Midterm Exam Business Valuation and Stock Valuation Essay

It is slackly more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are inevitable. (b) Corporations impertinence fewer regulations than sole proprietorships. (c) iodine detriment of operating a business as a sole proprietorship is that the soused is subject to double taxation, at two the firm level and the owner level. (d) One advantage of forming a corporation is that comeliness investors are usually exposed to little liability than in a habitue partnership.If a regular partnership goes bankrupt, severally partner is exposed to liabilities only up to the keep down of his or her investment in the business. (2) (TCO G) A security analyst obtained the avocation information from Prestopino Products financial statements Retained honorarium at the suppress of 2009 were $700,000, but contain earnings at the end of 2010 had exacerbated to $320,000. The club does not pay dividends. The companys depreciation depreciate is its only non- interchange outgo it has no amortization charges. The company has no non- capital revenues.The companys concluding cash flow (NCF) for 2010 was $150,000. On the basis of this information, which of the hobby 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 high than its NCF in 2009. (e) Prestopinos cash on the balance sheet 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 promising to occur? (Points 10) (a) The required send of exit for an average stock will outgrowth by an amount equal to the ontogenesis in the securities industry place risk premium. (b) The required rate of tabulator will decline for stocks whose betas are less than 1 . 0. (c) The required rate of return on the market, rM, will not change as a core 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 confederation will decline.