Three Students in a Business Faculty Created a Computer Program

question 210

Multiple Choice

Three students in a business faculty created a computer program that compared various retirement plans. They decided to go into business together to offer their services directly to the public. After doing a feasibility study, they felt there were profits to be made. For tax reasons, they decided not to incorporate. Each contributed $15,000 and Wayne, one of the three, contributed a computer. In a short written agreement, they agreed that all three would be actively involved in the management of the business, that all three would work to update the program, that they would share the profits equally, and that they should not be viewed as partners. Based on these facts, which of the following statements is true?

• A) They would be considered partners despite their express intention to the contrary in their agreement.
• B) If one partner dies, the partnership would be dissolved even if they state otherwise in their agreement.
• C) They are not partners unless they realize a profit from their enterprise.
• D) They are not partners because they do not share profits in proportion to their capital contributions.
• E) If Wayne were to go bankrupt, the partnership would be dissolved even if they state otherwise in their agreement.

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Definitions:

Weighted Average Cost of Capital (WACC)

A calculation of a company's cost of capital where each category of capital is proportionally weighted, including equity, debt, and other forms of financing.

Operating Costs

Expenses associated with the day-to-day functions of a business, excluding the cost of goods sold.

Net Operating Working Capital

The difference between a company's current assets and its current liabilities, excluding short-term debt. It is indicative of a company's operational liquidity.

Balance Sheet

A report that provides an overview of a business's financial position, including what it owns (assets), owes (liabilities), and the value that remains for the shareholders (equity) at a particular moment.