Midterm Exam Business Valuation and Stock Valuation Essay Example for Free

Midterm Exam Business military rating and Stock Valuation EssayIt is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are mandatory. (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 commonly exposed to less liability than in a regular partnership.If a regular partnership goes bankrupt, individually partner is exposed to liabilities only up to the amount of his or her investment in the business. (2) (TCO G) A security measures analyst obtained the following information from Prestopino Products financial statements Retained earnings at the end of 2009 were $700,000, but maintained earnings at the end of 2010 had declined to $320,000. The company does n ot pay dividends. The companys depreciation cost is its only non-cash expense it has no amortization charges. The company has no non-cash revenues.The companys net cash flow (NCF) for 2010 was $150,000. On the basis of this information, which of the following statements is CORRECT? (Points 10) (a) Prestopino had negative net income in 2010. ( b ) Prestopinos depreciation expense in 2010 was less than $150,000. (c) Prestopino had positive net income in 2010, but its income was less than its 2009 income. (d) Prestopinos NCF in 2010 must be higher than its NCF in 2009. (e) Prestopinos cash on the balance pall at the end of 2010 must be lower than the cash it had on the balance sheet at the end of 2009.Which of the following is most likely to occur? (Points 10) (a) The required rate of return for an average communication channel will summation by an amount equal to the increase in the market risk premium. (b) The required rate of return will decline for stocks whose betas are le ss than 1. 0. (c) The required rate of return on the market, rM, will not change as a result of these changes. (d) The required rate of return for all(prenominal) individual stock in the market will increase by an amount equal to the increase in the market risk premium. (e) The required rate of return on a riskless stay will decline.