(Test Bank) Fundamentals of Corporate Finance

Berk,DeMarzo,Stangeland,Marosi, 4

Business

Test Bank

4th Edition

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Test Bank for Fundamentals of Corporate Finance, The downloadable file consists of 976 pages, and the total size of the file is 12.04 MB. Purchase now only for highly discounted price.

Author(s): Berk, DeMarzo, Stangeland, Marosi

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Test Bank for Fundamentals of Corporate Finance, 4th Canadian Edition, 4e Berk, DeMarzo, Stangeland, Marosi, Harford (All Chapters) 1 Copyright © 2023 Pearson Canada Inc. Fundamentals of Corporate Finance, 4Ce (Berk et al.) Chapter 1 Corporate Finance and the Financial Manager 1.1 Why Study Finance 1) The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly. Answer: TRUE Diff: 1 Type: TF Skill: Conceptual Objective: 1.1 Grasp the importance of financial information in both your personal and business lives 2) Which of the following best describes why the Valuation Principle is a k ey concept in making financial decisions? A) It shows how to assign monetary value to intangibles such as good health and well -being. B) It allows fixed assets and liquid assets to be valued correctly. C) It gives a good indication of the net worth of a pe rson, item, or company and can be used to estimate any changes in that net worth. D) It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly. E) It allows us to produce accurate financial statements. Answer: D Diff: 1 Type: MC Skill: Conceptual Objective: 1.1 Grasp the importance of financial information in both your personal and business lives 3) Both personal financial decisions and business financial decisions can best be made by applying the: A) Int ernal Ranking Criteria. B) Best Alternatives Matrix. C) Valuation Principle. D) Financial Comparison Analysis. E) Law of One Price. Answer: C Diff: 1 Type: MC Skill: Conceptual Objective: 1.1 Grasp the importance of financial information in both your personal and business lives 2 Copyright © 2023 Pearson Canada Inc. 1.2 The Three Types of Firms 1) Partnerships are the most common type of business firm in the world. Answer: FALSE Diff: 1 Type: TF Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 2) Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shar es to anonymous outside investors. Answer: TRUE Diff: 1 Type: TF Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic act ivity 3) Which of the following types of firms do NOT have limited liability? A) sole proprietorships B) limited partnerships C) private corporations D) public corporations E) limited liability partnerships Answer: A Diff: 1 Type: MC Skill: Conceptua l Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 4) Over 60% of all Canadian business profit is generated by which type of firm? A) sole proprietorships B) partnerships C) limited partnerships D) corporations E) limited liability partnerships Answer: D Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 3 Copyright © 2023 Pearson Canada Inc. 5) What is the most common type of firm in Canada and the world? A) sole proprietorships B) partnerships C) limited partnerships D) corporations E) limited liability partnerships Answer: A Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 6) Which of the following is typically the major factor in limiting the growth of a sole proprietorship? A) The organization of such firms tends to become extremely complicated over time. B) It is extremely difficult to transfer control of such a firm to a new own er if the present owner dies or wishes to sell the firm. C) The amount of money that can be raised by the firm is limited by the fact that the single owner must make good on all debts. D) Investors have a great deal of control over the day -to-day running o f the firm, leading to confusion when conflicts in direction arise. E) The owner's personal reputation is the basis for the business. Answer: C Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 7) Joe is a general partner in a limited partnership firm, while Jane is a limited partner in that same firm. Which of the following statements regar ding their respective relationships to the firm is correct? A) Joe has no management authority within the partnership. B) Jane is legally involved in the managerial decision making of the firm. C) Jane's liability for the firm's debts consists solely of he r investment in the firm. D) Withdrawal of Jane from the partnership will dissolve that partnership. E) Jane's liability consists of all the firm's outstanding debts. Answer: C Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the importan t