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Corporate Finance, 10th Edition Test Bank

Give yourself the best chance to succeed with Corporate Finance, 10th Edition Test Bank, featuring test bank questions designed to mirror your exam.

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Corporate Finance, 10th Edition Test Bank - Page 1 preview image1-1Chapter 01Introduction to Corporate FinanceMultiple Choice Questions1.The person generally directly responsible for overseeing the tax management, cost accounting,financial accounting, and information system functions is the:A.treasurer.B.director.C.controller.D.chairman of the board.E.chief executive officer.2.The person generally directly responsible for overseeing the cash and credit functions, financialplanning, and capitalexpenditures is the:A.treasurer.B.director.C.controller.D.chairman of the board.E.chief operations officer.3.The process of planning and managing a firm's long-term investments is called:A.working capitalmanagement.B.financial depreciation.C.agency cost analysis.D.capital budgeting.E.capital structure.4.The mixture of debt and equity used by a firm to finance its operations is called:A.working capitalmanagement.B.financial depreciation.C.cost analysis.D.capital budgeting.E.capital structure.
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Corporate Finance, 10th Edition Test Bank - Page 2 preview image
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Corporate Finance, 10th Edition Test Bank - Page 3 preview image1-25.The management of a firm's short-term assets and liabilities is called:A.working capital management.B.debtmanagement.C.equity management.D.capital budgeting.E.capital structure.6.A business owned by a single individual is called a:A.corporation.B.sole proprietorship.C.general partnership.D.limitedpartnership.E.limited liability company.7.A business formed by two or more individuals who each have unlimited liability for business debtsis called a:A.corporation.B.sole proprietorship.C.general partnership.D.limited partnership.E.limited liability company.8.The division of profits and losses among the members of a partnership is formalized in the:A.indemnity clause.B.indenture contract.C.statement of purpose.D.partnership agreement.E.group charter.9.A business created as a distinct legal entity composed of one or more individuals or entities iscalled a:A.corporation.B.sole proprietorship.C.general partnership.D.limitedpartnership.E.unlimited liability company.
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Corporate Finance, 10th Edition Test Bank - Page 4 preview image1-310.The corporate document that sets forth the business purpose of a firm is the:A.indenture contract.B.state tax agreement.C.corporate bylaws.D.debt charter.E.articles ofincorporation.11.The rules by which corporations govern themselves are called:A.indenture provisions.B.indemnity provisions.C.charter agreements.D.bylaws.E.articles of incorporation.12.A business entityoperated and taxed like a partnership, but with limited liability for the owners, iscalled a:A.limited liability company.B.general partnership.C.limited proprietorship.D.sole proprietorship.E.corporation.13.Theprimary goal of financial management is to:A.maximize current dividends per share of the existing stock.B.maximize the current value per share of the existing stock.C.avoid financial distress.D.minimize operational costs andmaximize firm efficiency.E.maintain steady growth in both sales and net earnings.14.A conflict of interest between the stockholders and management of a firm is called:A.stockholders' liability.B.corporate breakdown.C.theagency problem.D.corporate activism.E.legal liability.
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Corporate Finance, 10th Edition Test Bank - Page 5 preview image1-415.Agency costs refer to:A.the total dividends paid to stockholders over the lifetime of a firm.B.the costs that result from default and bankruptcy of a firm.C.corporate income subject to double taxation.D.the costs of any conflicts of interest between stockholders and management.E.the total interest paid to creditors over the lifetime of the firm.16.A stakeholder is:A.any person orentity that owns shares of stock of a corporation.B.any person or entity that has voting rights based on stock ownership of a corporation.C.a person who initially started a firm and currently has management control over the cash flowsof thefirm due to his/her current ownership of company stock.D.a creditor to whom the firm currently owes money and who consequently has a claim on thecash flows of the firm.E.any person or entity other than a stockholder or creditor who potentially has a claim on the cashflows of the firm.17.The Sarbanes Oxley Act of 2002 is intended to:A.protect financial managers from investors.B.not have any effect on foreign companies.C.reduce corporate revenues.D.protectinvestors from corporate abuses.E.decrease audit costs for U.S. firms.18.The treasurer and the controller of a corporation generally report to the:A.board of directors.B.chairman of the board.C.chief executive officer.D.president.E.chief financial officer.19.Which one of the following statements is correct concerning the organizational structure of acorporation?A.The vice president of finance reports to the chairman of the board.B.The chiefexecutive officer reports to the board of directors.C.The controller reports to the president.D.The treasurer reports to the chief executive officer.E.The chief operations officer reports to the vice president of production.
