Quiz 1

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.

FALSE

There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to provide it to stockholders because they are the owners of the firm, not outsiders.

False

One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership.

False It is easy to transfer ownership in a corporation.

If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose goal is to maximize the stock's intrinsic value rather than the stock's current market price.

TRUE

In most corporations, the CFO ranks under the CEO .

TRUE

Partnerships and proprietorships generally have a tax advantage over corporations.

True

One advantage of the corporate form of organization is that it avoids double taxation.

FALSE Corporate get double tax

If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.

FALSE If the stock market price is above it intrinsic value. Intrinsic value is the real value of a particular stock

An advantage of the corporate form of organization is that corporations are generally less highly regulated than proprietorships and partnerships.

False Corporation is more regulated

Organizing as a corporation makes it easier for the firm to raise capital.

TRUE This is because corporations' stockholders are not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than partnership interests. TRUE