Ch.math

How is a corporation different from most of the other forms of business organizations?

A corporation has a separate legal identity from those of its owners. This separation gives the owners limited liability for the actions of the corporation. The down side is the process of double taxation for each dollar earned by the corporation, once when it is earned by the corporation and subsequently when it is passed on to the owners.

What are the main differences between a limited partnership and a limited liability corporation?

A limited partnership is required to have at least one general partner. A limited liability corporation is similar to a limited partnership but without the general partner.

A sole proprietorship is owned by ________. A) one person B) two or more persons C) shareholders D) bankers

A.

Helen owns 10.2% of the stock of the Median Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally toits shareholders ,howmuchofthisamount would Helen receive, disregarding tax?

B) Helen will receive 10.2 % of the dividend payment proportional to her ownership: 0.102 × 25,000,000 = $2,550,000

A limited liability company is essentially ________. A) a limited partnership without limited partners B) a limited partnership without a general partner C) just another name for a limited partnership D) just another name for a corporation

B.

What is the process of double taxation for the stockholders in a C corporation? A) Their shares are taxed when they are both bought and sold. B) The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them. C) The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. D) The corporation must pay taxes on any profits it makes, and the capital raised by the sale of shares is also subject to taxation.

B.

Which of the following organization forms has the most revenue? A) S corporation B) limited partnership C) C corporation D) limited liability company

C.

A C corporation earns $4.30 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $3.00 dividend? A. $1.68 B) $2.53 C) $2.11 D) $2.95

Corporate tax = $4.30 × 35% = $1.51 ; Personal tax = $3.00 × 20% = $0.60 Total = $1.51 + $0.60 = $2.11

17) A C corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $6.00 dividend? A) $3.31 B) $4.96 C) $4.14 D) $5.79

Corporate tax = $8.30 × 39% = $3.24 , Personal tax = $6 × 15% = $0.90 Total = $3.24 + $0.90 = $4.14

Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. If the corporate tax rate was 35% and dividend earnings were taxed at 12.5%, what was the value of the dividend earnings received after-tax by a holder of 100,000 shares of Valiant Corp.?

Corporate tax paid on $3.4 earnings = $3.4 × 0.35 = 1.190 earnings after-tax = 3.4 - 1.190 = $2.210 earnings distributed as dividends = $2.210 - $1 = $1.2100 taxes paid on dividends by a shareholder = 1.2100 × 0.125 = 0.1513 after-tax dividends per share = 1.2100 - 0.1513 = $1.0588 hence a holder of 100,000 shares receives 1.0588 × 100,000 = $105,875

Which of the following is unique for an S corporation? A) The profits and losses of an S corporation are not taxed at the corporate level, but shareholders must include these profits and losses on their individual tax returns. B) The shareholders of an S corporation must include the firmʹs profit and losses in their individual income taxes even if no money is distributed to them. C) There is a maximum limit on the number of shareholders for an S corporation. D) None of the above statements is unique.

D

An S corporation earns $6.00 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $2.00 dividend? A) $1.87 B) $2.81 C) $3.28 D) $2.34

D) $6.00 × 39% = $2.34

Explanation: Chapter 1 Corporate Finance and the Financial Manager 7 19) A C corporation earns $8.30 per share before taxes and the company pays a dividend of $4.00 per share. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the after-tax amount an individual would receive from the dividend? A) $2.72 B) $4.08 C) $4.76 D) $3.40

Personal tax = $4 × 15% = $0.60 ; Total = $4.00 - $0.60 = $3.40

What are the main differences between a partnership and a sole proprietorship?

While a sole proprietor has the same identity as its single owner, a partnership of general partners has the same identity as its partners. Each general partner is responsible for the decisions taken by that partner as well as any other general partner.

An S corporation earns $9.10 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $5.00 dividend? A) $3.28 B) $3.93 C) $2.62 D) $4.59

Answer: A Explanation: A) $9.10 × 36% = $3.28

Which of the following is NOT an advantage of a sole proprietorship? A) single taxation B) ease of setup C) unlimited liability D) no separation of ownership and control

C.

Which of the following people may not manage the operations of a firm in which they are part or full owners? A) stockholders in S corporations B) stockholders in C corporations C) limited partners in a limited partnership D) general partners in a limited partnership

c

You are a shareholder in a corporation which has elected subchapter S tax treatment. The corporation announces a profit of $6 per share, of which it retains $1 for reinvestment and distributes the rest as dividend payments. Given that the personal tax rate is 35%, how much tax must you pay per share? A) $0 B) $2.10 C) $1.75 D) $2.52

shareholder of S corporation = 5 × 0.35 = $1.75