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Corporate Finance, 10th Edition Test Bank - Page 6 preview image1-520.Which one of the following is a capital budgeting decision?A.Determining how much debt should be borrowed from a particular lenderB.Deciding whether or not to open a new storeC.Deciding when to repay a long-term debtD.Determining how much inventory to keep on handE.Determining how much money should be kept in the checking account21.The Sarbanes Oxley Act was enacted in:A.1952.B.1967.C.1998.D.2002.E.2006.22.Since theimplementation of Sarbanes-Oxley, the cost of going public in the United States has:A.increased.B.decreased.C.remained about the same.D.been erratic, but over time has decreased.E.It is impossible to tell sinceSarbanes-Oxley compliance does not involve direct cost to the firm.23.Working capital management includes decisions concerning which of the following?I. accounts payableII. long-term debtIII. accounts receivableIV. inventoryA.I and II onlyB.I and III onlyC.II and IV onlyD.I, II, and III onlyE.I, III, and IV only24.Working capital management:A.ensures that sufficient equipment is available to produce the amount of product desired on adaily basis.B.ensures that long-term debt is acquired at the lowest possible cost.C.ensures that dividends are paid to all stockholders on an annual basis.D.balances the amount of company debt to the amount of available equity.E.is concerned with theupper portion of the balance sheet.
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Corporate Finance, 10th Edition Test Bank - Page 7 preview image1-625.Which one of the following statements concerning a sole proprietorship is correct?A.A sole proprietorship is the least common form of business ownership.B.The profits of a soleproprietorship are taxed twice.C.The owners of a sole proprietorship share profits as established by the partnership agreement.D.The owner of a sole proprietorship may be forced to sell his/her personal assets to paycompany debts.E.Asole proprietorship is often structured as a limited liability company.26.Which one of the following statements concerning a sole proprietorship is correct?A.The life of the firm is limited to the life span of the owner.B.The ownercan generally raise large sums of capital quite easily.C.The ownership of the firm is easy to transfer to another individual.D.The company must pay separate taxes from those paid by the owner.E.The legal costs to form a soleproprietorship are quite substantial.27.Which one of the following best describes the primary advantage of being a limited partner ratherthan a general partner?A.Entitlement to a larger portion of the partnership's incomeB.Ability to manage the day-to-day affairs of the businessC.No potential financial lossD.Greater management responsibilityE.Liability for firm debts limited to the capital invested28.A general partner:A.has less legalliability than a limited partner.B.has more management responsibility than a limited partner.C.faces double taxation whereas a limited partner does not.D.cannot lose more than the amount of his/her equity investment.E.is the termapplied only to corporations which invest in partnerships.29.A partnership:A.is taxed the same as a corporation.B.agreement defines whether the business income will be taxed like a partnership or acorporation.C.terminates at thedeath of any general partner.D.has less of an ability to raise capital than a proprietorship.E.allows for easy transfer of interest from one general partner to another.
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Corporate Finance, 10th Edition Test Bank - Page 8 preview image1-730.Which of the following are disadvantages of apartnership?I. Limited life of the firmII. Personal liability for firm debtIII. Greater ability to raise capital than a sole proprietorshipIV. Lack of ability to transfer partnership interestA.I and II onlyB.III and IV onlyC.II andIII onlyD.I, II, and IV onlyE.I, III, and IV only31.Which of the following are advantages of the corporate form of business ownership?I. limited liability for firm debtII. double taxationIII. ability to raise capitalIV.unlimited firm lifeA.I and II onlyB.III and IV onlyC.I, II, and III onlyD.II, III, and IV onlyE.I, III, and IV only32.Which one of the following statements is correct concerning corporations?A.The largest firmsare usually corporations.B.The majority of firms are corporations.C.The stockholders are usually the managers of a corporation.D.The ability of a corporation to raise capital is quite limited.E.The income of a corporation is taxed aspersonal income of the stockholders.33.Which one of the following statements is correct?A.Both partnerships and corporations incur double taxation.B.Both sole proprietorships and partnerships are taxed in a similar fashion.C.Partnerships are the most complicated type of business to form.D.Both partnerships and corporations have limited liability for general partners and shareholders.E.All types of business formations have limited lives.
