Test Bank For Intermediate Financial Management, 12th
Edition By Eugene F. Brigham, Phillip R. Daves. Chapter
1-32.
1. The form of organization for a business is not an important issue, as this decision has very little effect
on the income and wealth of the firm's owners.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Firm organization
KEYWORDS: Bloom’s: Knowledge
2. The major advantage of a regular partnership or a corporation as a form of business organization is the
fact that both offer their owners limited liability, whereas proprietorships do not.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Firm organization
KEYWORDS: Bloom’s: Knowledge
3. 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 make it difficult for
partnerships to attract large amounts of capital and thus to grow to a very large size.
a. True
Page 1
, b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Partnership
KEYWORDS: Bloom’s: Knowledge
4. Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the
owner's unlimited personal liability for the business' debts.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Proprietorship
KEYWORDS: Bloom’s: Knowledge
5. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Limited liability
KEYWORDS: Bloom’s: Knowledge
Page 2
,6. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the
common stock and thus shareholders' wealth.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.2 - LO: 1-3
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Value maximization
KEYWORDS: Bloom’s: Knowledge
7. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued
by other firms or individuals, Firm A is a financial intermediary.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.3 - LO: 1-4
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Financial intermediaries
KEYWORDS: Bloom’s: Knowledge
8. The disadvantages associated with a proprietorship are similar to those under a partnership. One
exception relates to the more formal nature of the partnership agreement and the commitment of all
partners' personal assets. As a result, partnerships do not have difficulty raising large amounts of capital.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Moderate
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
Page 3
, firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Partnership
KEYWORDS: Bloom’s: Comprehension
9. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and
inexpensively formed, are two key advantages to that form of business.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Moderate
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Proprietorship
KEYWORDS: Bloom’s: Comprehension
10. Which of the following statements is CORRECT?
a. One of the disadvantages of incorporating a business is that the owners then become subject to
liabilities in the event the firm goes bankrupt.
b. Sole proprietorships are subject to more regulations than corporations.
c. In any type of partnership, every partner has the same rights, privileges, and liability exposure
as every other partner.
d. Sole proprietorships and partnerships generally have a tax advantage over many corporations,
especially large ones.
e. Corporations of all types are subject to the corporate income tax.
ANSWER: d
RATIONALE: Sole proprietorships and partnerships pay personal income tax, but they avoid the
corporate income tax. Small corporations that meet certain requirements can elect to
be classified as S Corporations, and then the business is taxed as a partnership.
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: INTE.GENE.16.1 - LO: 1-2
NATIONAL STANDARDS: United States - BUSPROG: Analytic
STATE STANDARDS: United States - AK - DISC: Goals of the firm, role of - DISC: Goals of the
firm, role of finance, and analysis of public information
LOCAL STANDARDS: United States - OH - Default City - TBA
TOPICS: Firm organization
KEYWORDS: Bloom’s: Comprehension
Page 4
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