Ch1
You are a shareholder in an S corporation. The corporation earns $2.33 per share before taxes. As a pass through entity, you will receive $2.33 for each share that you own. Your marginal tax rate is 20%. How much per share is left for you after all taxes are paid?
Amount remains is $1.86 per share
If you buy shares of Coca−Cola on the primary market
Coca−Cola receives the money because the company has issued new shares
You have decided to form a new start-up company developing applications for the iPhone. Give examples of the three distinct types of financial decisions you will need to make.
Determining which type of iPhone application projects will offer your company a positive net present value, and therefore are the types of projects your company should develop. This is a(n) investment decision Determining how to fund your iPhone application investments and what mix of debt and equity your company will have. This is a(n) financing decision Ensuring that your company has the necessary funds to make investments, pay interest on loans, and pay your employees. This is a(n) cash management decision
Which of the following statements is FALSE?
If the corporation fails to satisfy debt holders' claims, debt holders may lose control of the firm
You are a shareholder in a C corporation. The corporation earns $1.73 per share before taxes. Once it has paid taxes, it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 21%, and your personal tax rate on (both dividend and non-dividend) income is 20%. How much is left for you after all taxes are paid?
The amount that remains is $1.09 per share.
You overhear your manager saying that she plans to book an Ocean−view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive and that your manager is traveling at the Company's expense. This use of additional funds comes about as a result of:
an agency problem
The Principal−Agent Problem arises
because of the separation of ownership and control in a corporation because managers have little incentive to work in the interest of shareholders when this means working against their own self−interest
An agency problem can be alleviated
by compensating managers in such a way that acting in the best interest of shareholders is also in the best interest of managers when a firm is a sole proprietorship
Which of the following organization forms for a business does NOT avoid double taxation?
c corporation
The distinguishing feature of a corporation is that
it is a legally defined, artificial being, separate from its owners
Which of the following is NOT an advantage of a sole proprietorship?
limited liability
A sole proprietorship is owned by
one person
In a corporation, the ultimate decisions regarding business matters are made by
the board of directors
