A) In a regular partnership,liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business.
B) Attracting large amounts of capital is more difficult for partnerships than for corporations because of such factors as unlimited liability,the need to reorganize when a partner dies,and the illiquidity (difficulty buying and selling) of partnership interests.
C) A slow-growth company,with little need for new capital,would be more likely to organize as a corporation than would a faster growing company.
D) The limited partners in a limited partnership have voting control,while the general partner has operating control over the business.Also,the limited partners are individually responsible,on a pro rata basis,for the firm's debts in the event of bankruptcy.
E) A major disadvantage of all partnerships compared to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself.
G) A) and E)
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A) Proprietorship,because of ease of entry.
B) S corporation,to gain some tax advantages and also to obtain limited liability.
C) Partnership,but only if she needs additional capital.
D) Regular corporation,because of the limited liability.
E) In this situation,the various forms of organization seem equally desirable.
G) A) and C)
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B
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A) Prices and interest rates would both rise.
B) Prices would rise and interest rates would decline.
C) Prices and interest rates would both decline.
D) There would be no changes in either prices or interest rates.
E) Prices would decline and interest rates would rise.
G) C) and D)
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A) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
B) Corporate shareholders are exposed to unlimited liability.
C) Corporations generally face fewer regulations than sole proprietorships.
D) Corporate shareholders are exposed to unlimited liability,and this factor may be compounded by the tax disadvantages of incorporation.
E) Shareholders in a regular corporation (not an S corporation) pay higher taxes than owners of an otherwise identical proprietorship.
G) B) and C)
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A) When a corporation's shares are owned by a few individuals and are not traded on public markets,we say that the firm is "closely,or privately,held."
B) "Going public" establishes a firm's true intrinsic value,and it also insures that a highly liquid market will always exist for the firm's shares.
C) When stock in a closely held corporation is offered to the public for the first time,the transaction is called "going public," and the market for such stock is called the new issue market.
D) Publicly owned companies have shares owned by investors who are not associated with management,and public companies must register with and report to a regulatory agency such as the SEC.
E) It is possible for a firm to go public and yet not raise any additional new capital at the time.
G) A) and B)
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A) A good goal for a firm's management is maximization of expected EPS.
B) Most business in the U.S.is conducted by corporations,and corporations' popularity results primarily from their favorable tax treatment.
C) Because most stock ownership is concentrated in the hands of a relatively small segment of society,firms' actions to maximize their stock prices have little benefit to society.
D) Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability,but the liability of all investors in the other types of businesses is more limited.
E) The potential exists for agency conflicts between stockholders and managers.
G) A) and D)
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A) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners.
B) There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes.
C) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.
D) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.
E) Relative to sole proprietorships,corporations generally face fewer regulations,which makes raising capital easier for corporations.
G) A) and B)
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A) If expected inflation increases,interest rates are likely to increase.
B) If individuals in general increase the percentage of their income that they save,interest rates are likely to increase.
C) If companies have fewer good investment opportunities,interest rates are likely to increase.
D) Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy,hence the riskiness of all debt securities.
E) Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.
G) B) and D)
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A
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A) A futures market transaction.
B) A primary market transaction.
C) A secondary market transaction.
D) A money market transaction.
E) An over-the-counter market transaction.
G) B) and C)
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B) False
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A) Assuming Cheers is profitable,less of its income will be subject to federal income taxes.
B) Cheers will now be subject to fewer regulations.
C) Cheers' shareholders (the ex-partners) will now be exposed to less liability.
D) Cheers' investors will be exposed to less liability,but they will find it more difficult to transfer their ownership.
E) Cheers will find it more difficult to raise additional capital.
G) A) and C)
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B) False
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B) False
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A) The main method of transferring ownership interest in a corporation is by means of a hostile takeover.
B) Two key advantages of the corporate form over other forms of business organization are unlimited liability and limited life.
C) A corporation is a legal entity that is generally created by a state;its life and existence is separate from the lives of its individual owners and managers.
D) Limited liability of its stockholders is an advantage of the corporate form of organization,but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
E) Although its stockholders are insulated by limited legal liability,the corporation's legal status does not protect the firm's managers in the same way;i.e. ,bondholders can sue its managers if the firm defaults on its debt,even if the default is the result of poor economic conditions.
G) C) and D)
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A) Households start saving a larger percentage of their income.
B) The economy moves from a boom to a recession.
C) The level of inflation begins to decline.
D) Corporations step up their expansion plans and thus increase their demand for capital.
E) The Federal Reserve uses monetary policy in an attempt to stimulate the economy.
G) B) and E)
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A) ?You sell 200 shares of Johnson & Johnson stock on the NYSE through your broker.
B) ?Johnson & Johnson issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
C) ?You buy 200 shares of Johnson & Johnson stock from your younger brother.You just give him cash and he gives you the stock-the trade is not made through a broker.
D) ?One financial institution buys 200,000 shares of Johnson & Johnson stock from another institution.An investment banker arranges the transaction.
E) ?You invest $10,000 in a mutual fund,which then uses the money to buy $10,000 of Johnson & Johnson shares on the NYSE.
G) C) and D)
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A) This is an example of an exchange of physical assets.
B) This is an example of a primary market transaction.
C) This is an example of a direct transfer of capital.
D) This is an example of a money market transaction.
E) This is an example of a derivatives market transaction
G) A) and C)
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C
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A) One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
B) It is generally easier to transfer one's ownership interest in a partnership than in a corporation.
C) One of the advantages of the corporate form of organization is that it avoids double taxation.
D) One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights,i.e. ,"one person,one vote."
E) Corporations of all types are subject to the corporate income tax.
G) C) and D)
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A) In Europe and Asia hedge funds are legal,but they are not permitted to operate in the United States.
B) Hedge funds have more in common with commercial banks than with any other type of financial institution.
C) Hedge funds have more in common with investment banks than with any other type of financial institution.
D) In the United States hedge funds are legal,but in Europe and Asia they are not permitted to operate.
E) The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds,and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.
G) D) and E)
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A) It subjects the firm to additional regulations.
B) It cannot affect the amount of the firm's operating income that goes to taxes.
C) It makes it more difficult for the firm to raise additional capital.
D) It makes the firm's investors subject to greater potential personal liabilities.
E) It makes it more difficult for the firm's investors to transfer their ownership interests.
G) A) and D)
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