In terms of organizational costs,which of the following sequences is generally correct,moving from lowest to highest cost?
A)General partnership,sole proprietorship,limited partnership,corporation
B)Sole proprietorship,general partnership,limited partnership,corporation
C)Corporation,limited partnership,general partnership,sole proprietorship
D)Sole proprietorship,general partnership,corporation,limited partnership

Accepted Answer

This sequence is generally correct because in a sole proprietorship, there is only one owner and therefore minimal organizational costs. In a general partnership, there may be multiple owners sharing costs and responsibilities, but still a relatively low level of organizational costs. Limited partnerships and corporations typically require more legal and administrative work, resulting in higher organizational costs.

Question 7

Which of the following is NOT an advantage of the sole proprietorship?
A)Limited liability
B)No time limit imposed on its existence
C)No legal requirements for starting the business
D)None of the above

Accepted Answer

Limited liability is not an advantage of sole proprietorship. This means that the owner is personally responsible for all debts and liabilities of the business.

Question 8

Which of the following categories of owners have limited liability?
A)General partners
B)Sole proprietors
C)Shareholders of a corporation
D)Both A and B

Accepted Answer

Shareholders of a corporation have limited liability, meaning their personal assets are not at risk for the debts or actions of the corporation. General partners and sole proprietors have unlimited liability, meaning their personal assets can be used to pay for any debts or legal obligations of the business.

Question 9

Which of the following is NOT true for limited partnerships?
A)Limited partners can only manage the business.
B)One general partner must exist who has unlimited liability.
C)Only the name of general partners can appear in the name of the firm.
D)Limited partners may sell their interest in the company.

Accepted Answer

Limited partners are not allowed to manage the business, as doing so would result in them losing their limited liability status. They are only investors in the business and have no control over it.

Question 10

Which of the following is a characteristic of a limited partnership?
A)It allows one or more partners to have limited liability.
B)It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply.
C)It prohibits the limited partners from participating in the management of the partnership.
D)All of the above.

Accepted Answer

A limited partnership allows one or more partners to have limited liability (option A), requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply (option B), and prohibits the limited partners from participating in the management of the partnership (option C). Therefore, all of the above options are characteristics of a limited partnership.

Question 11

Which forms of organization are free of initial legal requirements?
A)Sole proprietorship
B)General partnership
C)Corporation
D)Both A and B

Accepted Answer

Sole proprietorship and general partnership are both forms of organization that do not require any initial legal requirements. However, corporations require legal formalities such as filing articles of incorporation, holding shareholder meetings, and appointing a board of directors. Therefore, choosing either A or B would be the best option for someone who wants to start a business with minimal legal requirements.

Question 12

Difficulty in finding profitable projects is due to:
A)social responsibility.
B)competitive markets.
C)ethical dilemmas.
D)opportunity costs.

Accepted Answer

Difficulty in finding profitable projects is primarily due to competitive markets. In a competitive market, many companies are vying for the same customer base, and profits can be difficult to obtain. Social responsibility, ethical dilemmas, and opportunity costs may also play a role, but they are not the primary cause of difficulty in finding profitable projects.

Question 13

Which of the following reasons is most responsible for corporations being the most important form of business organization in the United States?
A)Corporations have limited life.
B)Stockholders have unlimited liability.
C)Corporations are subject to less government regulation than the other forms of business organization.
D)Corporations have the ability to raise larger sums of capital than the other forms of business organization.
E)Corporations are subjected to less taxation than the other forms of business organization.

Accepted Answer

Corporations have the ability to raise larger sums of capital than the other forms of business organization, such as partnerships or sole proprietorships. This is because they can sell shares of stock to investors, allowing for a larger pool of funds. This access to funding is a significant advantage and a primary reason why corporations are the most important form of business organization in the United States.

Question 14

Which of the following factors enable a public corporation to grow to a greater extent,and perhaps at a faster rate,than a partnership or a proprietorship?
A)Unlimited liability of shareholders
B)Access to the capital markets
C)Limited life
D)Elimination of double taxation on corporate income
E)All of the above

Accepted Answer

Access to the capital markets allows public corporations to raise capital by issuing stocks and bonds, which is not available to partnerships or proprietorships. This allows them to grow at a faster rate and to a greater extent. Unlimited liability of shareholders, limited life, and elimination of double taxation on corporate income are not factors that necessarily enable public corporations to grow more than partnerships or proprietorships.

