MBA Financial Management and Markets Exam 1 Spring 2009 The following questions are designed to test your knowledge of the fundamental concepts of financial management structure [chapter 1], financial valuation [chapter 2], financial statements and tax planning [chapter 3], and short-term financial forecasting and financing [chapter 14]. Choose the best possible answer to the questions given. Each question is equally weighted. Papers are due 2/26/09 at the beginning of class. True/False Indicate whether the statement is true or false. ____ 1. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership. These combine to …show more content…
d. Corporate investors are exposed to unlimited liability. e. Corporations generally face relatively few regulations. Which of the following statements is CORRECT? 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. Partnerships have more difficulty attracting large amounts of capital than 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. In a limited partnership, the limited partners 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 relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself. Which of the following statements is CORRECT? a. The proper goal of the financial manager should be to attempt to maximize the firm 's expected cash flows, because this will add the most to the wealth of the individual shareholders. b. The financial manager should seek that combination of
A corporation is a separate legal entity that possesses distinctive liabilities and privileges than that of their members or shareholders. As an investor, a corporation’s advantage is liability for their own investments especially in risky investments (Kubasek, et al., 2012, p. 760). Among the various types of corporations for Betty to select from, an S corporation is an enticing venture for new entrepreneurs given that it grants limited personal liability for debts, sharing of corporate profits, and taxation relief. Double taxation is a main disadvantage of C corporations but not for S corporations. The General Corporation Law (Corp C §§100-2319) treats S corporations similarly to partnerships for taxation purposes.
1) Describe the basic features that distinguish the four basic forms of business ownership sole proprietorships, general partnerships, C corporations, and limited liability companies.
Whether certain allocations of partnership income, gain, loss, deductions, and credits have substantial economic effect and whether that has any impact on the partners’ distributive shares.
Many believe that liability is a biggest issue in a general partnership than in a sole proprietorship. The owners of the company are still fully liable for any debts the company may accrue as well as the liability for any lawsuits that may be brought against the company. However, the bigger issue in a partnership is that now each partner can be liable for the other partner’s actions. If one partner is sued for malpractice, the other partner may suffer because of it.
Know which of the following statements is not true regarding the characteristics of a general partnership?
This course applies corporate finance concepts to make management decisions. Students learn methods to evaluate financial alternatives and create financial plans. Other topics include cash flows, business valuation, working capital, capital budgets, and long-term financing.
Why is the fiduciary duty between the general partner and limited partners even greater than the fiduciary duty between partners in a general partnership?
both a and b (Yes. The corporate structure provides for limited liability and ease of transferring ownership.)
5. (TCOs 1, 2, 8, 9, and 10) One of your best individual clients is thinking about starting up a new business, and he is seeking your advice on which business form he should select. In particular, he’s trying to decide whether to operate the business as a partnership or a C corporation. Explain to him the significant tax and nontax issues that will arise from choosing each of these entities compared to the other, including how
32. In a partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.
1) Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes __________
Part I: Discuss the various forms of organization that are available to Penelope, Mark and John. There are a few different options from which you can chose to organize your business under. For example: partnership, LLP, S Corporation, C Corporation for which I know you are all familiar with. It is my duty to give you my own educated and unbiased opinion to which would be most beneficial to all of you.
Determine the key factors that will drive the financial planning process for most organizations in the post-merger phase, and examine the related impact to the organization process. Provide support for your rationale.
Financial results and conditions vary among companies for a number of reasons. One reason for the variation can be traced to the characteristics of the industries in which companies operate. For example, some industries require large investments in property, plant, and equipment (PP&E), while others require very little. In some industries, the competitive productpricing structure permits companies to earn significant profits per sales dollar, while in other industries the product-pricing structure imposes a much lower profit margin. In most low-margin industries, however, companies often experience a relatively high rate of product throughput. A second reason for some of the
Explanation: Here, in the top of the example, we are given the opening stock of the company is $22,000. Also saying that the