BUS 330 Exam 1__Solution

MIDTERM EXAM 1

Name: ___________________________________ ID _________

Version 1 Solution Guide

INSTRUCTIONS:

1.             You have 75 minutes to complete the exam.

2.             The exam is worth a total of 100 points.

3.             You may use a calculator and scratch paper sheets. You must hand in the sheets with your exam (put your name on it).

4.             Allocate your time wisely. Use the number of points assigned to each problem as your guide.

5.             In order to get full credit on the problems, you must show ALL your work!

6.              You can get partial credits if you show your calculations or provide arguments to support your answer.

7.             No credits will be warded if you fail to state your assumptions or conclusions explicitly.

Part A: Multiple choice questions (16 points in total):

1.      Which of the following statements is CORRECT?

1. One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.

1. Sole proprietorships are subject to more regulations than corporations.

1. In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner.

1. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.

1. Corporations of all types are subject to the corporate income tax.

Answer: D

2.      Which of the following statements is CORRECT?

a.   The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

b.   If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.

c.   The cash flows for an annuity due must all occur at the ends of the periods.

d.   The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

e.   If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a ‘variable’ annuity.

Answer: D