125. To raise capital, Candace Tyson and Martha Black plan to sell stock to between 108 and 200 investors. They also
want to avoid double taxation. Which type of business ownership would you recommend?
a. Regular corporation
b. S-corporation
c. Cooperative
d. Limited–liability company
e. Limited partnership
126. Walters Company, LLC, is a wholesale distributor of industrial packaging. A primary advantage that Walters enjoys
as an LLC that corporations do not have is
a. ease of formation.
b. limited liability.
c. avoiding double taxation.
d. one class of outstanding stock.
e. income taxes.
127. What do experts believe is likely to become one of the most popular types of business organizations?
a. Limited–liability companies
b. S-corporations
c. Partnerships
d. Sole proprietorships
e. Corporations
128. With regard to limited–liability companies, which of the following statements is false?
a. Many experts believe that an LLC is nothing more than an S-corporation.
b. An LLC can have no more than 100 stockholders.
c. An LLC avoids double taxation.
d. An LLC provides limited-liability protection to the personal assets of the owners.
e. When compared to regular corporations, there are fewer government regulations that apply to LLCs.
129. Which of the following has a restriction on the number of owners, members, or stockholders?
a. S-corporation
b. Not-for-profit corporation
c. Open corporation
d. Limited–liability company
e. Cooperative
130. A corporation organized to provide a social, educational, religious, or other nonbusiness service is known as a(n)
a. authority.
b. merger.
c. quasi-government corporation.
d. S-corporation.
e. not–for-profit corporation.
131. The Smithsonian Institution exists to preserve historical and cultural items of value and to share those items with the
public; it does not exist to maximize the wealth of any shareholders. This entity is organized as a(n)
a. cooperative.
b. quasi-government corporation.
c. S-corporation.
d. not–for-profit corporation.
e. closed corporation.
132. Habitat for Humanity and Girl Scouts are both examples of
a. cooperatives.
b. quasi-government corporations.
c. limited–liability corporations.
d. cooperatives.
e. not–for-profit corporations.
133. Not-for-profit organizations must meet specific guidelines in order to obtain tax-exempt status. These guidelines are
structured by the
a. board of directors.
b. U.S. Uniform Partnership Act.
c. U.S. Bureau of the Census.
d. Chamber of Commerce.
e. Internal Revenue Service.
134. A partnership formed to operate for a specific time period or to accomplish a specific purpose is known as a
a. conglomerate.
b. cooperative.
c. joint venture.
d. corporation.
e. joint merger.
135. If Avon and Merck joined together to produce a cream that slows down the aging process, this would be called a(n)
a. cooperative.
b. joint venture.
c. combined corporation.
d. S-corporation.
e. partnership.
136. Genetech, a biotechnology firm engaging in the new field of genetic engineering, has asked your advice about
remaining independent and temporarily gaining access to the marketing and manufacturing expertise it lacks from
another firm. You would suggest
a. forming a limited–liability company.
b. forming a joint venture.
c. forming an S-corporation.
d. merging with a company with the necessary expertise.
e. starting a cooperative.
137. To gain access to one another’s markets, several U.S. and Japanese automobile manufacturers (for example,
Chrysler and Mitsubishi) are engaging in temporary alliances to manufacture and market certain models of cars.
These types of partnerships are known as
a. limited–liability companies.
b. S-corporations.
c. cooperatives.
d. joint ventures.
e. foreign corporations.
138. Prudential and several other large insurance companies have joined together to underwrite an extremely large
insurance policy. This sort of association is referred to as a(n)
a. syndicate.
b. cooperative.
c. conglomerate.
d. alliance.
e. vertical merger.
139. A temporary association organized to perform a specific task requiring a large amount of capital is known as a(n)
a. conglomerate.
b. cooperative.
c. master limited partnership.
d. syndicate.
e. authority.
140. When many banks join together to lend money to developing countries such as Bangladesh and Malaysia, they seek
to spread out the risk of default. This is called
a. a not–for-profit organization.
b. a cooperative.
c. diversification.
d. a quasi-government corporation.
e. a syndicate.
