TEST BANK FOR
m m
CorporatemFinance,mCanadianmEdition,m5thmeditionmBerkm
Chapterm1-31
Chapterm1m m ThemCorporation
1.1 ThemThreemTypesmof mFirms
1) A msolemproprietorshipmismowned mby:
A) onemperson
B) twomormmorempeople
C) shareholders
D) bankers
mAnswer:m
A
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
2) InmCanada,mwhichmof mthemfollowingmorganizationmformsmaccountsmformthemgreatest mnumberm
of mfirms?
A) Limited mLiabilitymPartnership
B) Limited mPartnership
C) SolemProprietorship
D) PubliclymTraded mCorporatio
nmAnswer:m C
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
3) Whichmof mthemfollowingmorganizationmformsmearnsmthemmost mrevenue?
A) PrivatelymOwned mCorporation
B) Limited mPartnership
C) PubliclymOwned mCorporation
D) Limited mLiabilitymCompan
ymAnswer:m C
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
4) Whichmof mthemfollowingmismNOTmanmadvantagemof mamsolemproprietorship?
A) Singlemtaxation
B) Easemof msetup
C) Limited mliability
D) Nomseparationmof mownershipmand mcontro
lmAnswer:m C
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
1
©m2022 mPearson mCanadamInc
.
,5) Whichmof mthemfollowingmstatementsmregardingmlimited mpartnershipsmismTRUE?
A) Theremismnomlimit monmamlimited mpartner'smliability.
B) A mlimited mpartner'smliabilitymismlimited mbymthemamount mof mhisminvestment.
C) A mlimited mpartnermismnot mliablemuntilmallmof mthemassetsmof mthemgeneralmpartnersmhavemb
eenmexhausted.
D) A mgeneralmpartner'smliabilitymismlimited mbymthemamount mof mhisminvestme
nt.mAnswer:m B
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
6) Whichmof mthemfollowingmis/aremanmadvantage(s)mof mincorporation?
A) Accessmtomcapitalmmarkets
B) Limited mliability
C) Unlimited mlife
D) Allmof mthemabov
emAnswer:m D
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
7) InmCanada,mamlimited mliabilitympartnership,mLLP,mismessentially:
A) amlimited mpartnershipmwithout mlimited mpartners
B) amlimited mpartnershipmwithout mamgeneralmpartner
C) just manothermnamemformamlimited mpartnership
D) just manothermnamemformamcorporatio
nmAnswer:m B
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
8) InmCanada,mwhichmof mthemfollowingmbusinessmorganizationmformsmcannot mavoid mdoublemtaxation?
A) Limited mPartnership
B) PubliclymTraded mCorporation
C) PrivatelymOwned mCorporation
D) Limited mLiabilitymCompan
ymAnswer:m B
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
9) InmCanada,mthemdividend mtaxmcredit mgivesmsomemrelief mby:
A) effectivelymgivingmamlowermtaxmratemonmdividend mincomemthanmonmothermsourcesmof mincome
B) effectivelymgivingmamhighermtaxmratemonmdividend mincomemthanmonmothermsourcesmof mincome
C) effectivelymgivingmthemsamemtaxmratemonmdividend mincomemasmonmothermsourcesmof mincome
D) effectivelymgivingmamtaxmratemof mzeromonmdividend mincomemcompared mtomothermsourcesmof minco
memAnswer:m A
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
2
©m2022 mPearson mCanadamInc
.
,10) Whichmof mthemfollowingmstatementsmismmost mcorrect?
A) Anmadvantagemtomincorporationmismthat mit mallowsmformlessmregulationmof mthembusiness.
B) Anmadvantagemof mamcorporationmismthat mit mismsubject mtomdoublemtaxation.
C) Unlikemampartnership,mamdisadvantagemof mamcorporationmismthat mit mhasmlimited mliability.
D) Corporationsmfacemmoremregulationsmwhenmcompared mtompartnership
s.mAnswer:m D
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
11) InmCanada,mthemdistinguishingmfeaturemof mamcorporationmismthat:
A) theremismnomlegalmdifferencembetweenmthemcorporationmand mitsmowners
B) it mismamlegallymdefined,martificialmbeing,mseparatemfrommitsmowners
C) it mspreadsmliabilitymformitsmcorporatemobligationsmtomallmshareholders
D) it mprovidesmlimited mliabilitymonlymtomsmallmshareholder
smAnswer:m B
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
12) Whichmof mthemfollowingmis/aremsubject mtomdoublemtaxationminmCanada?
