Question 1

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following are important in determining the value of the firm?

Accepted Answer

A)   Expected future cash flows.
B)   Timing of future cash flows.
C)   Riskiness of future cash flows.
D)   All of the above.E) A) and B)
F) None of the above

Question 3

The corporate charter of a firm includes all of the following information except

Accepted Answer

A)   the initial price of the stock to be issued.
B)   the types of activities it will pursue.
C)   the name of the proposed corporation.
D)   the amount of capital stock.
E)   the number of directors.F) B) and C)
G) A) and E)

Question 4

Most firms today use executive stock options, as opposed to other incentive methods, to induce management to act in the best interests of stockholders.

Accepted Answer

A) True 
 B)False

Question 5

In 2014, Craig and Kathy Koehler owned a small business which was held as a proprietorship in Kathy's name.They were thinking of incorporating if that would lower their total tax liability.The Koehlers expected the company to earn $100,000 before taxes next year.They planned to take out salaries of $45,000, and to reinvest the rest in the business.Their personal deductions total $8,150 and they will file a joint return for their personal income.(1)  What is their expected total tax liability as a proprietorship? (2)  As a corporation? (3)  Based on current taxes, should they incorporate?

Accepted Answer

A)   $23,304.50; $14,675.00; Yes
B)   $14,675.00; $13,427.50; Yes
C)   $23,304.50; $13,427.50; Yes
D)   $15,212.50; $23,450.00; No
E)   $20,778.00; $23,450.00; NoF) None of the above
G) D) and E)

Question 6

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

Accepted Answer

A) True 
 B)False

Question 7

A loss incurred by a corporation

Accepted Answer

A)   Must be carried forward unless the company has had 2 loss years in a row.
B)   Can be carried back 2 years, then carried forward up to 20 years following the loss.
C)   Can be carried back 5 years and forward 3 years.
D)   Cannot be used to reduce taxes in other years except with special permission from the IRS.
E)   Can be carried back 3 years or forward 15 years, whichever is more advantageous to the firm.F) B) and E)
G) A) and B)

Question 8

Stock price maximization should be the most important goal for the managers of a corporation.

Accepted Answer

A) True 
 B)False

Question 9

Profit maximization does not always lead to wealth maximization because

Accepted Answer

A)   it does not consider the riskiness of the cash flows.
B)   it does not consider the timing of the cash flows.
C)   it does not consider the size of the cash flows.
D)   two of the above are correct.
E)   all of the above are correctF) D) and E)
G) None of the above

Question 10

Which of the following statements is correct?

Accepted Answer

A)   In a partnership, liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business.
B)   Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business.
C)   A fast growth company would be more likely to set up a partnership for its business organization than would a slow-growth company.
D)   Partnerships have difficulties attracting capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organization.
E)   A major disadvantage of a partnership as a form of business organization is the high cost and practical difficulties of its formation.F) B) and E)
G) A) and D)

Question 11

A corporation with a marginal tax rate of 34 percent would receive what after-tax dividend yield on a 12 percent coupon rate preferred stock bought at par, assuming a 70 percent dividend exclusion?

Accepted Answer

A)   11.03%
B)   10.78%
C)   6.48%
D)   7.31%
E)   5.52%F) B) and C)
G) A) and C)

Question 12

Which of the following statements is correct?

Accepted Answer

A)   The ability of firms to engage in socially beneficial projects that involve voluntary costs is constrained by competition and the need of firms to attract capital at low cost.
B)   The actions that maximize a firm's stock price are inconsistent with maximizing social welfare.
C)   The concepts of social responsibility and ethical responsibility on the part of corporations are completely different and neither is relevant in maximizing stock price.
D)   In a competitive market, if a group of firms do not spend resources making social welfare improvements, but another group does, in general, this will not affect the second group's ability to attract capital.
E)   If government did not mandate socially responsible corporate actions, such as those relating to product safety and fair hiring practices, most firms in competitive markets would still pursue such policies voluntarily.F) None of the above
G) A) and B)

Question 13

____ decisions are decisions as to how much of current earnings to pay out as dividends rather than to retain for reinvestment in the firm.

Accepted Answer

A)   Capital structure
B)   Capital budgeting
C)   Dividend policy
D)   InvestmentE) All of the above
F) A) and B)

Question 14

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Accepted Answer

A) True 
 B)False

Question 15

Your corporation has the following cash flows:  If the applicable income tax rate is 40 percent, and if 70 percent of dividends received are exempt from taxes, what is the corporation's tax liability?

