LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - LO: 1-3

Chapter 01: An Overview of Financial Management and the Financial Environment

Copyright Cengage Learning. Powered by Cognero. Page 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.

• True
• False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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: Firm organization

KEYWORDS: Bloom’s: Knowledge

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• 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.

• True
• False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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: Firm organization

KEYWORDS: Bloom’s: Knowledge

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• 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.

• True
• False

ANSWER: True

POINTS: 1

(Financial Management Theory & Practice, 16e Eugene Brigham, Michael Ehrhardt) (Test Bank all Chapters) 1 / 4

Chapter 01: An Overview of Financial Management and the Financial Environment

Copyright Cengage Learning. Powered by Cognero. Page 2

DIFFICULTY: Difficulty: Easy

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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: Partnership

KEYWORDS: Bloom’s: Knowledge

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• 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.

• True
• False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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: Proprietorship

KEYWORDS: Bloom’s: Knowledge

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
• True
• False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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 2 / 4

Chapter 01: An Overview of Financial Management and the Financial Environment

Copyright Cengage Learning. Powered by Cognero. Page 3

LOCAL STANDARDS: United States - OH - Default City - TBA

TOPICS: Limited liability

KEYWORDS: Bloom’s: Knowledge

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• 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.

• True
• False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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: Partnership

KEYWORDS: Bloom’s: Comprehension

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• 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.

• True
• False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

QUESTION TYPE: True / False

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - 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: Proprietorship

KEYWORDS: Bloom’s: Comprehension

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• / 4

Chapter 01: An Overview of Financial Management and the Financial Environment

Copyright Cengage Learning. Powered by Cognero. Page 4

• Which of the following statements is CORRECT?
• One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the

event the firm goes bankrupt.

• Sole proprietorships are subject to more regulations than corporations.
• In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other

partner.

• Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large

ones.

• 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

QUESTION TYPE: Multiple Choice

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - LO: 1-3

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 OTHER: TYPE: Multiple Choice: Conceptual

DATE CREATED: 10/31/2018 8:20 AM

DATE MODIFIED: 10/31/2018 8:20 AM

• Which of the following statements is CORRECT?
• One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
• It is generally easier to transfer one's ownership interest in a partnership than in a corporation.
• One of the advantages of the corporate form of organization is that it avoids double taxation.
• One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting

rights, i.e., "one person, one vote."

• Corporations of all types are subject to the corporate income tax.

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

QUESTION TYPE: Multiple Choice

HAS VARIABLES: False

LEARNING OBJECTIVES: FMTP.EHRH.20.01.03 - LO: 1-3

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

• / 4