features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 4 Copyright © 2023 Pearson Canada Inc. 8) What is the major way in which the roles and obligations of the owners of a limited liability partnership differ fr om the roles and obligations of limited partners in a limited partnership? A) The owners of a limited liability partnership have personal obligation for debts incurred by the company. B) There is no separation between the company and its owners in a limite d liability partnership. C) The owners of a limited liability partnership can withdraw from the company without the company being dissolved. D) The owners of a limited liability partnership can take an active role in running the company. E) The owners of a limited liability partnership are responsible for the negligence of other partners. Answer: D Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corp orate form have led it to dominate economic activity 9) In which of the following ways is a limited liability partnership like a corporation? A) Both types of firm were created and developed first in Canada. B) Both can choose to be considered a partnership for tax purposes. C) All of its owners' liability is restricted to their investment in the firm. D) It is directly managed by the owners of the firm. E) Owners have unlimited personal liability for the negligence of those whom they supervise. Answer: C Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 10) Why is it possible for a co rporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property? A) The number of owners, and hence the spread of risk among these owners, is not limited. B) Its owners are liable for any oblig ations it enters into. C) The province in which the corporation is incorporated provides safeguards against any wrongdoing by the corporation. D) It is a legally defined, artificial entity that is separate from its owners. E) Corporations represent their o wners, who have all of those rights. Answer: D Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic acti vity 5 Copyright © 2023 Pearson Canada Inc. 11) To calculate the taxes owing on dividends received from Canadian corporations, investors must undertake the following calculations: A) Gross up the dividend received; apply this amount to their marginal tax rate; and received the federal and pr ovincial dividend tax credit. B) Gross up the dividend received; apply this amount to their marginal tax rate; and received the federal tax credit. C) Gross up the dividend received; apply this amount to their average tax rate; and received the federal and provincial dividend tax credit. D) Apply the amount of the dividend received to their marginal tax rate and received the federal and provincial dividend tax credit. E) Apply the amount of the dividend received to their average tax rate and received the fe deral and provincial dividend tax credit. Answer: A Diff: 1 Type: MC Skill: Definition Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 12) What is one of the major advantages corporations have over other business entities? A) It is harder for a corporation to raise capital than other forms of businesses. B) The owners of the corporation are personally liable for its obl igations. C) Corporations are the only organizational structures not subject to double taxation. D) There is no limitation on who can own its stock. E) It is less costly to set up a corporation. Answer: D Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 13) A flow -through entity that holds all the debt and equity securities of a corporation is called: A) an energy trust. B) a real estate investment trust. C) a business income trust. D) a parent corporation. E) an ownership trust. Answer: C Diff: 1 Type: MC Skill: Definition Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 6 Copyright © 2023 Pearson Canada Inc. 14) The collection of all the outstanding shares of a corporation is known as the: A) Debt. B) Assets. C) Liabilities. D) Equity. E) Ownership. Answer: D Diff: 1 Type: MC Skill: Definition Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 15) Katie owns 12.5% of the stock of the Gimli Corporation. The tax rate on dividend income is 24%. If Gimli makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Katie receive after taxes? A) $750,000 B) $2,375,000 C) $3,125,000 D) $6,000,000 E) $19,000,000 Answer: B Explanation: Katie will receive 12.5% of the dividend payment proportional to her ownership: 0.125 × 25,000,000 = $3,125,000. She pays taxes at 24%, and receives (3,125,000)(1 - 0.24) = 2,375,000 after taxes. