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Corporate Finance, Global Second Edition Test Bank

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    Corporate Finance, Global Second Edition Test Bank, page 1Test BankforCorporate FinanceFourth EditionGlobal EditionJonathan BerkStanford UniversityPeter DeMarzoStanford UniversityTest BankbyJanet PayneTexas State University&William ChittendenTexas State University

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    Corporate Finance, Global Second Edition Test Bank, page 2

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    Corporate Finance, Global Second Edition Test Bank, page 31Corporate Finance, 4e, Global Edition(Berk / DeMarzo)Chapter 1The Corporation1.1The Four Types of Firms1)Asoleproprietorshipisownedby:A)oneperson.B)twoofmorepersons.C)shareholders.D)bankers.Answer:ADiff:1Section:1.1TheFourTypesofFirmsSkill:Definition2)WhichofthefollowingorganizationformsforabusinessdoesNOTavoiddoubletaxation?A)LimitedpartnershipB)ʺCʺcorporationC)ʺSʺcorporationD)LimitedliabilitycompanyAnswer:BDiff:1Section:1.1TheFourTypesofFirmsSkill:Conceptual3)Whichofthefollowingorganizationformsaccountsforthemostrevenue?A)ʺSʺcorporationB)LimitedpartnershipC)ʺCʺcorporationD)LimitedliabilitycompanyAnswer:CDiff:1Section:1.1TheFourTypesofFirmsSkill:Conceptual4)Whichofthefollowingorganizationformsaccountsforthegreatestnumberoffirms?A)ʺSʺcorporationB)LimitedpartnershipC)SoleproprietorshipD)ʺCʺcorporationAnswer:CDiff:1Section:1.1TheFourTypesofFirmsSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 425)WhichofthefollowingisNOTanadvantageofasoleproprietorship?A)SingletaxationB)EaseofsetupC)LimitedliabilityD)NoseparationofownershipandcontrolAnswer:CDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual6)WhichofthefollowingstatementsregardinglimitedpartnershipsisTRUE?A)Thereisnolimitonalimitedpartnerʹsliability.B)Alimitedpartnerʹsliabilityislimitedbytheamountoftheirinvestment.C)Alimitedpartnerisnotliableuntilalltheassetsofthegeneralpartnershavebeenexhausted.D)Ageneralpartnerʹsliabilityislimitedbytheamountoftheirinvestment.Answer:BDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual7)Whichofthefollowingis/areanadvantageofincorporation?A)AccesstocapitalmarketsB)LimitedliabilityC)UnlimitedlifeD)AlloftheaboveAnswer:DDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual8)Whichofthefollowingstatementsismostcorrect?A)Anadvantagetoincorporationisthatitallowsforlessregulationofthebusiness.B)Anadvantageofacorporationisthatitissubjecttodoubletaxation.C)Unlikeapartnership,adisadvantageofacorporationisthathaslimitedliability.D)Corporationsfacemoreregulationswhencomparedtopartnerships.Answer:DDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual9)Alimitedliabilitycompanyisessentially:A)alimitedpartnershipwithoutlimitedpartners.B)alimitedpartnershipwithoutageneralpartner.C)justanothernameforalimitedpartnership.D)justanothernameforacorporation.Answer:BDiff:1Section:1.1TheFourTypesofFirmsSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 5310)Thedistinguishingfeatureofacorporationisthat:A)theirisnolegaldifferencebetweenthecorporationanditsowners.B)itisalegallydefined,artificialbeing,separatefromitsowners.C)itspreadsliabilityforitscorporateobligationstoallshareholders.D)provideslimitedliabilityonlytosmallshareholders.Answer:BDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual11)Whichofthefollowingaresubjecttodoubletaxation?A)CorporationB)PartnershipC)SoleproprietorshipD)AandBAnswer:ADiff:1Section:1.1TheFourTypesofFirmsSkill:Conceptual12)Youown100sharesofaʺCʺcorporation.Thecorporationearns$5.00persharebeforetaxes.Oncethecorporationhaspaidanycorporatetaxesthataredue,itwilldistributetherestofitsearningstoitsshareholdersintheformofadividend.Ifthecorporatetaxrateis40%andyourpersonaltaxrateon(bothdividendandnon‐dividend)incomeis30%,thenhowmuchmoneyisleftforyouafteralltaxeshavebeenpaid?A)$210B)$300C)$350D)$500Answer:AExplanation:A)EPS×numberofshares×(1‐CorporateTaxRate)×(1‐IndividualTaxRate)$5.00pershare×100shares×(1‐.40)×(1‐.30)=$210Diff:2Section:1.1TheFourTypesofFirmsSkill:Analytical

