Finance Management Overview Essay examples

1186 Words Aug 8th, 2011 5 Pages
CHAPTER 1

AN OVERVIEW OF FINANCIAL MANAGEMENT

Forms of business organization Answer: c

[i]. Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership?

a. Corporations generally face fewer regulations. b. Corporations generally face lower taxes. c. Corporations generally find it easier to raise capital. d. Corporations enjoy unlimited liability. e. Statements c and d are correct.

Firm organization Answer: a
[ii]. Which of the following statements is most correct?

a. One advantage of forming a corporation is that you have limited liability. b. Corporations face fewer regulations than
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Corporations and partnerships have an advantage over proprietorships because a sole proprietor is subject to unlimited liability, but investors in the other types of businesses are not. e. Firms in highly competitive industries find it easier to exercise “social responsibility” than do firms in oligopolistic industries.

Miscellaneous concepts Answer: e
[x]. Which of the following statements is most correct?

a. One advantage of organizing your business as a corporation is that your shareholders are not subject to limited liability. b. Restrictive covenants in debt agreements are an effective way to reduce agency conflicts between stockholders and managers. c. Managers generally welcome hostile takeovers since they often increase the company’s stock price. d. Statements a and b are correct. e. None of the answers above is correct.

Partnership form Answer: d

[xi]. Which of the following statements is most correct?

a. In a partnership, liability for other partners’ misdeeds is limited to the amount a particular partner has invested in the business. b. Partnerships must be formed according to specific rules that 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

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