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True/False Quiz

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Chapter 2:   The Business, Tax, and Financial Environments

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1. In a sole proprietorship, the owner is personally responsible for only the first $335,000 of the company's debt.

2. In a general partnership, each partner is personally responsible for only the first $335,000 of the company's liabilities.

3. A corporation is a "legal person" that can be sued.

4. A security is an instrument that represents a financial liability to the holder and a financial asset to the issuer.

5. The role of financial markets is to bring savers and users of funds together at the least possible cost and inconvenience.

6. The "new issues market" -- where first-time security issues are offered for sale -- is called the secondary market.

7. The depreciable life of an asset for tax purposes is determined by the years the owner expects to use it.

8. Under current tax law, corporations with taxable income between $335,000 and $10,000,000 pay an effective tax rate of 34% on all of their taxable income.

9. Equity financing has a tax advantage since dividends paid out to shareholders reduce a firm's taxable income.

10. Inflation expectations affect interest rates.

11. For tax purposes in the US, corporations must use straight-line depreciation.

12. Under MACRS depreciation, an estimated salvage value for an asset being depreciated must first be subtracted from the asset's cost in order to determine the asset's depreciable basis for tax purposes.

The following item is NEW to the 13th edition.

13. The US federal tax "additional first-year 50% bonus depreciation provision" contained in the US Economic Stimulus Act (ESA) of 2008 is supposed to be a "permanent" change.

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