Principles of Finance, 6e
Besley/Brigham
Principles of Finance, 6e
Besley/Brigham
Chapter 06
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b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
56. The major advantage of a regular partnership or a corporation as a form of business is the fact that both offer their
owners limited liability, whereas proprietorships do not.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
57. The proper goal of the financial manager should be to maximize the firm’s expected profit, because this will add the
most wealth to each of the individual shareholders (owners) of the firm.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
58. If a firm has a single owner, we can say that the proper goal of a financial manager would be to maximize the firm’s
earnings per share.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
Principles of Finance, 6e
Besley/Brigham
Chapter 06
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b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
73. If the tax laws stated that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible
expense, it would probably encourage companies to use more debt financing than they presently do, other things held
constant.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
74. Interest and dividends paid by a corporation are considered to be deductible operating expenses, hence they decrease
the firm’s tax liability.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
75. The fact that a proprietorship, as a business, pays no corporate income tax and that it is easily and inexpensively
formed are often cited as key advantages to that form of business.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
Principles of Finance, 6e
Besley/Brigham
Chapter 06
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b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
83. 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.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
84. In order to avoid double taxation and to escape the frequently higher tax rate applied to capital gains, stockholders
generally prefer to have corporations pay dividends rather than to retain their earnings and reinvest the money in the
business. Thus, earnings should be retained only if the firm needs capital very badly and would have difficulty raising it
from external sources.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
85. Individual taxpayers can itemize allowed expenses if they have income of over $250,000, but they must take the
standard deduction if their income is below $250,000.
a.
True
b.
False
ANSWER:
POINTS:
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89. A firm’s current value is related to its future growth opportunities, and corporations can attract funds more easily than
unincorporated businesses to take advantage of growth opportunities.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
90. 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.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
91. Voluntary socially responsible acts by businesses that raise costs are more likely in highly competitive industries.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
92. Actions that maximize the firm’s current earnings per share will maximize the price of the firm’s stock.
a.
True
b.
False
ANSWER:
POINTS:
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96. Stock price maximization should be the most important goal for the managers of a corporation.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS: