Chapter 4 Quiz_BSAD 1113

Which of the following techniques does a firm use to fend off a hostile takeover attempt if the firm's management requires a large majority of stockholders to approve the takeover?

A shark repellant Explanation: To head off a hostile takeover attempt, a firm can institute a shark repellant in which management requires a large majority of stockholders to approve the takeover.

A(n) _____ is a form of business ownership that can have up to 100 shareholders, has limited liability, and is taxed as though it is a partnership.

C corporation explanation: An S corporation is a form of business ownership that is taxed as though it were a partnership. Disadvantages of an S corporation include restrictions on the number (100) and types (individuals, estates, and certain trusts) of shareholders and the difficulty of formation and operation.

_____ are a form of business organization that are expected to operate without profit or to create only enough profit to maintain an organization

Cooperatives explanation: A cooperative or co-op is an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization. Co-ops are generally expected to operate without profit or to create only enough profit to maintain the co-op organization. Many cooperatives exist in small farming communities.

_____ have the most freedom from government regulation.

Sole proprietorships Explanation: Sole proprietorships have the most freedom from government regulation. Many government regulations—federal, state, and local—apply only to businesses that have a certain number of employees, and securities laws apply only to corporations that issue stock.

Huechi Inc., a mobile phone manufacturer, purchases its direct competitor, OnePhone Inc., by buying most of its stock. In this scenario, Huechi is involved in a(n)

acquisition explanation: In this scenario, Huechi Inc. is involved in an acquisition. An acquisition is the purchase of one company by another, usually by buying its stock. It sometimes involves the purchase of a division or some other part of a company rather than the entire company.

A _____ is a form of business ownership that can be subjected to double taxation.

corporation explanation: Double taxation occurs only with corporations. Since they are legal entities, corporations must pay taxes on their income. When after-tax corporate profits are paid out as dividends to the stockholders, the dividends are taxed a second time as part of the individual owner's income. This process creates double taxation for the stockholders of dividend paying corporations.

Which of the following is an advantage of corporations as a form of business ownership?

ease of transfer of ownership Explanation: An advantage of a corporation is ease of transfer of ownership. Stockholders can sell or trade shares of stock to other people without causing the termination of the corporation, and they can do this without the prior approval of other shareholders.

The difference between a horizontal merger and a vertical merger is

firms that make and sell similar products to the same customers merge in a horizontal merger, whereas companies operating at different but related levels of an industry merge in a vertical merger. explanation: In a horizontal merger, firms that make and sell similar products to the same customers merge, whereas in a vertical merger, companies operating at different but related levels of an industry merge. A merger occurs when two companies, usually corporations, combine to form a new company.

Which form of business ownership involves a complete sharing in the management of a business, where all the owners have unlimited liability for the debts of the business?

general partnership Explanation: A general partnership involves a complete sharing in the management of a business. In a general partnership, each partner has unlimited liability for the debts of the business.

Which of the following strategies used by businesses to grow reduces the number of corporations competing in an industry and needs to be reviewed carefully by federal regulators?

horizontal merger explanation: When firms that make and sell similar products to the same customers merge, it is known as a horizontal merger. Horizontal mergers reduce the number of corporations competing within an industry, and for this reason they are usually reviewed carefully by federal regulators before the merger is allowed to proceed.

In a _____, a group of investors borrows money from banks and other institutions to acquire a company or a division of one using the assets of the purchased company to guarantee repayment of the loan.

leverage buyout explanation: In a leveraged buyout (LBO), a group of investors borrows money from banks and other institutions to acquire a company or a division of one, using the assets of the purchased company to guarantee repayment of the loan. In some LBOs, as much as 95 percent of the buyout price is paid with borrowed money, which eventually must be repaid.

Bridgitte and Carlotta have started a business together; Carlotta put up half the money, but she is not involved in the management of the company. Bridgitte does all the hiring and supervising, as well as the general operation of the company. They share in the profits. This scenario represents a

limited partnership Explanation: In a limited partnership, the general partners receive a larger share of the profits after the limited partners have received their initial investment back. Limited partners do not participate in the management of the business but share in the profits in accordance with the terms of a partnership agreement.

Employees in a corporation are often

not stockholders of the company for which they work explanation: Many employees are not stockholders of the company for which they work, and this separation between the employees and the owners may cause employees to feel that their work only benefits the owners. Employees without an ownership stake do not always see how they fit into the corporate picture.

Ease of organization, availability of capital and credit, and combined knowledge and skills are typical characteristics of a(n)

partnership explanation: The advantages of a partnership are ease of organization, availability of capital, combined knowledge and skills, rapid decision making, and fewer regulatory controls.

When a firm allows stockholders to buy more shares of stock at prices lower than the current market value in order to ward off a hostile takeover, the firm is using a _____ to head off a possible hostile takeover.

poison pill explanation: To head off a hostile takeover attempt, a firm can institute a poison pill in which the firm allows stockholders to buy more shares of stock at prices lower than the current market value. A poison pill is an attempt to make a takeover less attractive to a potential acquirer.

Toys 'R' Us and Amway are examples of ________ corporations because the owners own all of the company's stock.

private Explanation: These are private corporations because they do not sell stock to the public.

The U.S. Post Office and NASA are examples of

quasi-public corporations Explanation: Quasi-public corporations are owned and operated by the federal, state, or local government. The focus of these entities is to provide a service to citizens, such as mail delivery, rather than earning a profit.

Richard runs a small convenience store in his neighborhood. He hires two part-time workers to help him with the day-to-day operations of the business. However, Richard alone is responsible for all the debts and liabilities of the business. Thus, Richard's business is an example of a(n)

sole proprietorship Explanation: Richard's business is an example of a sole proprietorship. Sole proprietorships are typically small businesses employing fewer than 50 people. They are the most common form of business organization in the United States.

Which of the following is a disadvantage of a general partnership?

unlimited liability explanation: In general partnerships, the general partners have unlimited liability for the debts incurred by the business, just as the sole proprietor has unlimited liability for his or her business. Such unlimited liability can be a distinct disadvantage to one partner if his or her personal financial resources are greater than those of the others.

GL Inc., a firm facing a threat of bankruptcy, did not want to be acquired by Red Phoenix Inc. Thus, the management of GL Inc. approached Fortium Inc., which was willing to acquire GL Inc. In this scenario, Fortium Inc. is referred to as a

white knight explanation: In this scenario, Fortium Inc. is referred to as a white knight. To head off a hostile takeover attempt, a firm can seek a white knight, which is a more acceptable firm that is willing to acquire the threatened company.