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1. Which of the following statements is CORRECT?

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A. Firms in highly competitive industries are more likely to consciously exercise “social responsibility” than are firms in oligopolistic industries.

B. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.

C. A good goal for a firm’s management is the maximization of expected EPS.

D. Most business in the U.S. is conducted by corporations, and corporations’ popularity results primarily from their favorable tax treatment.

E. One example of an agency relationship is the one between stockholders and managers.

2. You are analyzing the value of an investment by calculating the present value of its expected cash flows. Which of the following would cause the investment to look better?

A. The riskiness of the project’s cash flows increases.

B. The discount rate increases.

C. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.

D. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same.

E. The discount rate decreases.

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3. Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?

A. Cheers’ investors will be exposed to less liability, but they will find it more difficult to transfer their ownership.

B. Cheers will find it more difficult to raise additional capital.

C. Cheers will now be subject to fewer regulations.

D. Cheers’ shareholders (the ex-partners) will now be exposed to less liability.

E. Assuming Cheers is profitable, less of its income will be subject to federal income taxes. Get Accounting help Today

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