Firm a and Firm B Are Identical Except That a Is

question 26

Multiple Choice

Firm A and Firm B are identical except that A is incorporated while B is an unlimited liability partnership.Both have assets worth $500,000 ($500K) funded with a debt ratio of 40%.Suppose that the assets suddenly become worthless,what is the maximum possible loss to the equityholders of each company?

• A)Firm A: $300K; Firm B: $500K
• B)Firm A: $200K; Firm B: $300K
• C)Firm A: $500K; Firm B: $200K
• D)Firm A: $500K; Firm B: $500K

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Definitions:

IQ

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A specific learning disability affecting a person's ability to understand numbers and learn math facts.