Chapter 1 - Financial Management

A sole proprietorship is a business owned by one person or more and operated for their profit.

• True

• False

The major advantage of a regular partnership or a corporation as a form of business organisation is the fact that both offer their owners limited liability, whereas proprietorship do not.

• True

• False

Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.

• True

• False

The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business.

• True

• False

When an existing public corporation issues new stocks this process is called initial public offering.

• True

• False

Agency problem arises when managers deviate from the goal of maximization of shareholder wealth by placing their personal goals ahead of the goals of shareholders.

• True

• False

The primary goal of corporate management is profit maximization.

• True

• False

All of the following are skills that managers acquire through corporate finance except

• evaluate potential projects.

• select corporate strategies that add value to the firm.

• raise money to fund the firm’s operations.

• reduce operating costs.

Which of the following is a duty of a financial manager in a business firm?

• developing marketing plans.

• controlling the stock price.

• raising financial resources.

• auditing financial records.

Which of the following statements is CORRECT?

• One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.

• It is generally easier to transfer one’s ownership interest in a partnership than in a corporation.

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

• All statements are incorrect.