A) Corporation
B) Partnership
C) Solemproprietorship
D) BothmAmand m
BmAnswer:m A
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
13) CanadamRevenuemAgency,mCRA,mallowsmanmexemptionmfrommdoublemtaxationmformcertainmflo
wmthroughmentitiesmwheremall mincomemproduced mbymthembusinessmflowsmtomtheminvestorsmand mvirt
uallymnomearningsmaremretained mwithinmthembusiness.mThesementitiesmaremcalled:
A) CanadianmFederalmCrownmCorporations
B) CanadianmControlled mCorporations
C) IncomemTrust mCorporations
D) ForeignmControlled mCorporation
smAnswer:m C
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
3
©m2022 mPearson mCanadamInc
.
, 14) Inm2006,mthemCanadianmgovernment meffectivelymneutralized mthemtaxmadvantagesmthat mhad mexist
ed mformmost mincomemtrusts,mrelativemtomfirmsmset mupmasmcorporations.mThem advantagesmthat mexisted
mformincomemtrustsmpriormtomthesemchangesmweremthat:
A) incomemtrustsmavoided mdoublemtaxationminmthat mthemCanadamRevenuemAgencymdid mnot mcoll
ect mcorporatemtaxesmbut mrathermcollected monlympersonalmtaxesmfrommincomemtrust munit mholders
B) incomemtrustsmeffectivelymafforded munlimited mliabilitymtomunit mholdersmwhilemcorpora
temshareholdersmcould mfacemunlimited mliability
C) whilemdoublemtaxationmexisted mformbothmincomemtrustsmand mcorporations,mthemnet mtaxmpaid m
bymincomemtrust munit mholdersmwasminmmost mcasesmlessmthanmthat mpaid mbymcorporatemsharehold
ers
D) themchangesmintroduced minm2006meliminated mdoublemtaxationmformcorporations,mtherebymmaki
ngmthemtaxationmof mincomemtrustsmand mcorporationsmsubstantiallymequivalent
Answer:m A
Explanation:m Them2006mchangesmimposed mnew mtaxesmonmmost mincomemtrustsmtommirrormthemtotalmt
axmrevenuemreceived mfrommcorporations.m Asmamresult mwithmnommaterialmtaxmadvantage,mthesemfirm
smreverted mfrommincomemtrustsmbackmtomamcorporatemstructure.m ThemexceptionmwasmRealmEstatemIn
vestment mTrustsm(REIT)mwhichmaremexempted mfrommthemchangesmimposed monmallmothermtrusts.
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
15) Onemof mthemmajormcharacteristicsmof mamlimited mliabilitympartnership,mLLP,minmCanadamis:
A) themlimitationmonmampartner'smliabilitymismonlyminmcasesm related mtomactionsmof mnegligencembymot
hermpartnersmormthosemsupervised mbymothermpartners
B) anympartnermwillmnot mbemliablemformhismormhermnegligencemat manymtime
C) anympartnersmwillmbemonlymliablemformothermpartners'mnegligence
D) nonemof mthemabov
emAnswer:m A
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
16) Youmownm100msharesmof mampubliclymtraded mCanadianmCorporation.mThemcorporationmearnsm$5.
00mpermsharembeforemtaxes.mOncemthemcorporationmhasmpaid manymcorporatemtaxesmthat maremdue,mit mw
illmdistributemthemrest mof mitsmearningsmtomitsmshareholdersminmthemformmof mamdividend.mIf mthemcorpor
atemtaxmratemism40%mand myourmpersonalmtaxmratemonm(bothmdividend mand mnon-
dividend)mincomemism30%,mthenmhowmmuchmmoneymismleft mformyoumaftermallmtaxesmhavembeenmpaid
?
A) $210
B) $300
C) $350
D) $500
Answer:m A
Explanation:m EPSm×mnumbermof msharesm×m(1m-mCorporatemTaxmRate)m×m(1m- mIndividualmTaxmRate)
$5.00mpermsharem×m100msharesm×m(1m-m.40)m×m(1m-
m.30)m=m$210mDiff:m3 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
4
©m2022 mPearson mCanadamInc
.
m m
CorporatemFinance,mCanadianmEdition,m5thmeditionmBerkm
Chapterm1-31
Chapterm1m m ThemCorporation
1.1 ThemThreemTypesmof mFirms
1) A msolemproprietorshipmismowned mby:
A) onemperson
B) twomormmorempeople
C) shareholders
D) bankers
mAnswer:m
A
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
2) InmCanada,mwhichmof mthemfollowingmorganizationmformsmaccountsmformthemgreatest mnumberm
of mfirms?