Accepted Answer

A)   $74,000
B)   $88,400
C)   $91,600
D)   $100,000
E)   $106,500F) B) and C)
G) C) and D)

Question 16

Although over half of all corporations select the S corporation status when filing taxes, these firms generate only around 25 percent of the total revenues provided by corporations.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Accepted Answer

A)   Investing in a smokestack "scrubber" to reduce the firm's air pollution as mandated by law.
B)   Voluntarily installing expensive machinery to treat effluent discharge which currently is being dumped into a river where it is ruining the drinking water of the community where the plant is located.
C)   Investing in a smokestack filter to reduce sulphur-dioxide emissions in order to reduce the current tax being levied on the firm by the state for its pollution.
D)   Making a large corporate donation to the local community in order to fund a recreation complex that will be used by the community and the firm's employees.
E)   Each of the above actions is consistent with social responsibility and none is necessarily inconsistent with stockholder wealth maximization.F) C) and D)
G) None of the above

Question 18

In a limited liability partnership only the general partner can participate in the management of the business.

Accepted Answer

A) True 
 B)False

Question 19

All of the following are advantages of a corporation except

Accepted Answer

A)   unlimited life
B)   limited liability
C)   easy transfer of ownership
D)   All of the above are advantagesE) None of the above
F) C) and D)

Question 20

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.

Accepted Answer

A) True 
 B)False

Exam 6: Business Organizations and the Tax Environment

Stock price maximization should be the most important goal for the managers of a corporation.

Correct Answer
verified

Which of the following are important in determining the value of the firm?

Correct Answer
verified

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

Correct Answer
verified

The corporate charter of a firm includes all of the following information except

Correct Answer
verified

A corporation with a marginal tax rate of 34 percent would receive what after-tax dividend yield on a 12 percent coupon rate preferred stock bought at par, assuming a 70 percent dividend exclusion?

Correct Answer
verified

A loss incurred by a corporation

Correct Answer
verified

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

____ decisions are decisions as to how much of current earnings to pay out as dividends rather than to retain for reinvestment in the firm.

Correct Answer
verified

Correct Answer
verified

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Correct Answer
verified

Although over half of all corporations select the S corporation status when filing taxes, these firms generate only around 25 percent of the total revenues provided by corporations.

Correct Answer
verified

All of the following are advantages of a corporation except

Correct Answer
verified

Most firms today use executive stock options, as opposed to other incentive methods, to induce management to act in the best interests of stockholders.

Correct Answer
verified

Profit maximization does not always lead to wealth maximization because

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

In a limited liability partnership only the general partner can participate in the management of the business.

Correct Answer
verified

Your corporation has the following cash flows: If the applicable income tax rate is 40 percent, and if 70 percent of dividends received are exempt from taxes, what is the corporation's tax liability?

Correct Answer
verified

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Correct Answer
verified

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.

Correct Answer
verified

Exam 6: Business Organizations and the Tax Environment

Stock price maximization should be the most important goal for the managers of a corporation.

Correct AnswerverifiedShow Answer

Which of the following are important in determining the value of the firm?

Correct AnswerverifiedShow Answer

One way to state the decision framework most useful for carrying out the firm's objective is that the financial managers should seek that combination of assets, liabilities, and capital which will generate the largest expected projected income over the relevant time horizon.

Correct AnswerverifiedShow Answer

The corporate charter of a firm includes all of the following information except

Correct AnswerverifiedShow Answer

A corporation with a marginal tax rate of 34 percent would receive what after-tax dividend yield on a 12 percent coupon rate preferred stock bought at par, assuming a 70 percent dividend exclusion?

Correct AnswerverifiedShow Answer

A loss incurred by a corporation

Correct AnswerverifiedShow Answer

Which of the following actions is consistent with social responsibility but is necessarily inconsistent with stockholder wealth maximization?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

____ decisions are decisions as to how much of current earnings to pay out as dividends rather than to retain for reinvestment in the firm.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Correct AnswerverifiedShow Answer

Although over half of all corporations select the S corporation status when filing taxes, these firms generate only around 25 percent of the total revenues provided by corporations.

Correct AnswerverifiedShow Answer

All of the following are advantages of a corporation except

Correct AnswerverifiedShow Answer

Most firms today use executive stock options, as opposed to other incentive methods, to induce management to act in the best interests of stockholders.

Correct AnswerverifiedShow Answer

Profit maximization does not always lead to wealth maximization because

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In a limited liability partnership only the general partner can participate in the management of the business.

Correct AnswerverifiedShow Answer

Your corporation has the following cash flows: If the applicable income tax rate is 40 percent, and if 70 percent of dividends received are exempt from taxes, what is the corporation's tax liability?

Correct AnswerverifiedShow Answer

Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis.

Correct AnswerverifiedShow Answer

Although corporations only represent 18% of the number of businesses they account for about 82% of the dollar value of sales.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified