Name: Class: Date:
Chap 01_14e_Brigham
Indicate whether the statement is true or false.
1. 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
2. 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
3. Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.
a. True
b. False
4. 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
b. False
5. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21
per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.
This is a primary market transaction.
a. True
b. False
6. 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
7. 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
8. 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
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Chap 01_14e_Brigham
Indicate whether the statement is true or false.
1. 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
2. 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
3. Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.
a. True
b. False
4. 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
b. False
5. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21
per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.
This is a primary market transaction.
a. True
b. False
6. 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
7. 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
8. 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
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