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 16) Kuljeet owns 20% of the stock of the Flin Flon Corporation. The tax rate on dividend income is 15%. If Flin Flon makes a dividend payment of $2,000,000 paid proportionally to its shareholders, how much of this amount would Kuljeet receive after taxes? A) $450,000 B) $300,000 C) $60,000 D) $340,000 E) $400,000 Answer: D Explanation: Kuljeet will receive 20% of the dividend payment proportional to her ownership: 0.20 × 2,000,000 = $400,000. She pays taxes at 15%, and receives (400,000)(1 - 0.15) = $340,000 after taxes. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 7 Copyright © 2023 Pearson Canada Inc. 17) Saskatoon Smelting is a corporation that earned $4 per share before it paid any taxes. The firm retained $2 of after -tax earnings for reinvestment, and distributed what remained in dividend payments. If the corporate tax rate was 25% and dividend earnings were taxed at 15%, what was the value of the dividend earnings received after tax by a holder of 10,000 shares of Saskatoon Smelting? A) $7,500 B) $17,000 C) $8,500 D) $10,000 E) $20,000 Answer: C Explanation: Corporate tax paid on $4 earnings = $4 × 0.25 = $1; earnings after tax =4 - 1 = $3; earning s distributed as dividends = $3 - $2 = $1; taxes paid on dividends by a shareholder = 1 × 0.15 = 0.15; after -tax dividends per share = 1 - 0.15 = $0.85; hence a holder of 10,000 shares receives 0.85 × 100,000 = $8,500 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 18) Moncton Meats is a corporation that earned $3 per share before it paid any taxes. The firm retained $1 of after -tax earnings for reinvestment, and distributed what remained in dividend payments. You hold 20,000 shares of Moncton Meats in a tax -free savings account. If the corporate tax rate was 30% and dividend earnings were taxed at 20%, what was the value of your dividend earnings received after all taxes are paid? A) $40,000 B) $16,000 C) $20,000 D) $17,600 E) $22,000 Answer: E Explanation: Corporate tax paid on $3 earnings = $3 × 0.3 = 0.9; earnings after tax = 3 - 0.9 = $2.1; earnings distributed as dividends = $2.1 - $1 = $1.1; hence a holder of 20,000 shares in a TFSA receives 1.1 × 20,000 = $$22,000 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 8 Copyright © 2023 Pearson Canada Inc. 19) Tofino Toffee is a corporation that earned $5 per share before it paid any taxes. The firm retained $2.50 of after -tax earnings for reinvestmen t, and distributed what remained in dividend payments. You hold 6,000 shares of Tofino Toffee in a tax -free savings account, and 4,000 shares outside of a tax -free savings account. If the corporate tax rate was 25% and dividend earnings were taxed at 15%, what was the value of your dividend earnings received after all taxes are paid? A) $12,500 B) $11,750 C) $10,625 D) $23,500 E) $13,175 Answer: B Explanation: Corporate tax paid on $5 earnings = $5 × 0.25 =1.25; earnings after tax = 5 - 1.25 = $3.75; earn ings distributed as dividends = $3.75 - $2.50 = $1.25; after -tax dividends = 1.25 × (1 - 0.15) = $1.0625; Inside TFSA: 1.25 × 6,000 = $7,500 Outside TFSA: 1.0625 × 4,000 = $4,250; Total earnings =7,500 + 4,250 = $11,750 Diff: 2 Type: MC Skill: Analyti cal Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 20) You are a unit holder in Pembina Properties, a real estate investment tru st (REIT). The REIT announces a profit of $8 per share, of which it retains $3 for reinvestment and distributes the rest as dividend payments. Given your personal tax rate of 30%, and the tax rate on dividends is 15%, how much tax must you pay per unit? A) $0.90 B) $1.20 C) $0.75 D) $0.45 E) $0 Answer: B Explanation: Tax paid by unit holder of a REIT = 5 × 0.3 = $1.50 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 9 Copyright © 2023 Pearson Canada Inc. 21) You hold 1,000 units of Calgary Commercial Property, a real estate investment trust (REIT). The REIT announces a profit of $10 per share, of which it retains $4 for rein vestment and distributes the rest as dividend payments. Given your personal tax rate of 40%, and the tax rate on dividends is 15%, how much tax must you pay on your holdings? A) $900 B) $4,000 C) $2,400 D) $1,500 E) $1,600 Answer: C Explanation: Tax paid by unit holder of a REIT = 6 × 0.4 × 1,000 units = $2,400 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 22) You hold 1,000 units of Calgary Commercial Property, a real estate investment trust (REIT). 