MULTIPLE CHOICE CHAPTER 1 1) Which of the following statements is CORRECT? a. One of the advantages of the corporate form of organization is that it avoids double taxation. b. It is easier to transfer oneâ€™s ownership interest in a partnership than in a corporation. c. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. d. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., â€œone person, one vote.â€ e. Corporations of all types are subject to the corporate income tax. 2) Which of the following statements is CORRECT? a. Corporations generally face fewer regulations than sole proprietorships. b. Corporate shareholders are exposed to unlimited liability. c. It is usually easier to transfer ownership in a corporation than in a partnership. d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small. 3) Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? a. Corporations generally face fewer regulations. b. Less of a corporationâ€™s income is generally subject to federal taxes. c. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. d. Corporate investors are exposed to unlimited liability. e. Corporations generally find it easier to raise large amounts of capital. 4) The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize its expected total corporate income. b. Maximize its expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share over the long run, which is the stockâ€™s intrinsic value. e. Maximize the stock price on a specific target date. 5) Which of the following statements is CORRECT? a. Compensating managers with stock options can do nothing to help eliminate potential conflicts between stockholders and managers. b. Restrictions can be included in credit agreements, but these restrictions can do nothing to protect bondholders from conflicts of interest between them and the firmâ€™s managers and stockholders. c. The threat of takeovers reduces conflict of interest problems, but only between bondholders and stockholders. d. Compensating managers with stock options can help reduce conflicts of interest between stockholders and managers, but if the options are all exercisable on a specific date in the near future, this can motivate managers to do something other than try to maximize the stock’s intrinsic value. e. Conflicts would not exist if the Security and Exchange Commission were abolished. 6) Which of the following statements would most people in business agree with? a. A corporationâ€™s short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation. b. Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. c. â€œWhistle blowers,â€ because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees. d. It is not useful for large corporations to develop a formal set of rules defining ethical and unethical behavior. e. Although peopleâ€™s moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation.
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