Exam 2 Questions & Answers

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ALL FI515 Week 5 Exam Answers
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QUESTION 1:
Which of the following statements is CORRECT?

1. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. 2. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. 3. One of the advantages of the corporate form of organization is that it avoids double taxation. 4. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.” 5. Corporations of all types are subject to the corporate income tax. -------------------------------------------------

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QUESTION 2:
Which of the following statements is CORRECT?

1. The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. 2. The statement of cash flows shows where the firm’s cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit. 3. The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital. 4. The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock. 5. The statement of cash flows shows how much the firm’s cash—the total of currency, bank deposits, and short-term liquid securities (or cash equivalents)—increased or decreased during a given year. -------------------------------------------------

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QUESTION 3:
Beranek Corp. has $410,000 of assets, and it uses no debt—it is financed only with common equity. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the...
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