It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.

-Which of the following statements is CORRECT?
a-It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.
b-Corporations face fewer regulations than sole proprietorships.
c-One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.
d-One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.
e-If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

2-Which of the following statements is CORRECT?
a-The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets.
b-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.
c-The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital.
d-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.
e-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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3-An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business?
$52,230
$54,979
$57,873
$60,919

4-You want to buy a new sports car three years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the third deposit, three years from now?
$11,973
$12,603
$13,267
$13,930
$14,626

5-You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?
Years: CFs

years0 1 2 3 4
|——–|———–|———-|————|
Fcs 0$ $1,000 $2,000 $2,000 $2,000

$5,987
$6,286
$6,600
$6,930
$7,277