Question 1 (7 marks) Write 'TRUE' if the statement is true and 'FALSE' if the statement is false: 1. The best form of business entity to attract new capital is the sole proprietorship because investors only need to deal with one owner. T 2. Limited liability companies are more flexible than S-type Corporations because limited liability companies operate under state laws. T 3. Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions. - 4. Shareholder wealth maximization means maximizing the price of the existing common stock. T 5. If two companies have the same net income and the same level of risk, they must also have the same stock price or the market is not in equilibrium. T 6. Beginning in 2007 the United States experienced its most severe financial crisis since the Great Depression of the 1930s. 7. Shareholders react to poor investment or dividend decisions by causing the total value of the firm's stock to fall, and they react to good decisions by bidding the price of the stock up. T 8. The corporation is a legal entity separate from its owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders. 9. Due to unstable world markets, most large U.S. corporations do almost all of their business in the United States. 10. Even though many U.S. companies, including General Electric, IBM, Walt Disney, and American Express, have successfully restructured their operations to expand internationally, not many foreign firms have made their mark in the United States. 11. The payment of a dividend to current shareholders will have no impact on a corporation's share price because the cash paid is not available to future potential shareholders who may want to buy the corporation's stock. 12. The sole proprietorship has no legal business structure separate from its owner. 13. One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions. 14. If the stock market is efficient, then investors do not need to read the Wall Street Journal or research companies before they select which stocks to buy because market prices already reflect all publicly available information