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Corporate Finance, 10th Edition Test Bank - Page 9 preview image1-834.The articles ofincorporation:A.can be used to remove company management.B.are amended annually by the company stockholders.C.set forth the number of shares of stock that can be issued.D.set forth the rules by which the corporation regulates itsexistence.E.can set forth the conditions under which the firm can avoid double taxation.35.The bylaws:A.establish the name of the corporation.B.are rules which apply only to limited liability companies.C.set forth thepurpose of the firm.D.mandate the procedure for electing corporate directors.E.set forth the procedure by which the stockholders elect the senior managers of the firm.36.The owners of a limited liability company prefer:A.beingtaxed like a corporation.B.having liability exposure similar to that of a sole proprietor.C.being taxed personally on all business income.D.having liability exposure similar to that of a general partner.E.being taxed like acorporation with liability like a partnership.37.Which one of the following business types is best suited to raising large amounts of capital?A.sole proprietorshipB.limited liability companyC.corporationD.generalpartnershipE.limited partnership38.Which type of business organization has all the respective rights and privileges of a legal person?A.sole proprietorshipB.general partnershipC.limited partnershipD.corporationE.limited liability company
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Corporate Finance, 10th Edition Test Bank - Page 10 preview image1-939.Financial managers should strive to maximize the current value per share of the existing stockbecause:A.doing so guarantees the company will grow in size at the maximum possible rate.B.doing soincreases the salaries of all the employees.C.the current stockholders are the owners of the corporation.D.doing so means the firm is growing in size faster than its competitors.E.the managers often receive shares of stock as part oftheir compensation.40.The decisions made by financial managers should all be ones which increase the:A.size of the firm.B.growth rate of the firm.C.marketability of the managers.D.market value of the existing owners'equity.E.financial distress of the firm.41.Which one of the following actions by a financial manager creates an agency problem?A.Refusing to borrow money when doing so will create losses for the firmB.Refusing to lowerselling prices if doing so will reduce the net profitsC.Agreeing to expand the company at the expense of stockholders' valueD.Agreeing to pay bonuses based on the book value of the company stockE.Increasing current costs in order toincrease the market value of the stockholders' equity42.Which of the following help convince managers to work in the best interest of the stockholders?I. compensation based on the value of the stockII. stock option plansIII. threat of aproxy fightIV. threat of conversion to a partnershipA.I and II onlyB.II and III onlyC.I, II and III onlyD.I and III onlyE.I, II, III, and IV43.Which form of business structure faces the greatest agencyproblems?A.sole proprietorshipB.general partnershipC.limited partnershipD.corporationE.limited liability company
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Corporate Finance, 10th Edition Test Bank - Page 11 preview image1-1044.A proxy fight occurs when:A.the board solicits renewal of current members.B.a groupsolicits proxies to replace the board of directors.C.a competitor offers to sell their ownership in the firm.D.the firm files for bankruptcy.E.the firm is declared insolvent.45.Which one of the following parties isconsidered a stakeholder of a firm?A.employeeB.short-term creditorC.long-term creditorD.preferred stockholderE.common stockholder46.Which of the following are key requirements of the Sarbanes-Oxley Act?I.Officers of the corporation must review and sign annual reports.II. Officers of the corporation must now own more than 5% of the firm's stock.III. Annual reports must list deficiencies in internal controls.IV. Annual reports must be filed with the SEC within 30 days of year end.A.I only.B.II only.C.I and III only.D.II and III only.E.II and IV only.47.Insider trading is:A.legal.B.illegal.C.impossible to have in our efficient market.D.discouraged, but legal.E.list only the securities of the largest firms.48.Sole proprietorships are predominantly started because:A.they are easily and cheaply setup.B.the proprietorship life is limited to the business owner'slife.C.all business taxes are paid as individual tax.D.All of these.E.None of these.