Question 15

Which of the following statements best represents what finance is about?
A)How political,social,and economic forces affect corporations
B)Maximizing profits
C)Creation and maintenance of economic wealth
D)Reducing risk

Accepted Answer

Finance is about creating and maintaining economic wealth, which involves making financial decisions to allocate resources in a way that maximizes value and generates returns. While reducing risk is an important part of financial decision-making, it is not the sole focus or purpose of finance. Maximizing profits is a goal of business, but finance encompasses more than just maximizing profits and involves making decisions that benefit the broader financial health of a company. The impact of political, social, and economic forces on corporations is important to consider in finance, but it is not the core focus of the field.

Question 16

The true owners of the corporation are the:
A)holders of debt issues of the firm.
B)preferred stockholders.
C)board of directors of the firm.
D)common stockholders.

Accepted Answer

Common stockholders are the true owners of the corporation. This is because they have voting rights and therefore have a say in the company's decisions. Preferred stockholders are entitled to receive dividends before common stockholders but do not have voting rights. Debt holders are creditors of the company and have no ownership rights. The board of directors is responsible for managing the company, but they do not own it outright.

Question 17

Ethical dilemmas frequently exist in finance.

Accepted Answer

Finance involves dealing with money and making financial decisions, which can often lead to ethical dilemmas. For example, a financial professional may face a conflict of interest when making investment recommendations or may have to decide between maximizing profits for shareholders and ensuring the well-being of employees and other stakeholders. Therefore, ethical considerations are essential in finance.

Question 18

What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form?
A)Sole proprietorships are subject to double taxation of profits.
B)The cost of formation.
C)Inadequate profit sharing.
D)Owners have unlimited liability.

Accepted Answer

The chief disadvantage of sole proprietorship is that owners have unlimited liability. This means that the owner's personal assets are at risk if the business incurs debts or liabilities. On the other hand, corporations offer limited liability to their owners, which means that their personal assets are protected from the debts and liabilities of the business. Other factors such as cost of formation, profit sharing, and taxation may also be disadvantages of sole proprietorship, but they are not as significant as unlimited liability.

Question 19

Assume that you are starting a business.Further assume that the business is expected to grow very quickly and a great deal of capital will be needed soon.What type of business organization would you choose?
A)Corporation
B)General Partnership
C)Sole proprietorship
D)Limited partnership

Accepted Answer

When a business is expected to grow quickly and needs a great deal of capital, a corporation would be the best choice. Corporations are a separate legal entity from their owners, meaning they can raise capital through the sale of stocks and securities. This makes it much easier for the corporation to obtain the necessary funds to fuel growth. Additionally, corporations offer limited liability protection to their owners, which can protect their personal assets if the business incurs debts or legal issues.

Question 20

Which one of the following categories of owners enjoys limited liability?
A)General partners in a limited partnership
B)Shareholders (common stock)of a corporation
C)Sole proprietors
D)Both A and B

Accepted Answer

Shareholders of a corporation enjoy limited liability, meaning they are only liable for the amount of money they have invested in the company and are not personally responsible for the company's debts or obligations. General partners in a limited partnership and sole proprietors have unlimited personal liability, meaning they are personally responsible for all of the company's debts and obligations.

Quiz 1: Getting Started-Principles of Finance

The corporation is the most effective form of organization in terms of raising capital.

Which of the following types of business forms is the most ideal in terms of attracting new capital?

The goal of the firm should be:

Compare and contrast primary market and secondary market transactions as it relates to the flow of funds in the transactions.

Which of the following is NOT a principle of basic financial management?

In terms of organizational costs,which of the following sequences is generally correct,moving from lowest to highest cost?

Which of the following is NOT an advantage of the sole proprietorship?

Which of the following categories of owners have limited liability?

Which of the following is NOT true for limited partnerships?

Which of the following is a characteristic of a limited partnership?

Which forms of organization are free of initial legal requirements?

Difficulty in finding profitable projects is due to:

Which of the following reasons is most responsible for corporations being the most important form of business organization in the United States?

Which of the following factors enable a public corporation to grow to a greater extent,and perhaps at a faster rate,than a partnership or a proprietorship?

Which of the following statements best represents what finance is about?

The true owners of the corporation are the:

Ethical dilemmas frequently exist in finance.

What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form?

Assume that you are starting a business.Further assume that the business is expected to grow very quickly and a great deal of capital will be needed soon.What type of business organization would you choose?

Which one of the following categories of owners enjoys limited liability?