A) Limited mLiabilitymPartnership
B) Limited mPartnership
C) SolemProprietorship
D) PubliclymTraded mCorporatio
nmAnswer:m C
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
3) Whichmof mthemfollowingmorganizationmformsmearnsmthemmost mrevenue?
A) PrivatelymOwned mCorporation
B) Limited mPartnership
C) PubliclymOwned mCorporation
D) Limited mLiabilitymCompan
ymAnswer:m C
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
4) Whichmof mthemfollowingmismNOTmanmadvantagemof mamsolemproprietorship?
A) Singlemtaxation
B) Easemof msetup
C) Limited mliability
D) Nomseparationmof mownershipmand mcontro
lmAnswer:m C
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
1
©m2022 mPearson mCanadamInc
.
,5) Whichmof mthemfollowingmstatementsmregardingmlimited mpartnershipsmismTRUE?
A) Theremismnomlimit monmamlimited mpartner'smliability.
B) A mlimited mpartner'smliabilitymismlimited mbymthemamount mof mhisminvestment.
C) A mlimited mpartnermismnot mliablemuntilmallmof mthemassetsmof mthemgeneralmpartnersmhavemb
eenmexhausted.
D) A mgeneralmpartner'smliabilitymismlimited mbymthemamount mof mhisminvestme
nt.mAnswer:m B
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
6) Whichmof mthemfollowingmis/aremanmadvantage(s)mof mincorporation?
A) Accessmtomcapitalmmarkets
B) Limited mliability
C) Unlimited mlife
D) Allmof mthemabov
emAnswer:m D
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
7) InmCanada,mamlimited mliabilitympartnership,mLLP,mismessentially:
A) amlimited mpartnershipmwithout mlimited mpartners
B) amlimited mpartnershipmwithout mamgeneralmpartner
C) just manothermnamemformamlimited mpartnership
D) just manothermnamemformamcorporatio
nmAnswer:m B
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
8) InmCanada,mwhichmof mthemfollowingmbusinessmorganizationmformsmcannot mavoid mdoublemtaxation?
A) Limited mPartnership
B) PubliclymTraded mCorporation
C) PrivatelymOwned mCorporation
D) Limited mLiabilitymCompan
ymAnswer:m B
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
9) InmCanada,mthemdividend mtaxmcredit mgivesmsomemrelief mby:
A) effectivelymgivingmamlowermtaxmratemonmdividend mincomemthanmonmothermsourcesmof mincome
B) effectivelymgivingmamhighermtaxmratemonmdividend mincomemthanmonmothermsourcesmof mincome
C) effectivelymgivingmthemsamemtaxmratemonmdividend mincomemasmonmothermsourcesmof mincome
D) effectivelymgivingmamtaxmratemof mzeromonmdividend mincomemcompared mtomothermsourcesmof minco
memAnswer:m A
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
2
©m2022 mPearson mCanadamInc
.
,10) Whichmof mthemfollowingmstatementsmismmost mcorrect?
A) Anmadvantagemtomincorporationmismthat mit mallowsmformlessmregulationmof mthembusiness.
B) Anmadvantagemof mamcorporationmismthat mit mismsubject mtomdoublemtaxation.
C) Unlikemampartnership,mamdisadvantagemof mamcorporationmismthat mit mhasmlimited mliability.
D) Corporationsmfacemmoremregulationsmwhenmcompared mtompartnership
s.mAnswer:m D
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
11) InmCanada,mthemdistinguishingmfeaturemof mamcorporationmismthat:
A) theremismnomlegalmdifferencembetweenmthemcorporationmand mitsmowners
B) it mismamlegallymdefined,martificialmbeing,mseparatemfrommitsmowners
C) it mspreadsmliabilitymformitsmcorporatemobligationsmtomallmshareholders
D) it mprovidesmlimited mliabilitymonlymtomsmallmshareholder
smAnswer:m B
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
12) Whichmof mthemfollowingmis/aremsubject mtomdoublemtaxationminmCanada?