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    Corporate Finance, Global Second Edition Test Bank, page 6413)Youown100sharesofaSubChapterʺSʺcorporation.Thecorporationearns$5.00persharebeforetaxes.Oncethecorporationhaspaidanycorporatetaxesthataredue,itwilldistributetherestofitsearningstoitsshareholdersintheformofadividend.Ifthecorporatetaxrateis40%andyourpersonaltaxrateon(bothdividendandnon‐dividend)incomeis30%,thenhowmuchmoneyisleftforyouafteralltaxeshavebeenpaid?A)$210B)$300C)$350D)$500Answer:CExplanation:C)EPS×numberofshares×(1‐IndividualTaxRate)$5.00pershare×100shares×(1‐.30)=$350Diff:2Section:1.1TheFourTypesofFirmsSkill:Analytical14)YouareashareholderinaʺCʺcorporation.Thiscorporationearns$4persharebeforetaxes.Afterithaspaidtaxes,itwilldistributetheremainderofitsearningstoyouasadividend.Thedividendisincometoyou,soyouwillthenpaytaxesontheseearnings.Thecorporatetaxrateis35%andyourtaxrateondividendincomeis15%.Theeffectivetaxrateonyourshareofthecorporationsearningsisclosestto:A)15%B)35%C)45%D)50%Answer:CExplanation:C)Firstthecorporationpaystaxes.Itearned$4pershare,butmustpay$4×.35=$1.40tothegovernmentincorporatetaxes.Thatleaves$4.00‐$1.40=$2.60todistributetotheshareholders.However,theshareholdermustpay$2.60×.15=$0.39inincometaxesonthisamount,leavingonly$2.21totheshareholderafteralltaxesarepaid.Thetotalamountpaidintaxesis$1.40+0.39=$1.79.Theeffectivetaxrateisthen$1.79÷$4=.4475or44.75%whichisclosestto45%.Diff:3Section:1.1TheFourTypesofFirmsSkill:Analytical15)Explainthebenefitsofincorporation.Answer:1.Limitedliability2.Unlimitedlife3.Accesstocapitalmarkets/availabilityofoutsidefundingDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 7516)Explainthedifferencebetweenasub‐chapterʺSʺcorporationandasub‐chapterʺCʺcorporation.Answer:ʺCʺCorporationʺSʺCorporationPubliclytradedstockPrivatelytradedstockUnlimitedshareholdersNomorethan100shareholdersDoubletaxationTaxedlikeapartnershipDiff:2Section:1.1TheFourTypesofFirmsSkill:Conceptual1.2Ownership Versus Control of Corporations1)Inacorporation,theultimatedecisionsregardingbusinessmattersaremadeby:A)theBoardofDirectors.B)debtholders.C)shareholders.D)investors.Answer:ADiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Conceptual2)Thepersonchargedwithrunningthecorporationbyinstitutingtherulesandpoliciessetbytheboardofdirectorsiscalled:A)thechiefoperatingofficer.B)thecompanypresident.C)thechiefexecutiveofficer.D)thechieffinancialofficer.Answer:CDiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Definition3)ThePrincipal‐AgentProblemarises:A)becausemanagershavelittleincentivetoworkintheinterestofshareholderswhenthismeansworkingagainsttheirownself‐interest.B)becauseoftheseparationofownershipandcontrolinacorporation.C)BothAandBD)NoneoftheaboveAnswer:CDiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 864)IfshareholdersareunhappywithaCEOʹsperformance,theyaremostlikelyto:A)buymoresharesinanefforttogaincontrolofthefirm.B)fileashareholderresolution.C)replacetheCEOthroughagrassrootsshareholderuprising.D)selltheirshares.Answer:DDiff:2Section:1.2OwnershipVersusControlofCorporationsSkill:Conceptual5)A________iswhenarichindividualororganizationpurchasesalargefractionofthestockofapoorlyperformingfirmandindoingsogetsenoughvotestoreplacetheboardofdirectorsandtheCEO.A)shareholderproposalB)leveragedbuyoutC)shareholderactionD)hostiletakeoverAnswer:DDiff:2Section:1.2OwnershipVersusControlofCorporationsSkill:Definition6)WhichofthefollowingstatementsisFALSE?A)Inbankruptcy,managementisgiventheopportunitytoreorganizethefirmandrenegotiatewithdebtholders.B)Becauseacorporationisaseparatelegalentity,whenitfailstorepayitsdebts,thepeoplewholenttothefirm,thedebtholdersareentitledtoseizetheassetsofthecorporationincompensationforthedefault.C)Aslongasthecorporationcansatisfytheclaimsofthedebtholders,ownershipremainsinthehandsoftheequityholders.D)Ifthecorporationfailstosatisfydebtholdersʹclaims,debtholdersmaylosecontrolofthefirm.Answer:DExplanation:D)Ifthecorporationfailstosatisfydebtholdersʹclaims,debtholdersmaytakecontrolofthefirm.Diff:2Section:1.2OwnershipVersusControlofCorporationsSkill:Conceptual7)Themostseniorfinancialmanagerinacorporationisusuallycalled:A)thechiefexecutiveofficer.B)thechieffinancialofficer.C)thechiefoperatingofficer.D)thechairmanoftheboard.Answer:BDiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Definition