141. Which of the following statements is false?
a. The main ingredient for growth is capital.
b. One way for a corporation to grow is to sell present products in new geographic locations.
c. When carefully planned and controlled, growth from within can have very little adverse effect on a firm.
d. There is no connection between growth and executive power, prestige, and reputation.
e. One way for a business to grow is to sell new but related products to its existing customer base.
142. The purchase of one corporation by another is referred to as a
a. proxy.
b. cooperative.
c. joint venture.
d. syndicate.
e. merger.
143. A hostile takeover is a situation in which
a. the management and board of directors of the targeted firm disapprove of the proposed merger.
b. stockholders are paid a golden parachute.
c. the targeted firm is dismantled to avoid the merger.
d. the government makes the decision that the corporate raider can purchase the targeted firm.
e. the corporate raider receives a sum of money to leave the targeted firm alone.
144. Suppose Bill Gates, founder of Microsoft, is interested in a small software company. He may offer to purchase the
stock of this company at a price that is just high enough to tempt the current stockholders. This action would be
called a
a. monopoly.
b. tender offer.
c. proxy fight.
d. hostile takeover.
e. white knight offer.
145. A technique used to gather enough stockholder votes to control a targeted company is a
a. tender offer.
b. stockholder fight.
c. proxy fight.
d. porcupine fight.
e. poison pill.
146. A merger between two firms that make and sell similar products in similar markets is known as a
a. horizontal merger.
b. cooperative.
c. joint venture.
d. vertical merger.
e. conglomerate merger.
147. When Compaq and Hewlett-Packard decided to become one company, this was an example of a(n)
a. acquisition.
b. hostile takeover.
c. horizontal merger.
d. conglomerate merger.
e. joint venture.
148. Which of the following is an example of a horizontal merger?
a. The purchase of a catering firm by Delta Airlines
b. The purchase of Marathon Oil Company by U.S. Steel
c. The purchase of Kentucky Fried Chicken by PepsiCo
d. The purchase of Sam’s Meat Packing Company by the Kroger supermarket chain
e. The purchase of Mobil Oil by Exxon
149. Recently there have been several mergers involving Big Four accounting firms. One such merger involved the firms
of Arthur Young and Ernst & Whinney, who combined to form Ernst & Young. This is an example of a
a. joint venture.
b. horizontal merger.
c. vertical merger.
d. syndicate.
e. conglomerate merger.
150. A is a merger between firms operating at different but related levels in the production and marketing of a
product.
a. conglomerate merger
b. cooperative
c. joint venture
d. vertical merger
e. horizontal merger
151. Which of the following is an example of a vertical merger?
a. The purchase of TWA by American Airlines
b. The purchase of Marathon Oil Company by U.S. Steel
c. The purchase of Kentucky Fried Chicken by PepsiCo
d. The purchase of Malone’s Cost-Plus Supermarkets by the Kroger supermarket chain
e. The purchase of Gulf Oil by Standard Oil Company of California
152. A merger between firms in completely unrelated industries is known as a
a. conglomerate merger.
b. cooperative.
c. joint venture.
d. vertical merger.
e. horizontal merger.
153. Which of the following statements is true?
a. Economists and financial analysts agree that mergers are good for the economy.
b. Takeovers always increase a firm’s productivity.
c. Mergers in the first part of the twenty-first century will see an increase in debt financing.
d. Mergers in the first part of the twenty-first century will be driven by cash-rich companies looking to acquire
businesses that will enhance their position in the marketplace.
e. There will be fewer mergers that involve investors from other countries.
154. The corporation, partnership, and sole proprietorship are the three most common forms of business ownership in the
United States.
a. True
b. False
155. About 85 percent of all business firms in the United States are sole proprietorships.
a. True
b. False
156. Unlimited liability holds a sole proprietor personally responsible for all the debts of the business.
a. True
b. False
157. If the owner of a sole proprietorship retires or dies, the owner’s heirs may take over the business and either sell it or
continue to operate it.
a. True
b. False
158. Because of unlimited liability, it is easy for sole proprietors to borrow large sums of money.
a. True
b. False