Fundamentals of Corporate Finance 3e Test Bank
Chapter 1: The Financial Manager and the Firm
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
Bloomcode: Knowledge
AACSB: Analytic
IMA: FSA
AICPA: Resource Management
1.
The financial manager is responsible for making decisions that are in the best interests of the
firm’s owners.
A)
True
B)
False
Ans:
A
2.
A patent is a productive asset for a technology-based firm.
A)
True
B)
False
Ans:
A
3.
Intangible assets generate most of a manufacturing firm’s cash flows.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Resource Management
4.
The most fundamental way that a business can grow in size is the reinvestment of cash flows or
earnings.
A)
True
B)
False
Ans:
A
5.
When a firm goes bankrupt, it will always be liquidated.
A)
True
B)
False
Ans:
B
6.
Capital assets are generally short term in nature.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Resource Management
7.
A good capital budgeting or investment decision is one in which the benefits are worth more to
the firm than the cost of the asset.
A)
True
B)
False
Ans:
A
8.
Financing decisions determine how firms raise cash to pay for their investments.
A)
True
B)
False
Ans:
A
9.
The dollar difference between a firm’s total current assets and total liabilities is called its net
working capital.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
IMA: Business Economics
AICPA: Industry/Sector Perspective
10.
A sole proprietorship is an owner’s only business.
A)
True
B)
False
Ans:
B
11.
Corporations hold the majority of all business assets and generate the majority of business
revenues and profits in the United States.
A)
True
B)
False
Ans:
A
12.
Unlimited liability means that the owner of a firm is responsible for paying all the bills of the
firm.
A)
True
B)
False
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
13.
The process of transferring ownership of a sole proprietorship is relatively easy compared to a
public corporation.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
14.
General partners in a business have limited liability with regard to their firm’s obligations.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
15.
C-Corporations do not have their income subject to double taxation.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
16.
Privately held corporations are allowed to have stockholders.
A)
True
B)
False
Ans:
A
17.
The treasurer of a corporation usually reports to the CFO of the firm.
A)
True
B)
False
Ans:
A
18.
The external auditors of the firm report their findings directly to the CFO of the firm.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Strategic/Critical Thinking
19.
Maximizing revenue should be the goal of the firm.
A)
True
B)
False
Ans:
B
20.
An agency conflict can arise when the agent of the firm is the sole owner of the firm.
A)
True
B)
False
Ans:
B
AICPA: Industry/Sector Perspective
21.
The owners of a firm are unaffected by agency costs.
A)
True
B)
False
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Professional Demeanor
22.
Corruption in business does not affect the growth of the financial markets.
A)
True
B)
False
Ans:
B
23.
To start a business, the owners need
A)
a market where there is demand for their product.
B)
a clear vision of what products or services they want to produce.
C)
the know-how to successfully market their product.
D)
all of the above.
Ans:
D
24.
A stakeholder is:
A)
someone geographically close to the firm’s headquarters.
B)
someone who has a claim on the cash flows of the firm.
C)
some government agency.
D)
all of the above.
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
25.
If you have loaned capital to a firm, then you could be
A)
a manager.
B)
a stakeholder.
C)
a partner.
D)
all of the above.
Ans:
B
26.
Which of the following is a stakeholder?
A)
An employee
B)
A lender
C)
The IRS
D)
All of the above
Ans:
D
27.
A trademark is an example of:
A)
a liquid asset.
B)
an intangible asset.
C)
a contingent asset.
D)
none of the above.
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Resource Management
28.
Which of the following is a basic source of funds for a firm?
A)
Debt
B)
Equity
C)
Asset liquidations
D)
Both A and B
Ans:
D
29.
The cash remaining with the firm after paying its operating expenses, making payments to
creditors, and taxes is called:
A)
earnings per share.
B)
capital contributed in excess of par.
C)
residual cash flows.
D)
assets.
Ans:
C
AICPA: Resource Management
30.
Cash dividends are paid out of:
A)
residual cash flows.
B)
liquidated assets.
C)
long-term debt.
D)
all of the above.
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Resource Management
31.
Current liabilities are liabilities that:
A)
will be converted to cash within a year.
B)
must be paid within a year.
C)
will be converted to equity within a year.
D)
none of the above.
Ans:
B
32.
The capital budgeting decision process addresses
A)
how a firm’s day-to–day financial matters should be managed.
B)
how a firm should finance its assets.
C)
which productive assets a firm should purchase.
D)
all of the above.
Ans:
C
33.
Working capital management decisions help to determine:
A)
how a firm’s day-to–day financial matters should be managed.
B)
how a firm should finance its assets.
C)
which productive assets a firm should purchase.
D)
all of the above.
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Resource Management
34.
Capital budgeting decisions generally impact more on:
A)
the asset portion of the balance sheet.
B)
the short-term portion of the balance sheet.
C)
the current liability portion of the balance sheet.
D)
all of the above.
Ans:
A
35.
A good capital budgeting decision is:
A)
one in which the benefits of the project are equal to the cost of the asset.
B)
one in which the benefits of the project are less than the cost of the asset.
C)
one in which the benefits of the project are more than the cost of the asset.
D)
all of the above.
Ans:
C
36.
Financial markets in which equity and debt instruments with maturities greater than one year
are traded are called:
A)
money markets.
B)
capital markets.
C)
Over the counter exchange.
D)
none of the above.
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
IMA: Corporate Finance
AICPA: Resource Management
37.
The profitability of a firm can be negatively affected by:
A)
too much inventory.
B)
too little inventory.
C)
either A or B.
D)
neither A nor B.
Ans:
C
38.
Which of the following business organizational form(s) subject(s) the owner(s) to unlimited
liability?
A)
Sole proprietorship
B)
General partnership
C)
Corporation
D)
Both A and B
Ans:
D
AICPA: Industry/Sector Perspective
39.
Which of the following business organizational form(s) create(s) a tax liability on income at the
personal income tax rate?
A)
Sole proprietorship
B)
Partnership
C)
Corporation
D)
Both A and B
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Industry/Sector Perspective
40.
Which of the following business organizational form(s) is/are the easiest one(s) to raise capital?
A)
Sole proprietorship
B)
Partnership
C)
Corporation
D)
Both A and B
Ans:
C
41.
Which of the following owners is protected by limited liability?
A)
A sole proprietor
B)
A general partner
C)
Owner of a corporation
D)
None of the above
Ans:
C
42.
Which of the following cannot be engaged in managing the business?
A)
A sole proprietor
B)
A general partner
C)
A limited partner
D)
None of the above
Ans:
C