Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Exam Dumps

Correct Answer: C

Choice "c" is correct. Either entity's shareholders may contribute property to the corporations without being

taxed and may contribute such property as an exchange for stock as appraised by the directors. Choice "a"

is incorrect. An S corporation may not have more than 100 shareholders, although a C corporation may

have as many shareholders as desired.

Choice "b" is incorrect. Only the C corporation is subject to the double taxation disadvantage.

Choice "d" is incorrect. Only an S corporation is prohibited from having foreign country shareholders.

Correct Answer: D

Choice "d" is correct. The three elements needed to estimate the cost of equity capital are:

1.

Current dividends per share (D)

2.

Expected growth rate in dividends (g) and

3.

Current market price per share of common stock (P)

The question asks the candidate to identify the three elements needed to estimate the cost of equity capital for use in determining a firm's weighted average cost of capital. The cost of equity capital is defined by the following mathematical expression where the cost of capital or return (R) is: R = D/P + g Choice "d" is consistent with our text, the and the Gordon Growth Model. Use of earnings per share, as suggested by choice "a" is sometimes referred to as the constant growth model and assumes that all earnings per share are either ultimately distributed or reinvested for the benefit of the shareholder. Earnings are anticipated to grow to infinity.

Correct Answer: D

Choice "d" is correct. Shareholders' equity is the ROI denominator that has been criticized because it

combines the effects of operating decisions made at another organization level.

Choices "a", "b", and "c" are incorrect, per the above Explanation.