If you are a sole owner of a business and wish to avail yourself of the advantag

Question

If you are a sole owner of a business and wish to avail yourself of the advantage of mited liability then you should form a (a) Sole Proprietorship c) General Partnership (d) Limited Liability Partnership 2 The primary goal/duty of management should be to (a) Maximize Net Income always (c) serve the interest of the of the community the business is located (d) maximize income tax liabilty (b) Maximize the wealth of owners 3 Theoretically, the value of a business is the discounted present value of the expected uture free cash flows of the business. (True/False) The Net Worth of a business, as reflected on the Balance Sheet, is an accurate depiction of the company's fair market value. (TruelFalse) 5 One tool to help directly determine the credit worthiness of a potential customer is? (a) Stock Price b) Total Fixed Assets b)Depreciation Expense d) analysis of Liquidity ratios 6GAAP requires that the financial statements of all entities to be subject to an annual full audit, whether they are publicly traded or not? (TruelFalse) 7. The price-to-earnings ratio is what type of ratio? (a) Liquidity ratio b) Profitability ratio (c) market value ratio (d) asset management ratio There is a positive correlation between risk and reward? (TruelFalse)

Explanation / Answer

Option D. Limited Liability Partnership is the correct answer. A sole owner of a business has unlimited liability, however in case of LLP, all the partners have limited liability. LLP incorporates the features of both corporation and partnership.

2. Option C. Maximize weath of the owners is the correct answer. If the business has this objective in mind it will eventually fulfill all other secondary gaols. Maximizzing wealth of the owners means the increase in the market price of the sharesnof the company, which is a result of company continiously performing well.

3. True. The value of the company is the discounted present value of all its future free cash flows. It gives us the value how much the company is works and takes into account a company's potential.

4. False. Net worth of the company is not the accurate dipiction of the compnay's fair value in the market as it takes into account only the book value of the shares whicle calculating the net worth not the actual market share price.

5. Analysis of liquidity ratios help us to deteremine the credit worthiness of the company as it helps to determine if the ccompany have the required amount of liquid assets or not to be able to meets its debt and interest obligations.

6. True. GAAP requires all the companies to have audit whether public or private.

7. Price to earnings ratio is type of market value ratio. As it is calculated as Market price per share divided by earning per share, it takes into account the market price of the share, hence it is market value ratio.

8. False. There is inverse relation between risk and reward. As the risk of any investment increases it return (both negetive and positive) increases and vice versa.

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