1. Which of the following could explain why a business might choose to organize as a corporation rather than as a sole proprietorship or a partnership?
a. Corporations generally face fewer regulations.
b. Corporations generally face lower taxes.
c. Corporations generally find it easier to raise capital.
d. Corporations enjoy unlimited liability.
e. Statements c and d are correct.
2. Which of the following statements is most correct?
a. Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations.
b. Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate in one of these forms rather than
as a corporation. However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over
proprietorships and partnerships.
c. Due to legal considerations related to ownership transfers and limited liability, most business (measured by dollar sales) is conducted by corporations.
d. Statements a, b, and c are correct.
e. All of the statements are false.
3. Harmeling Enterprises experienced a decline in net operating profit after taxes (NOPAT). Which of the following definitely cannot help explain this decline?
a. Sales revenues decreased.
b. Costs of goods sold increased.
c. Depreciation increased.
d. Interest expense increased.
e. Taxes increased.
4. Which of the following statements is most correct?
a. Cash flows and accounting profit are not at all related since no common elements are used in the calculation of either individual measure.
b. Accounting profits are more important than free cash flow.
c. High inflation can seriously distort firms' balance sheets, and
since inflation also affects depreciation and inventory costs, profits can also be...