for Corporate Finance, 5th Edition by

Created By: A Solution

Page 1

for Corporate Finance, 5th Edition by Jonathan Berk, DeMarzo Chapter 1-31

Chapter 1: The Corporation

1.1 The Three Types of Firms

1) A sole proprietorship is owned by:

• one person
• two or more people
• shareholders

D) bankers Answer: A

Diff: 1 Type: MC

Topic: 1.1 The Three Types of Firms

2) In Canada, which of the following organization forms accounts for the greatest number of firms?

• Limited Liability Partnership
• Limited Partnership
• Sole Proprietorship

D) Publicly Traded Corporation Answer: C

Diff: 1 Type: MC

Topic: 1.1 The Three Types of Firms

Created By: A Solution

Page 2

3) Which of the following organization forms earns the most revenue?

• Privately Owned Corporation
• Limited Partnership
• Publicly Owned Corporation

D) Limited Liability Company Answer: C

Diff: 1 Type: MC

Topic: 1.1 The Three Types of Firms

4) Which of the following is NOT an advantage of a sole proprietorship?

• Single taxation
• Ease of setup
• Limited liability

D) No separation of ownership and control Answer: C

Diff: 2 Type: MC

Topic: 1.1 The Three Types of Firms

5) Which of the following statements regarding limited partnerships is TRUE?

• There is no limit on a limited partner's liability.
• A limited partner's liability is limited by the amount of his investment.
• A limited partner is not liable until all of the assets of the general partners have been

exhausted.

• A general partner's liability is limited by the amount of his investment. Answer: B

Diff: 2 Type: MC

Created By: A Solution

Page 3

Topic: 1.1 The Three Types of Firms

6) Which of the following is/are an advantage(s) of incorporation?

• Access to capital markets
• Limited liability
• Unlimited life

D) All of the above Answer: D

Diff: 2 Type: MC

Topic: 1.1 The Three Types of Firms

7) In Canada, a limited liability partnership, LLP, is essentially:

• a limited partnership without limited partners
• a limited partnership without a general partner
• just another name for a limited partnership

D) just another name for a corporation Answer: B

Diff: 1 Type: MC

Topic: 1.1 The Three Types of Firms

8) In Canada, which of the following business organization forms cannot avoid double taxation?

• Limited Partnership
• Publicly Traded Corporation
• Privately Owned Corporation

D) Limited Liability Company Answer: B

Created By: A Solution

Page 4

Diff: 1 Type: MC

Topic: 1.1 The Three Types of Firms

9) In Canada, the dividend tax credit gives some relief by:

• effectively giving a lower tax rate on dividend income than on other sources of income
• effectively giving a higher tax rate on dividend income than on other sources of income
• effectively giving the same tax rate on dividend income as on other sources of income
• effectively giving a tax rate of zero on dividend income compared to other sources of

income Answer: A

Diff: 1 Type: MC

Topic: 1.1 The Three Types of Firms

10) Which of the following statements is most correct?

• An advantage to incorporation is that it allows for less regulation of the business.
• An advantage of a corporation is that it is subject to double taxation.
• Unlike a partnership, a disadvantage of a corporation is that it has limited liability.

D) Corporations face more regulations when compared to partnerships. Answer: D

Diff: 2 Type: MC

Topic: 1.1 The Three Types of Firms

11) In Canada, the distinguishing feature of a corporation is that:

• there is no legal difference between the corporation and its owners
• it is a legally defined, artificial being, separate from its owners