500 of those units are held inside a tax -free savings account, the other 500 are outside the tax -free savings account. Th e REIT announces a profit of $10 per share, of which it retains $4 for reinvestment and distributes the rest as dividend payments. Given your personal tax rate of 30%, and the tax rate on dividends is 15%, how much tax must you pay on your holdings? A) $90 0 B) $450 C) $1,800 D) $1,500 E) $1,600 Answer: A Explanation: Tax paid by unit holder of a REIT = 6 × 0.3 × 500 units = $900 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and se e why the advantages of the corporate form have led it to dominate economic activity 10 Copyright © 2023 Pearson Canada Inc. 23) You hold 1,000 units of Calgary Commercial Property, a real estate investment trust (REIT). 500 of those units are held inside a tax -free savings account, the other 500 are outside the tax -free savings account. The REIT announces a profit of $10 per share, of which it retains $4 for reinvestment and distributes the rest as dividend payments. Given your personal tax rate of 30%, and the tax rate on dividends is 15%, w hat is your total after -tax income? A) $6,000 B) $5,100 C) $5,550 D) $4,200 E) $5,000 Answer: B Explanation: Tax paid by unit holder of a REIT = 6 × 0.3 × 500 units = $900 Total dividends = 6 × 1,000 = $6,000. After -tax income = 6,000 - 900 = $5,100 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 24) Red Deer Plumbing Supply Co. ea rns $4.50 per share before taxes. The corporate tax rate is 30%, the personal tax rate on dividends is 15%, and the personal tax rate on non -dividend income is 40%. What is the total amount of taxes paid per share if the company pays a $2.00 dividend? A) $ 0.30 B) $2.15 C) $1.35 D) $1.65 E) $0.80 Answer: D Explanation: Corporate tax = $4.50 × 30% = $1.35, Personal tax = $2.00 × 15% = $0.30. Total = $1.35 + $0.30 = $1.65 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important feature s of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 11 Copyright © 2023 Pearson Canada Inc. 25) Windsor Windows earns $4.50 per share before taxes. The corporate tax rate is 30%, the personal tax rate on dividends is 15 %, and the personal tax rate on non -dividend income is 40%. What is the total amount of taxes paid per share if the company pays a $2.00 dividend but all of the shares are held in a tax-free savings account? A) $0.30 B) $2.15 C) $1.35 D) $1.65 E) $0.80 Answer: C Explanation: Corporate tax = $4.50 × 30% = $1.35, no personal tax. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 26) Windsor Windows earns $4.50 per share before taxes and pays a dividend of $2.00 per share. The corporate tax rate is 30%, the personal tax rate on dividends is 15%, and the personal tax rate on non - dividend in come is 40%. What is the after -tax amount an individual would receive per share from the dividend? A) $2.68 B) $2.15 C) $1.35 D) $1.65 E) $1.70 Answer: E Explanation: Personal tax = $2.00 × 0.15 = $0.30. After -tax income = $2.00 - $0.30 = $1.70. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 27) You own shares in two different companies, Ace Holdings, and Beta Inc. Ace Holdings earns $6.00 per share before taxes, has a corporate tax rate of 25%, and pays out 50% of its after -tax earnings as dividends. Beta Inc. earns $4.00 per share before taxes, has a corporate tax rate of 15%, and pays out 100% of its after -tax earnings as dividends. Which company pays you a higher dividend, and by how much? A) Beta Inc., by $1.15 B) Beta Inc., by $1.75 C) Ace Holdings, by $0.15 D) Ace Holdings, by $1.10 E) Ace Holdings, by $2.25 Answer: A Explanation: Ace Holdings dividend = $6.00(1 - 0.25)(0.5) = $2.25. Beta Inc. dividend = $4.00(1 - 0.15) = $3.40. $3.40 - 2.25 = $1.15. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 12 Copyright © 2023 Pearson Canada Inc. 28) You own 100 shares in each of two different companies, Ace Holdings, and Beta Inc. Ace Holdings earns $6.00 per share before taxes, has a corporate tax rate of 25%, and pays out 50% of its after -tax earnings as dividends. Beta Inc. earns $4.00 per share before taxes, has a corporate tax rate of 15%, and pays out 100% of its after -tax earnings as dividends. The tax rate on dividend income is 15%. If all of your shares are held outside a TFSA, what is the total after -tax income you receive from your dividends? A) $191.25 B) $289.00 C) $480.25 D) $565.00 E) $739.00 Answer: C Explanati on: Ace Holdings dividend = $6.00(1 - 0.25)(0.5) = $2.25. After dividend tax: $2.25(1 - 0.15) = $1.9125. $1.9125 × 100 shares = $191.25. Beta Inc. dividend = $4.00(1 - 0.15) = $3.40. After dividend tax: $3.40(1 - 0.15) = $2.89. $2.89 × 100 shares = $289. Total received = $191.25 + $289 = $480.25. