F.4 Economics Ch.

3 Ownership of Firms (Homework 3)

Name: Class: ( ) Group: ( )

1. Which of the following statements about public enterprises is INCORRECT?

A. They are usually not aiming at maximising profit.
B. They must be directly financed and operated by the government.
C. The Airport Authority Hong Kong is an example of a public enterprise.
D. They usually have a relatively reliable and stable source of capital.

2. Compared to public enterprises,

(1) private enterprises usually have higher incentive to minimise their costs in order to earn higher
profit.
(2) private enterprises usually have higher sensitivity to market changes.
(3) private enterprises usually have more stable source of capital.

A. (1) only
B. (3) only
C. (1) and (2) only
D. (1) and (3) only

3. Mr. Wong is the only owner of a small newspaper stall. Which of the following is a possible reason for
him to choose this type of business ownership?
A. He bears a smaller business risk as the scale of production is small.
B. The business has a continuity that is lasting.
C. Decision-making is quick and flexible.
D. If the newspaper stall closes down, he does not have to use his personal property to settle the
outstanding debts.

4. Which of the following is the feature of a partnership?

A. There is an upper limit of 30 partners in a partnership.
B. It enjoys limited liability.
C. Its financial information can be kept secret.
D. Partners are not bound by the contracts signed by other partner(s).

5. Which of the following is NOT a possible reason for a sole proprietorship to turn the business into a
partnership?
(1) Business risk can be shared among partners.
(2) If the partnership goes bankrupt, the partners are not personally liable for the firm’s debts.
(3) Partnership usually has a wider source of capital.
(4) Making business decisions is more flexible in a partnership.

A. (1) only
B. (1) and (3) only
C. (2) and (4) only
D. (2), (3) and (4) only

6. Which of the following statements about a private limited company is CORRECT?

A. It has a higher degree of privacy with its financial status than a public limited company has.
B. There is no upper limit on the number of owners of a private limited company.
C. Its shares can be exchanged freely on the stock exchange.
D. It earns higher profit than a partnership.

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7. Which of the following is/are possible reason(s) of turning a business from a partnership to a private
limited company?
(1) Owners of a private limited company do not have to bear legal responsibility for the firm.
(2) Shares of a private limited company can be transferred freely without the consent of other
shareholders.
(3) If one of the shareholders retires, the business does not have to be dissolved.

A. (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

8. Which of the following statements about a public limited company are CORRECT?
(1) It can issue shares to the public.
(2) It can choose whether to disclose its financial statements to the public or not.
(3) There is no upper limit on the number of shareholders.
(4) The risk of the company being taken over is higher than that of a private limited company.

A. (1) and (3) only

B. (2) and (4) only
C. (1), (2) and (3) only
D. (1), (3) and (4) only

9. If a company is listed, which of the following statements is/are CORRECT?

(1) Its shares can be freely traded on the stock exchange without consent of other shareholders.
(2) Its shares bear a floating dividend rate.
(3) Its shareholders may have capital gain by buying and selling the shares on the stock exchange.
(4) Its shareholders are guaranteed to have dividend.

A. (2) only
B. (3) and (4) only
C. (1), (2) and (3) only
D. (1), (3) and (4) only

10. Which of the following is a difference between a private limited company and a public limited
company?
A. In Hong Kong, the profits tax rate of a private limited company is lower than that of a public
limited company.
B. A public limited company has a wider source of capital than a private limited company.
C. A private limited company requires a smaller amount of set-up capital than a public limited
company.
D. A public limited company has a separation of ownership and management while a private limited
company does not.

11. A public limited company __________ than a private limited company.

A. is a less risky type of ownership
B. has smaller risk of being taken over
C. is less likely to enjoy economies of scale
D. has a wider source of capital

12. A firm can issue shares to raise capital. However, the shares can only be transferred with the consent of
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 other shareholders. The firm is probably a
A. sole proprietorship.
B. partnership.
C. private limited company.
D. public limited company.

13. Mr. Chan and Mr. Wong are the owners of a firm. Recently, the firm encounters financial difficulties
and fails to pay the debts. As Mr. Chan has declared bankrupt, Mr. Wong has to sell his personal
properties to pay the creditors. According to the above information, the firm is a
A. sole proprietorship.
B. partnership.
C. private limited company.
D. public limited company.

14. To bondholders, the interest rate is ________ and they can claim repayment ________ shareholders if
the company liquidates.
A. floating … before
B. floating … after
C. fixed … before
D. fixed … after

15.Which of the following is NOT a difference between shareholders and bondholders?

A. Shareholders are the owners of the company while bondholders are creditors.
B. Shareholders receive dividend while bondholders receive interest.
C. Shareholders have voting rights during the annual general meeting while bondholders do not.
D. Shareholders can claim repayment prior to bondholders if the company winds up.

16. From the viewpoint of the existing shareholders, which of the following is the impact of issuing
shares?
A. The existing shareholders will receive more dividends.
B. The share price will rise and thus the existing shareholders can enjoy capital gains.
C. Their power of control over the company will be diluted if new ordinary shares are issued to a
third party.
D. If the company winds up, existing shareholders may not be able to claim repayment.

17. Which of the following is the disadvantage of buying shares over bonds?
(1) The return on shares is not guaranteed.
(2) Shareholders do not have voting rights in the annual general meeting.
(3) Shareholders are repaid after bondholders if the company goes bankrupt.
A. (1) only
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only

18. Which of the following statements about public enterprises in Hong Kong is/are CORRECT?
(1) RTHK is a public enterprise in Hong Kong.
(2) Some public enterprises operate on a self-financing basis.
(3) Compared to private enterprises, it is easier for public enterprises to obtain information from the
government
A. (3) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)
19. After firm A changed its form of ownership, it began to enjoy limited liability but its risk of being
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 taken over increased. We can conclude that the firm was a ______ in the past while it is a _____ now.
A. partnership … public limited company
B. private limited company … public limited company
C. partnership … private limited company
D. sole proprietorship … partnership

20. If a limited company winds up, which of the following parties is the last to be repaid?
A. bondholders
B. government
C. shareholders
D. employees

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21. Mr. Cheung solely owns a grocery store and he has to bear all the liabilities of the firm. He is planning
to invite new partners and he is still subject to unlimited liability after the admission of new partners.

(a)To what form of business ownership does the grocery store belong before and after the invitation of
new partners? ____________________________________________________________________

(b) Suggest ONE possible motive for the invitation of new partners.

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22. ABC Co., Ltd. is a firm that publishes magazines.

What does the abbreviation “Co., Ltd.” in the company name stand for? What is its implication?
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23. Cathay Pacific Airways (Hong Kong stock code: 0293) is an international airline based in Hong Kong.
It offers cargo and passenger services around the world.
(a) What type of business ownership does Cathay Pacific Airways belong to? ___________________

(b) State the features of this type of ownership in (a) in terms of the following:

(i) disclosure of accounting information

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(ii) transfer of ownership

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