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    Corporate Finance, Global Second Edition Test Bank, page 978)YouoverhearyourmanagersayingthatsheplanstobookanOcean‐viewroomonherupcomingtriptoMiamiforameeting.YouknowthattheinteriorroomsaremuchlessexpensiveandthatyourmanageristravelingattheCompanyʹsexpense.Thisuseofadditionalfundscomesaboutasaresultof:A)anagencyproblem.B)anadverseselectionproblem.C)amoralhazard.D)apublicityproblem.Answer:ADiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Definition9)Anagencyproblemcanbealleviatedby:A)requiringallfirmstobesoleproprietorships.B)compensatingmanagersinsuchawaythatactinginthebestinterestofshareholdersisalsointhebestinterestofmanagers.C)askingmanagerstotakeonmoreriskthantheyarecomfortabletaking.D)AandB.Answer:DDiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Definition10)Docorporatedecisionsthatincreasethevalueofthefirmʹsequitybenefitsocietyasawhole?A)Yes,aslongasthevalueofthefirmʹsequityincreases,societyisbetteroff.B)Yes,aslongastheincreaseinthevalueofthefirmʹsequitydoesnotcomeattheexpenseofothers.C)No,anygaininthevalueofthefirmʹsequityisalwayslessthanthecosttosociety.D)No,anygainsinthevalueofthefirmʹsequityareperfectlyoffsetbysocietalcosts.Answer:BDiff:1Section:1.2OwnershipVersusControlofCorporationsSkill:Conceptual11)Whatstrategiesareavailabletoshareholderstohelpensurethatmanagersaremotivatedtoactintheinterestoftheshareholdersratherthantheirowninterest?Answer:1.Thethreatofahostiletakeover2.Shareholderinitiatives3.PerformancebasedcompensationDiff:3Section:1.2OwnershipVersusControlofCorporationsSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 1081.3The Stock MarketUsethetableforthequestion(s)below.ConsiderthefollowingtwoquotesforXYZstock:November11thNovember18thAsk:25.25Ask:26.00Bid:25.20Bid:25.931)Howmuchwouldyouhavetopaytopurchase100sharesofXYZstockonNovember18th?A)$2520B)$2525C)$2593D)$2600Answer:DExplanation:D)100shares×$26.00(askprice)=$2600Diff:1Section:1.3TheStockMarketSkill:Analytical2)Howmuchwouldyoureceiveifyousold200sharesofXYZstockonNovember11th?A)$5050B)$5040C)$5186D)$5200Answer:BExplanation:B)200shares×$25.20(bidprice)=$5040Diff:1Section:1.3TheStockMarketSkill:Analytical3)Thelargeststockmarketintheworldbymarketcapitalizationis:A)theLondonStockExchange.B)NASDAQ.C)theAmericanStockExchange.D)theNewYorkStockExchange.Answer:DDiff:1Section:1.3TheStockMarketSkill:Definition

