978-0133423822 chapter 1 Part 1

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Financial Management, 12e (Titman/Keown/Martin)

Chapter 1 Getting Started-Principles of Finance

1.1 Finance: An Overview

1) Which of the following statements best represents what inance is about?

A) How political, social, and economic forces afect corporations

B) Maximizing proits

C) The study of how people and businesses make investment decisions and how to inance

those decisions

D) Reducing risk

Question Status: Revised

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

2) From a inancial point of view, a company that decides to develop new product is making

A) a inancing decision.

B) an investment decision.

C) a capital structure decision.

D) a cash low decision.

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

3) Working capital management refers to

A) long-term inancing decisions.

B) the management of cash lows.

C) investing in product development.

D) capital structure.

Question Status: Previous edition

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: capital structure

Principles: Principle 3: Cash Flows Are the Source of Value

4) Finance managers need to interact constantly with

A) marketing managers.

B) accounting staf.

C) management information systems staf.

D) all of the above.

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

5) The personal decision to obtain a college degree in business is primarily a(n) ________

decision.

A) social

B) investment

C) ethical

D) inancing

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

6) The area of inance that deals with long-term investment decisions is known as

A) capital structure.

B) working capital management.

C) inancial strategy.

D) capital budgeting.

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

7) Capital structure refers to the inancing of long-term investments.

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

8) Business inancial decisions are fundamentally diferent from personal inancial

decisions.

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

9) What are the three basic questions addressed by the study of investments?

Question Status: New question

Objective: 1.1 Understand the importance of inance and identify the three primary business

decisions that inancial managers make.

Keywords: what is inance?

Principles: Principle 3: Cash Flows Are the Source of Value

1.2 Three Types of Business

1) Which of the following is NOT an advantage of the sole proprietorship?

A) Limited liability

B) No time limit imposed on its existence

C) No legal requirements for starting the business

D) None of the above

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeof

2) What is the chief disadvantage of the sole proprietorship as a form of business

organization when compared to the corporate form?

A) Sole proprietorships are subject to double taxation of proits.

B) The cost of formation.

C) Inadequate proit sharing.

D) Owners have unlimited liability.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeof

3) Which of the following is NOT true for limited partnerships?

A) Limited partners can only manage the business.

B) One general partner must exist who has unlimited liability.

C) Only the name of general partners can appear in the name of the irm.

D) Limited partners may sell their interest in the company.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

4) The true owners of the corporation are the

A) holders of debt issues of the irm.

B) preferred stockholders.

C) board of directors of the irm.

D) common stockholders.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

5) In terms of organizational costs, which of the following sequences is generally correct,

moving from lowest to highest cost?

A) General partnership, sole proprietorship, limited partnership, corporation

B) Sole proprietorship, general partnership, limited partnership, corporation

C) Corporation, limited partnership, general partnership, sole proprietorship

D) Sole proprietorship, general partnership, corporation, limited partnership

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

6) Assume that you are starting a business. Further assume that the business is expected to

grow very quickly and a great deal of capital will be needed soon. What type of business

organization would you choose?

A) Corporation

B) General Partnership

C) Sole proprietorship

D) Limited partnership

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

7) Which one of the following categories of owners enjoys limited liability?

A) General partners in a limited partnership or limited liability company

B) Shareholders (common stock) of a corporation

C) Sole proprietors

D) Both A and B

Question Status: Revised

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

8) Which of the following is a characteristic of a limited partnership?

A) It allows one or more partners to have limited liability.

B) It requires one or more of the partners to be a general partner to whom the privilege of

limited liability does not apply.

C) It prohibits the limited partners from participating in the management of the

partnership.

D) All of the above.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

9) Which of the following forms of organization blends elements of partnerships and

corporations?

A) D.B.A.’s

B) Sole proprietorships

C) Limited liability companies (LLC’s)

D) General partnership

Question Status: New question

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

10) Which of the following types of business forms is least risky to investors?

A) Sole proprietorship

B) Limited partnership

C) General partnership

D) A public corporation

Question Status: Revised

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

11) Which forms of organization are free of initial legal requirements?

A) Sole proprietorship

B) General partnership

C) Corporation

D) Both A and B

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

12) For these types of organization, no distinction is made between business and personal

assets.

A) Sole proprietorship

B) General partnership

C) Limited partnership

D) Both A and B

Question Status: Revised

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

13) Which of the following is a signiicant disadvantage of a general partnership?

A) The cost of forming it is high.

B) Each partner is fully responsible for the liabilities incurred by the partnership.

C) There is a risk associated with the industry in which it operates.

D) Forming the business is very complex.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

14) Which of the following forms of business organization is the dominant economic force

in the United States?

A) The sole proprietorship

B) The general partnership

C) The limited partnership

D) The joint venture

E) The corporation

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

15) A limited partner is liable

A) for only his or her own share of the partnership’s debts.

B) for his or her own share of the partnership’s debts and contingently liable for the other

partners shares.

C) only up to the amount invested by that partner.

D) for none of the partnership’s debts.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

16) A corporation is owned by

A) shareholders and partners.

B) the shareholders who hold the company’s stock.

C) the Board of Directors.

D) its Chief Executive Oicer.

Question Status: New question

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

17) The major sources of inancing for corporations are

A) partners contributions.

B) exchanges between shareholders.

C) interest and dividends.

D) debt and equity.

Question Status: New question

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

18) The term stockholder is equivalent to

A) general partner.

B) creditor.

C) shareholder.

D) stakeholder.

Question Status: New question

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

19) The sole proprietorship is the same as the individual for liability purposes.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeof

20) In a general partnership, all partners have unlimited liability for the actions of any one

partner when that partner is conducting business for the irm.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

21) There is no legal distinction made between the assets of the business and the personal

assets of the owners in the limited partnership.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

22) The owners of a corporation are liable for the corporation’s obligations up to the

amount of their investment.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

23) General partners have unrestricted transferability of ownership, while limited partners

must have the consent of all partners to transfer their ownership.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

24) Ultimate control in a corporation is vested in the board of directors.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

25) Owners must register and pay yearly fees to their State of residence when establishing

a sole proprietorship.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeof

26) Limited partners may actively manage the business.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

27) The life of a corporation is not dependent upon the status of the investors.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: corporation

Principles: Principle 2: There Is a Risk-Return Tradeof

28) A sole proprietorship is the most desirable business form in all circumstances.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: partnerships

Principles: Principle 2: There Is a Risk-Return Tradeof

29) In a sole proprietorship, the owner is personally responsible without limitation for the

liabilities incurred.

Question Status: Previous edition

Objective: 1.2 Identify the diferences between the three major legal forms of business.

Keywords: proprietorships

Principles: Principle 2: There Is a Risk-Return Tradeof