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 29) You own 100 shares in each of two different companies, Ace Holdings, and Beta Inc. Ace Holdings earns $6.00 per share before taxes, has a corporate tax rate of 25%, and pays out 50% of its after -tax earnings as dividends. Beta Inc. earns $4.00 per sha re before taxes, has a corporate tax rate of 15%, and pays out 100% of its after -tax earnings as dividends. The tax rate on dividend income is 15%. If your shares of Ace Holdings are held outside of a TFSA, and your shares of Beta Inc. are held inside a TF SA, what is the total after -tax income you receive from your dividends? A) $191.25 B) $289.00 C) $480.25 D) $531.25 E) $565.00 Answer: D Explanation: Ace Holdings dividend = $6.00(1 - 0.25)(0.5) = $2.25. After dividend tax: $2.25(1 - 0.15) = $1.9125. $1.9125 × 100 shares = $191.25. Beta Inc. dividend = $4.00(1 - 0.15) = $3.40. $3.40 × 100 shares = $340. Total received = $191.25 + $289 = $531.25. Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the thr ee main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 13 Copyright © 2023 Pearson Canada Inc. 30) You own 50 units of a real estate investment trust (REIT) and 50 shares of a public corporation. The REIT earns $6.00 per unit. The corporation earns $4.00 per share before taxes. The corporate tax rate is 25%, your personal tax rate is 35%, and the tax rate on dividend income is 15%. What is the total after -tax income you receive, if everything is held outside a TFSA? A) $273.75 B) $3 18.75 C) $322.50 D) $382.50 E) $450.00 Answer: C Explanation: REIT distribution: $6.00 × 50 = $300.00. After tax: $300.00(1 - 0.35) = $195.00. Dividends after corporate taxes: ($4.00 × 50)(1 - 0.25) = $150. After dividend tax: $150(1 - 0.15) = $127.50. T otal income = $195.00 + 127.50 = $322.50 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 31) You own 50 units of a real estate investment trust (REIT) and 50 shares of a public corporation. The REIT earns $6.00 per unit. The corporation earns $4.00 per share before taxes. The corporate tax rate is 25%, your personal tax rate is 35%, and the tax rate on dividend income is 15%. What is the total after -tax income you receive, if your REIT holdings are outside of a TFSA, and your corporation shares are held inside a TFSA? A) $273.75 B) $318.75 C) $322.50 D) $345.00 E) $450.00 Answer: D Explanation: REIT distribution: $6.00 × 50 = $300.00. After tax: $300.00(1 - 0.35) = $195.00. Dividends after corporate taxes: ($4.00 × 50)(1 - 0.25) = $150. Total income = $195.00 + 150.00 = $345.00 Diff: 2 Type: MC Skill: Analytical Objective: 1.2 Understand t he important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 14 Copyright © 2023 Pearson Canada Inc. 32) What is the process of double taxation for the stockholders in a corporation? A) Their shares are taxed when they are both bought and sold. B) The corporation is taxed on the profits it makes, and the owners are taxed when this profit is distributed to them. C) The owners of a corporation are taxed when they receive dividend payments and when they make a profit from the sale of shares. D) The corporation must pay taxes on any profits it makes, and the capital raised by the sale of shares is also subject to taxation. E) The corporation is taxed on any profits it makes, and owners are taxed when they sell their shares. Answer: B Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 33) Which of the following is an advantage of a sole proprietorship? A) double taxation B) ease of setup C) limited liability D) separation of ownership and control E) the ability to raise substantial amounts of capital Answer: B Diff: 1 Type: MC Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 34) What are the main differences between a partnership and sole propr ietorship? Answer: While a sole proprietor has the same identity as its single owner, a partnership of general partners has the same identity as its partners. Each general partner is responsible for the decisions taken by that partner as well as any other general partner. Diff: 1 Type: SA Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of firms and see why the advantages of the corporate form have led it to dominate economic activity 35) What are the main di fferences between a limited partnership and limited liability partnership? Answer: A limited partnership is required to have at least one general partner. A limited liability partnership can only be used in the legal and accounting professions. The limita tion on a partner's liability is only in cases related to actions of negligence of other partners or those supervised by other partners. Diff: 2 Type: SA Skill: Conceptual Objective: 1.2 Understand the important features of the three main types of fir ms and see why the advantages of the corporate form have led it to dominate economic activity