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    Corporate Finance, Global Second Edition Test Bank, page 1194)Thelargeststockmarketintheworldbyvolumeis:A)theLondonStockExchange.B)NASDAQ.C)theAmericanStockExchange.D)theNewYorkStockExchange.Answer:BDiff:1Section:1.3TheStockMarketSkill:Definition5)Aninvestmentissaidtobeliquidiftheinvestment:A)haslargedaytodayfluctuationsinprice.B)hasalargebid‐askspread.C)caneasilybeconvertedintocash.D)istradedonastockexchange.Answer:CDiff:2Section:1.3TheStockMarketSkill:Definition6)Whattypeofcompanytradesonanorganizedstockexchange?A)AlimitedliabilitycompanyB)AprivatecompanyC)AnʺSʺcorporationD)ApubliccompanyAnswer:DDiff:1Section:1.3TheStockMarketSkill:Definition7)WhichofthefollowingstatementsisFALSE?A)OnNasdaq,stockscananddohavemultiplemarketmakerswhocompetewitheachother.EachmarketmakermustpostbidandaskpricesintheNasdaqnetworkwheretheycanbeviewedbyallparticipants.B)Bidpricesexceedaskprices.C)Becausecustomersalwaysbuyattheaskandsellatthebid,thebid‐askspreadisatransactioncostinvestorshavetopayinordertotrade.D)OntheflooroftheNYSE,priorto2005marketmakers(knownontheNYSEasspecialists)matchedbuyersandsellers.Answer:BExplanation:B)Askpricesexceedbidprices.Diff:2Section:1.3TheStockMarketSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 12108)IfyoubuysharesofCoca‐Colaontheprimarymarket:A)Coca‐Colareceivesthemoneybecausethecompanyhasissuednewshares.B)youbuythesharesfromanotherinvestorwhodecidedtoselltheshares.C)youbuythesharesfromtheNewYorkStockExchange.D)youbuythesharesfromtheFederalReserve.Answer:ADiff:1Section:1.3TheStockMarketSkill:Definition9)IfyoubuysharesofCoca‐Colaonthesecondarymarket:A)Coca‐Colareceivesthemoneybecausethecompanyhasissuednewshares.B)youbuythesharesfromanotherinvestorwhodecidedtoselltheshares.C)youbuythesharesfromtheNewYorkStockExchange.D)youbuythesharesfromtheFederalReserve.Answer:BDiff:1Section:1.3TheStockMarketSkill:DefinitionUsethetableforthequestion(s)below.ConsiderthefollowingtwoquotesforXYZstock:November11thNovember18thAsk:25.25Ask:26.00Bid:25.20Bid:25.9310)Whatareyournetproceedsifyoupurchased2500sharesofXYZstockonNovember11thandthensoldthemaweeklateronNovember18th?Answer:buyataskprice11/11=2500×$25.25=$63,125sellatbidprice11/18=2500×$25.93=$64,825nowsubtractthepricepaidforthesharessonetproceeds=64,825‐63,125=$1700Diff:2Section:1.3TheStockMarketSkill:Analytical11)ExplainthemaindifferencesbetweentheNYSEandNASDAQstockmarkets.Answer:Keypoints:NYSEhasphysicallocation‐NASDAQisanelectronicmarket.NYSEhasonespecialistineachstockandhisroleistomatchbuyersandsellers.NASDAQhasmultiplemarketmakers(dealers)ineachstockwhostandreadytotradeontheirownaccounts.Diff:2Section:1.3TheStockMarketSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 131Corporate Finance, 4e, Global Edition(Berk / DeMarzo)Chapter 2Introduction to Financial Statement Analysis2.1Firms' Disclosure of Financial Information1)U.S.publiccompaniesarerequiredtofiletheirannualfinancialstatementswiththeU.S.SecuritiesandExchangeCommissiononwhichform?A)10‐AB)10‐KC)10‐QD)10‐SECAnswer:BDiff:1Section:2.1FirmsʹDisclosureofFinancialInformationSkill:Definition2)WhichofthefollowingisNOTafinancialstatementthateverypubliccompanyisrequiredtoproduce?A)IncomeStatementB)StatementofSourcesandUsesofCashC)BalanceSheetD)StatementofStockholdersʹEquityAnswer:BDiff:2Section:2.1FirmsʹDisclosureofFinancialInformationSkill:Conceptual3)ThethirdpartywhochecksannualfinancialstatementstoensurethattheyarepreparedaccordingtoGAAPandverifiesthattheinformationreportedisreliableisthe:A)NYSEEnforcementBoard.B)AccountingStandardsBoard.C)SecuritiesandExchangeCommission(SEC).D)auditor.Answer:DDiff:1Section:2.1FirmsʹDisclosureofFinancialInformationSkill:Definition4)Whatistheroleofanauditorinfinancialstatementanalysis?Answer:Keypoints:1.Toensurethattheannualfinancialstatementsarepreparedaccurately.2.ToensurethattheannualfinancialstatementsarepreparedaccordingtoGAAP.3.Toverifythattheinformationusedinpreparingtheannualfinancialstatementsisreliable.Diff:2Section:2.1FirmsʹDisclosureofFinancialInformationSkill:Conceptual

