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Chapter 2: The Business, Tax, and Financial Environments

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1. Which of the following enjoys limited liability?

A general partnership.

A corporation.

A sole proprietorship.

None of the above.

2. Michael Cohn is a "member" (a type of owner) of a marine supply business. Michael's business is

a sole proprietorship.

a corporation.

a limited liability company.

a general partnership.

3. The Counting House, Inc., purchased 5-year property class equipment for $60,000. It uses the MACRS method of depreciation. What is tax depreciation for the second year of the asset's life?

$12,000

$19,200

$20,000

$24,000

4. A corporation in which you are a shareholder has just gone bankrupt. Its liabilities are far in excess of its assets. You will be called on to pay:

a proportionate share of bondholder claims based on the number of common shares
that you own.

a proportional share of all creditor claims based on the number of common shares
that you own.

an amount that could, at most, equal what you originally paid for the shares of
common stock in the corporation.

nothing.

5. A 30-year bond issued by Gary's Plaid Pants Warehouse, Inc., in 1997 would now trade in the

primary money market.

secondary money market.

primary capital market.

secondary capital market.

6. A major advantage of the corporate form of organization is:

reduction of double taxation.

limited owner liability.

legal restrictions.

ease of organization.

7. Money market mutual funds

enable individuals and small businesses to invest indirectly in money-market instruments.

are available only to high net-worth individuals.

are involved in acquiring and placing mortgages.

are also known as finance companies.

8. The purpose of financial markets is to:

increase the price of common stocks.

lower the yield on bonds.

allocate savings efficiently.

control inflation.

9. Which of the following is NOT an example of a financial intermediary?

International Business Machines, Inc. (IBM).

Vanguard Mutual Fund.

El Dorado Savings and Loan Association.

Bank of America.

10. How are funds allocated efficiently in a market economy?

The most powerful economic unit receives the funds.

The economic unit that is willing to pay the highest expected return
receives the funds.

the economic unit that considers itself most in need of funds
receives them.

Receipt of the funds is rotated so that each economic unit can receive
them in turn.

11. Assume that a "temporary" additional (US federal tax related) first-year bonus depreciation of 50 percent applies to a new, $100,000 piece of equipment purchased by Bellemans Chocolatier, Inc. The asset has a $10,000 estimated final salvage value. If this asset is fully depreciated for tax purposes over its useful life, the overall amount that Bellemans will have depreciated for tax purposes is .

$90,000

$100,000

$135,000

$150,000

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