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Corporate Finance, 10th Edition Test Bank - Page 12 preview image1-1149.Managers are encouraged to act in shareholders' interests by:A.shareholder election of a board of directors who selectmanagement.B.the threat of a takeover by another firm.C.compensation contracts that tie compensation to corporate success.D.Both shareholder election of a board of directors who select management;and the threat of atakeover by another firm.E.All of these.50.The Securities Exchange Act of 1934 focuses on:A.all stock transactions.B.sales of existing securities.C.issuance of new securities.D.insider trading.E.Federal Deposit Insurance Corporation (FDIC) insurance.51.The basic regulatory framework in the United States was provided by:A.the Securities Act of 1933.B.the Securities Exchange Act of 1934.C.the monetary system.D.theSecurities Act of 1933 and the Securities Exchange Act of 1934.E.All of these.52.The Securities Act of 1933 focuses on:A.all stock transactions.B.sales of existing securities.C.issuance of new securities.D.insidertrading.E.Federal Deposit Insurance Corporation (FDIC) insurance.53.In a limited partnership:A.each limited partner's liability is limited to his net worth.B.each limited partner's liability is limited to the amount he put intothe partnership.C.each limited partner's liability is limited to his annual salary.D.there is no limitation on liability;only a limitation on what the partner can earn.E.None of these.
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Corporate Finance, 10th Edition Test Bank - Page 13 preview image1-1254.Accounting profits and cash flows are:A.generally the same since they reflect current laws and accounting standards.B.generally the same since accounting profits reflect when the cash flows are received.C.generally not the same since GAAP allows for revenue recognition separate from the receipt ofcash flows.D.generally not the same because cash inflows occur before revenue recognition.E.Both generally not the same since GAAP allows for revenue recognition separate from thereceipt of cash flows;and generally not the same because cash inflows occur before revenuerecognition.55.The Chief Executive Officer typically reports to theA.Board of Director'sB.Granting authorityC.PresidentD.CFOE.None of these56.The cheapest business to form is typically theA.General corporationB.Sub-chapter S CorporationC.General PartnershipD.Limited PartnershipE.Sole proprietorship57.In a general partnership, the general partners haveA.Limited liabilityB.Unlimited liabilityC.No liabilityD.Minimal liabilityE.It depends on the partners' decision58.Managers that are successful in pursuing stockholder goals canA.See very little rewardB.See nofinancial gain through raises and bonusesC.Never become stockholdersD.Reap enormous rewardsE.Start a proxy fight with stockholdersEssay Questions
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Corporate Finance, 10th Edition Test Bank - Page 14 preview image1-1359.List and briefly describe the three basic questions addressed by afinancial manager.60.What advantages does the corporate form of organization have over sole proprietorships orpartnerships?61.If the corporate form of business organization has so many advantages over the soleproprietorship, why is it so common for small businesses to initially be formed as soleproprietorships?62.What should be the goal of the financial manager of a corporation? Why?
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Corporate Finance, 10th Edition Test Bank - Page 15 preview image1-1463.Do you think agency problems arise insole proprietorships and/or partnerships?64.Assume for a moment that the stockholders in a corporation have unlimited liability for corporatedebts. If so, what impact would this have on the functioning of primary and secondary markets forcommon stock?65.Suppose you own 100 shares of IBM stock which you intend to sell today. Since you will sell it inthe secondary market, IBM will receive no direct cash flows as a consequence of your sale. Why,then, should IBM's management care about the price you get for your shares?
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Corporate Finance, 10th Edition Test Bank - Page 16 preview image1-1566.One thing lenders sometimes require when loaning money to a small corporation is an assignmentof the common stock as collateral on the loan. Then, if the business fails to repay itsloan, theownership of the stock certificates can be transferred directly to the lender. Why might a lenderwant such an assignment? What advantage of the corporate form of organization comes into playhere?67.Why might acorporation wish to list its shares on a national exchange such as the NYSE asopposed to a regional exchange or NASDAQ?
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Corporate Finance by Stephen Ross, ...

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