No.

:
FACULTY OF BUSINESS ADMINISTRATION
TT/P.KT&KĐCL/11/BM01
PROCESS EXERCISE - SEMESTER: 1
Time of issue: 01
ACADEMIC YEAR: 2024 – 2025
Effective Date: 07/01/2019

Course: Advanced Financial Management

Code: BA701250
Duration: 45 minutes
The students are not allowed to use materials.
Name of student: ………………….………………; Student ID.:.……………No.:….…
PART I: True/False and Explanation (5 points)
1. The form of organization for a business is not an important issue, as this decision has very little effect on
the income and wealth of the firm's owners.
2. The major advantage of a regular partnership or a corporation as a form of business organization is the
fact that both offer their owners limited liability.
3. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of
the organization, and (3) difficulty of transferring ownership. These combine to make it difficult for
partnerships to attract large amounts of capital and thus to grow to a very large size.
4. Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the
owner's unlimited personal liability for the business' debts.
5. One key value of limited liability is that it lowers owners' risks.
6. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued
by other firms or individuals, Firm A is a financial intermediary.
7. If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary
market transaction.
8. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price
of $21 per share. Hale sold the stock to an investment banker. This is a primary market transaction.
9. One of the functions of Vietnam Exchange and its subsidiaries (the Hanoi Stock Exchange and the Ho
Chi Minh Stock Exchange) is to perform the function of organizing the securities market in Vietnam and
operate under the management and supervision of the State Securities Commission (SSC).
10. Firms must take any responsibilities to society at large

PART II: Multiple choices (5 points)

1. Which of the following statements is CORRECT?
a. One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in
the event the firm goes bankrupt.
b. Sole proprietorships are subject to more regulations than corporations.
c. In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other
partner.
d. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large
ones.

2. Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into
a regular corporation. Which of the following statements is CORRECT?
a. Assuming Cheers is profitable, less of its income will be subject to national income taxes.
b Cheers will now be subject to fewer regulations.
.
c. Cheers' shareholders (the ex-partners) will now be exposed to less liability.
d Cheers' investors will be exposed to less liability, but they will find it more difficult to
. transfer their ownership.

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 e. Cheers will find it more difficult to raise additional capital.
3. Which of the following could explain why a business might choose to operate as a corporation
rather than as a sole proprietorship or a partnership?
a. Corporations generally find it relatively difficult to raise large amounts of capital.
b. Corporate shareholders escape liability for the firm's debts, but this factor may be
offset by the tax disadvantages of the corporate form of organization.
c. Corporate investors are exposed to unlimited liability.
d. Corporations generally face relatively few regulations.
4. You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family
reunion. At the reunion your brother gave you a check for the stock and you gave your brother the
stock certificates. Which of the following statements best describes this transaction?
a. This is an example of an exchange of physical assets.
b. This is an example of a primary market transaction.
c. This is an example of a direct transfer of capital.
d. This is an example of a money market transaction.
e. This is an example of a derivatives market transaction
5. Which of the following statements is CORRECT?
a. If Apple issues additional shares of common stock through an investment banker, this would be a secondary
market transaction.
b. If you purchased 100 shares of Apple stock from your brother, this would be an example of a primary market
transaction.
c. The IPO market is a subset of the secondary market.
d. Only institutions, and not individuals, can participate in derivatives market transactions.
e. As they are generally defined, money market transactions involve debt securities with maturities of less than
one year.
6. Which of the following statements is CORRECT?
a. A security whose value is derived from the price of some other "underlying" asset is called a liquid
security.
b. Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid
common stocks.
c. Money markets are markets for common stocks and long-term debt.
d. The HOSE is for listed public company, whereas the UPCOM is for unlisted public company.
7. Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting
a new business in the chemical waste management field. She will be the sole owner, and she has
enough funds to finance the operation. The business will have a relatively high degree of risk, and it is
expected that the firm will incur losses for the first few years. However, the prospects for growth and
positive future income look good, and Jane plans to have the firm pay out all of its income as
dividends to her once it is well established. Which of the legal forms of business organization would
probably best suit her needs?
a. Proprietorship, because of ease of entry.
b. S corporation, to gain some tax advantages and also to obtain limited liability.
c. Partnership, but only if she needs additional capital.
d. Regular corporation, because of the limited liability.
e. In this situation, the various forms of organization seem equally desirable.
8. The primary operating goal of a publicly-owned firm interested in serving its stockholders should
be to
a. Maximize the stock price per share over the long run, which is the stock's intrinsic
value.
b. Maximize the firm's expected EPS.
c. Minimize the chances of losses.
d. Maximize the firm's expected total income.
e. Maximize the stock price on a specific target date.
9. 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.
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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.
10. Which of the following statements is CORRECT?
a. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole
proprietorship.
b. Corporate shareholders are exposed to unlimited liability.
c. Corporations generally face fewer regulations than sole proprietorships.
d. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax
disadvantages of incorporation.

-End-

TRUE/FALSE ANSWER SHEET

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MULTIPLE CHOICE ANSWER SHEET

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