A) Corporation
B) Partnership
C) Solemproprietorship
D) BothmAmand m
BmAnswer:m A
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
13) CanadamRevenuemAgency,mCRA,mallowsmanmexemptionmfrommdoublemtaxationmformcertainmflo
wmthroughmentitiesmwheremall mincomemproduced mbymthembusinessmflowsmtomtheminvestorsmand mvirt
uallymnomearningsmaremretained mwithinmthembusiness.mThesementitiesmaremcalled:
A) CanadianmFederalmCrownmCorporations
B) CanadianmControlled mCorporations
C) IncomemTrust mCorporations
D) ForeignmControlled mCorporation
smAnswer:m C
Diff:m1 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
3
©m2022 mPearson mCanadamInc
.
, 14) Inm2006,mthemCanadianmgovernment meffectivelymneutralized mthemtaxmadvantagesmthat mhad mexist
ed mformmost mincomemtrusts,mrelativemtomfirmsmset mupmasmcorporations.mThem advantagesmthat mexisted
mformincomemtrustsmpriormtomthesemchangesmweremthat:
A) incomemtrustsmavoided mdoublemtaxationminmthat mthemCanadamRevenuemAgencymdid mnot mcoll
ect mcorporatemtaxesmbut mrathermcollected monlympersonalmtaxesmfrommincomemtrust munit mholders
B) incomemtrustsmeffectivelymafforded munlimited mliabilitymtomunit mholdersmwhilemcorpora
temshareholdersmcould mfacemunlimited mliability
C) whilemdoublemtaxationmexisted mformbothmincomemtrustsmand mcorporations,mthemnet mtaxmpaid m
bymincomemtrust munit mholdersmwasminmmost mcasesmlessmthanmthat mpaid mbymcorporatemsharehold
ers
D) themchangesmintroduced minm2006meliminated mdoublemtaxationmformcorporations,mtherebymmaki
ngmthemtaxationmof mincomemtrustsmand mcorporationsmsubstantiallymequivalent
Answer:m A
Explanation:m Them2006mchangesmimposed mnew mtaxesmonmmost mincomemtrustsmtommirrormthemtotalmt
axmrevenuemreceived mfrommcorporations.m Asmamresult mwithmnommaterialmtaxmadvantage,mthesemfirm
smreverted mfrommincomemtrustsmbackmtomamcorporatemstructure.m ThemexceptionmwasmRealmEstatemIn
vestment mTrustsm(REIT)mwhichmaremexempted mfrommthemchangesmimposed monmallmothermtrusts.
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
15) Onemof mthemmajormcharacteristicsmof mamlimited mliabilitympartnership,mLLP,minmCanadamis:
A) themlimitationmonmampartner'smliabilitymismonlyminmcasesm related mtomactionsmof mnegligencembymot
hermpartnersmormthosemsupervised mbymothermpartners
B) anympartnermwillmnot mbemliablemformhismormhermnegligencemat manymtime
C) anympartnersmwillmbemonlymliablemformothermpartners'mnegligence
D) nonemof mthemabov
emAnswer:m A
Diff:m2 Type:mMC
Topic:m 1.1m ThemThreemTypesmof mFirms
16) Youmownm100msharesmof mampubliclymtraded mCanadianmCorporation.mThemcorporationmearnsm$5.
00mpermsharembeforemtaxes.mOncemthemcorporationmhasmpaid manymcorporatemtaxesmthat maremdue,mit mw
illmdistributemthemrest mof mitsmearningsmtomitsmshareholdersminmthemformmof mamdividend.mIf mthemcorpor
atemtaxmratemism40%mand myourmpersonalmtaxmratemonm(bothmdividend mand mnon-
dividend)mincomemism30%,mthenmhowmmuchmmoneymismleft mformyoumaftermallmtaxesmhavembeenmpaid
?
A) $210
B) $300
C) $350
D) $500
Answer:m A
Explanation:m EPSm×mnumbermof msharesm×m(1m-mCorporatemTaxmRate)m×m(1m- mIndividualmTaxmRate)
$5.00mpermsharem×m100msharesm×m(1m-m.40)m×m(1m-
m.30)m=m$210mDiff:m3 Type:mMC
Topic:m 1.1m ThemThreemTypes mof mFirms
4
©m2022 mPearson mCanadamInc
.
