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Which of the following statements is CORRECT? | a. | Corporations of all types are subject to the corporate income tax. | | b. | 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." | | c. | One of the advantages of the corporate form of organization is that it avoids double taxation. | | d. | One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. | | e. | It is easier to transfer one's ownership interest in a partnership than in a corporation. |
Question 2
Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT? | a. | Relaxant's shareholders (the ex-partners) will now be exposed to less liability. | | b. | The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. | | c. | The firm will find it more difficult to raise additional capital to support its growth. | | d. | The company will probably be subject to fewer regulations and required disclosures. | | e. | Assuming the firm is profitable, none of its income will be subject to federal income taxes. |
Question 3 Which of the following statements is CORRECT? | a. | Conflicts would not exist if the Security and Exchange Commission were abolished. | | b. | The threat of takeovers reduces conflict of interest problems, but only between bondholders and stockholders. | | c. | Compensating managers with stock options can do nothing to help eliminate potential conflicts between stockholders and managers. | | d. | Compensating managers with stock options can help reduce conflicts of interest between stockholders and managers, but if the options are