Chap 01 12e - Concise Complete Chapters Included ✅
Indicate whether the statement is true or false.
1. The Chairman of the Board must also be the CEO.
a. True
b. False
ANSWER: False
2. If a lower-level person in a firm does something illegal, like "cooking the books" to understate costs and thereby
increase profits above the correct profits because they were told to do so by a superior, the lower-level person
cannot be prosecuted, but the superior can be prosecuted.
a. True
b. False
ANSWER: False
3. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a
specific target date.
a. True
b. False
ANSWER: False
4. 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 interests.
a. True
b. False
ANSWER: False
5. Organizing as a corporation makes it easier for the firm to raise capital. 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.
a. True
b. False
ANSWER: True
6. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax. However, its
stockholders will have to pay personal taxes on the firm's net income.
a. True
b. False
ANSWER: True
Page 1
,Name: Class: Date:
Chap 01 12e - Concise
7. The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.
a. True
b. False
ANSWER: True
8. One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes
bankrupt. This problem would be avoided if you formed a corporation to operate the business.
a. True
b. False
ANSWER: True
9. 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.
a. True
b. False
ANSWER: False
10. A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm
and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers
can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken
to make them more difficult to undertake.
a. True
b. False
ANSWER: True
11. It is generally harder to transfer one's ownership interest in a partnership than in a corporation.
a. True
b. False
ANSWER: True
12. The board of directors is the highest-ranking body in a corporation, and the chairman of the board is the highest-
ranking individual. The CEO generally works under the board and its chairman, and the board generally has the
authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but they
can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a
person to simultaneously serve as CEO and chairman of the board, though many corporate control experts
believe it is bad to vest both offices in the same person.
a. True
b. False
ANSWER: True
Page 2
,Name: Class: Date:
Chap 01 12e - Concise
13. Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.
a. True
b. False
ANSWER: True
14. An advantage of the corporate form of organization is that corporations are generally less highly regulated than
proprietorships and partnerships.
a. True
b. False
ANSWER: False
15. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
ANSWER: True
16. The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its
price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor"
who determines the actual stock price.
a. True
b. False
ANSWER: True
17. 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 focus is on the firm's long-term value.
a. True
b. False
ANSWER: True
18. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive
legal documents are required.
a. True
b. False
ANSWER: False
19. If management operates in a manner designed to maximize the firm's expected profits for the current year, this
will also maximize the stockholders' wealth as of the current year.
a. True
b. False
ANSWER: False
Page 3
, Name: Class: Date:
Chap 01 12e - Concise
20. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in
the long run, or the stock's "intrinsic value."
a. True
b. False
ANSWER: True
21. If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise
above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud
can be prosecuted, and the firm itself can be penalized.
a. True
b. False
ANSWER: True
22. 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.
a. True
b. False
ANSWER: False
23. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all federal
taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.
a. True
b. False
ANSWER: False
24. As a result of financial scandals occurring during the past decade, there has been a strong push to improve
business ethics.
a. True
b. False
ANSWER: True
25. For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.
a. True
b. False
ANSWER: False
26. If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.
a. True
b. False
ANSWER: False
Page 4
Indicate whether the statement is true or false.
1. The Chairman of the Board must also be the CEO.
a. True
b. False
ANSWER: False
2. If a lower-level person in a firm does something illegal, like "cooking the books" to understate costs and thereby
increase profits above the correct profits because they were told to do so by a superior, the lower-level person
cannot be prosecuted, but the superior can be prosecuted.
a. True
b. False
ANSWER: False
3. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a
specific target date.
a. True
b. False
ANSWER: False
4. 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 interests.
a. True
b. False
ANSWER: False
5. Organizing as a corporation makes it easier for the firm to raise capital. 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.
a. True
b. False
ANSWER: True
6. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax. However, its
stockholders will have to pay personal taxes on the firm's net income.
a. True
b. False
ANSWER: True
Page 1
,Name: Class: Date:
Chap 01 12e - Concise
7. The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.
a. True
b. False
ANSWER: True
8. One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes
bankrupt. This problem would be avoided if you formed a corporation to operate the business.
a. True
b. False
ANSWER: True
9. 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.
a. True
b. False
ANSWER: False
10. A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm
and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers
can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken
to make them more difficult to undertake.
a. True
b. False
ANSWER: True
11. It is generally harder to transfer one's ownership interest in a partnership than in a corporation.
a. True
b. False
ANSWER: True
12. The board of directors is the highest-ranking body in a corporation, and the chairman of the board is the highest-
ranking individual. The CEO generally works under the board and its chairman, and the board generally has the
authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but they
can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a
person to simultaneously serve as CEO and chairman of the board, though many corporate control experts
believe it is bad to vest both offices in the same person.
a. True
b. False
ANSWER: True
Page 2
,Name: Class: Date:
Chap 01 12e - Concise
13. Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.
a. True
b. False
ANSWER: True
14. An advantage of the corporate form of organization is that corporations are generally less highly regulated than
proprietorships and partnerships.
a. True
b. False
ANSWER: False
15. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
ANSWER: True
16. The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its
price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor"
who determines the actual stock price.
a. True
b. False
ANSWER: True
17. 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 focus is on the firm's long-term value.
a. True
b. False
ANSWER: True
18. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive
legal documents are required.
a. True
b. False
ANSWER: False
19. If management operates in a manner designed to maximize the firm's expected profits for the current year, this
will also maximize the stockholders' wealth as of the current year.
a. True
b. False
ANSWER: False
Page 3
, Name: Class: Date:
Chap 01 12e - Concise
20. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in
the long run, or the stock's "intrinsic value."
a. True
b. False
ANSWER: True
21. If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise
above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud
can be prosecuted, and the firm itself can be penalized.
a. True
b. False
ANSWER: True
22. 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.
a. True
b. False
ANSWER: False
23. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all federal
taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.
a. True
b. False
ANSWER: False
24. As a result of financial scandals occurring during the past decade, there has been a strong push to improve
business ethics.
a. True
b. False
ANSWER: True
25. For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.
a. True
b. False
ANSWER: False
26. If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.
a. True
b. False
ANSWER: False
Page 4