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    Corporate Finance, Global Second Edition Test Bank, page 1425)Whatarethefourfinancialstatementsthatallpubliccompaniesmustproduce?Answer:1.BalanceSheet2.IncomeStatement3.StatementofCashFlows4.StatementofStockholderʹsEquityDiff:2Section:2.1FirmsʹDisclosureofFinancialInformationSkill:Conceptual2.2The Balance Sheet1)WhichofthefollowingbalancesheetequationsisINCORRECT?A)Assets‐Liabilities=ShareholdersʹEquityB)Assets=Liabilities+ShareholdersʹEquityC)Assets‐CurrentLiabilities=LongTermLiabilitiesD)Assets‐CurrentLiabilities=LongTermLiabilities+ShareholdersʹEquityAnswer:CDiff:2Section:2.2TheBalanceSheetSkill:Conceptual2)Cashisa:A)long‐termasset.B)currentasset.C)currentliability.D)long‐termliability.Answer:BDiff:1Section:2.2TheBalanceSheetSkill:Definition3)Accountspayableisa:A)long‐termliability.B)currentasset.C)long‐termasset.D)currentliability.Answer:DDiff:1Section:2.2TheBalanceSheetSkill:Definition

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    Corporate Finance, Global Second Edition Test Bank, page 1534)A30yearmortgageloanisa:A)long‐termliability.B)currentliability.C)currentasset.D)long‐termasset.Answer:ADiff:1Section:2.2TheBalanceSheetSkill:Definition5)WhichofthefollowingstatementsregardingthebalancesheetisINCORRECT?A)Thebalancesheetprovidesasnapshotsofthefirmʹsfinancialpositionatagivenpointintime.B)Thebalancesheetliststhefirmʹsassetsandliabilities.C)Thebalancesheetreportsstockholdersʹequityontherighthandside.D)Thebalancesheetreportsliabilitiesonthelefthandside.Answer:DDiff:2Section:2.2TheBalanceSheetSkill:Conceptual6)DustinʹsDonutsexperiencedadecreaseinthevalueofthetrademarkofacompanyitacquiredtwoyearsago.Thisreductioninvalueresultsin:A)animpairmentcharge.B)depreciationexpense.C)anoperatingexpense.D)goodwill.Answer:ADiff:1Section:2.2TheBalanceSheetSkill:Definition7)Whichofthefollowingisanexampleofanintangibleasset?A)BrandnamesandtrademarksB)PatentsC)CustomerrelationshipsD)Alloftheaboveareintangibleassets.Answer:DDiff:1Section:2.2TheBalanceSheetSkill:Definition8)Onthebalancesheet,short‐termdebtappears:A)intheStockholdersʹEquitysection.B)intheOperatingExpensessection.C)intheCurrentAssetssection.D)intheCurrentLiabilitiessection.Answer:DDiff:1Section:2.2TheBalanceSheetSkill:Definition

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    Corporate Finance, Global Second Edition Test Bank, page 1649)Onthebalancesheet,currentmaturitiesoflong‐termdebtappears:A)intheStockholdersʹEquitysection.B)intheOperatingExpensessection.C)intheCurrentAssetssection.D)intheCurrentLiabilitiessection.Answer:DDiff:1Section:2.2TheBalanceSheetSkill:Definition10)Thefirmʹsassetsandliabilitiesatagivenpointintimearereportedonthefirmʹs:A)incomestatementorstatementoffinancialperformance.B)incomestatementorstatementoffinancialposition.C)balancesheetorstatementoffinancialperformance.D)balancesheetorstatementoffinancialposition.Answer:DDiff:1Section:2.2TheBalanceSheetSkill:Definition11)Thestatementoffinancialpositionisalsoknownasthe:A)balancesheet.B)incomestatement.C)statementofcashflows.D)statementofstockholderʹsequity.Answer:ADiff:1Section:2.2TheBalanceSheetSkill:Definition12)ZoeDentalImplementshasgrossproperty,plantandequipmenttotaling$1.4million,depreciationexpensethisyearof$200,000,andaccumulateddepreciationof$750,000.WhatisthebookvalueofZoeʹsproperty,plantandequipment?A)$1.4millionB)$1.2millionC)$550,000D)$650,000Answer:DExplanation:D)Bookvalue=$1,400,000‐$750,000=$650,000Diff:2Section:2.2TheBalanceSheetSkill:Analytical

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