University of West GeorgiaFINC 6532Ch 01 An Overview of Financial Management and the Financial Environment

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Ch 01 An Overview of Financial Management and the Financial Environment TRUEFALSE 1. The form of organization for a business is not an important issue, as this decision has very little effect on t... he income and wealth of the firm's owners. (A) True (B) False Answer : (B) 2. The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not. (A) True (B) False Answer : (B) 3. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size. (A) True (B) False Answer : (A) 4. 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. (A) True (B) False Answer : (A) 5. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value. (A) True (B) FalseAnswer : (A) 6. The disadvantages associated with a proprietorship are similar to those under a partnership. One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets. As a result, partnerships do not have difficulty raising large amounts of capital. [Show More]

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