Question

True or false

1- If business bankrupt, creditors must paid in full.

2- If business bankrupt, stockholders might not get the full capital back.

3- The main objective of the finance manager to maximize the shareholders wealth.

4- A service is intangible, can only be felt and not touched.

5- Corporations generally receive more favorable tax treatment than sole proprietorships and Partnerships.

Answer 1

1.False

After the company met its bankruptcy costs, firstly it paying off its creditors.

The company first pays off its secured creditors. Secured creditors gave loans based on physical pieces of property.

If the company still has money left over, it starts paying its unsecured creditors. When the company declares bankruptcy, the unsecured creditors have no guaranteed payment.

2.True

The shareholders will get money only after all other debts are paid. Shareholders should only expect to get a fraction of their investment returned.

3.True

The main goal of the financial manager is to maximize the value of the firm to its owners.

4.True

Products are tangible and services are intangible in nature. Intangibility of services is derived from the fact that you cannot see or touch a service.

5.False

Sole proprietorships and partnerships generally receive more favorable tax treatment than corporations.