1. 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? (Points: 5) a. Cheers™ shareholders (the ex-partners) will now be exposed to less liability. b. Cheers will now be subject to fewer regulations. c. Assuming Cheers is profitable, of its income will be subject to federal income taxes. d. Cheers™ investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. e. Cheers will find it more difficult to raise additional capital.
2. Which of the following statements is CORRECT? (Points: 5) a. Corporations generally face fewer regulations than sole proprietor-ships. b. Corporate shareholders are exposed to unlimited liability. c. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.
3. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to _____________. (Points: 5) a. Maximize its expected total corporate income. b. Maximize its expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share over the long run, which is the stock™s intrinsic value. e. Maximize the stock price on a specific target date.
4. Which of the following mechanisms would be most likely to help motivate managers to act in the best interest of shareholders? (Points: 5) a. Decrease the use of restrictive covenants in bond agreements. b. Take actions that reduce the possibility of a hostile takeover. c. Have the board of directors allow managers greater freedom of action. d. Increase the proportion of executive compensation that comes from...
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