1-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 firms 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 firms cashthe total of currency, bank deposits, and short-term liquid securities (or cash equivalents)increased or decreased during a given year. 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