(Test Bank) Fundamentals Of Corporate Finance

Brealey,Myers,Marcus, 11

Business

Test Bank

11th Edition

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Test Bank for Fundamentals Of Corporate Finance, The downloadable file consists of 1037 pages, and the total size of the file is 4.39 MB. Purchase now only for highly discounted price.

Author(s): Brealey, Myers, Marcus

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Version 1 1 Test Bank for Fundamentals of Corporate Finance, 11e Richard Brealey, Stewart Myers, Alan Marcus (Answers are at the end of each chapter) 1) Which one of these is a disadvantage of the corporate form of business? A) Access to capital B) Unlimited personal liability for owners C) Limited firm life D) Legal requirements 2) Which one of the following gives a corporation its permanence? A) Multiple owners B) Limited liability C) Corporation taxation D) Separation of ownership and control 3) In a partnership form of organization, income tax liability, if any, is incurred by: A) the partnership itself. B) the partners individually. C) both the partnership and the partners. D) neither the partnership nor the partners. 4) Which one of the following would correctly differentiate general partners from limited partners in a limited partnership? Version 1 2 A) General partners have more job experience. B) General partners have an ownership interest. C) General partners are subject to double taxation. D) General partners have unlimited personal liability. 5) Which form of organization provides limited liability for the firm but yet allows the professionals working within that firm to be sued personally? A) Limited liability partnership B) Limited liability company C) Sole proprietorship D) Professional corporation 6) Which of the following organizations is least likely to use a professional corporation (PC) structure? A) Accountants B) Doctors C) Lawyers D) Manufacturers 7) Which of the following is least likely to be discussed in the articles of incorporation? A) How the firm is to be financed B) The purpose of the business C) The price range of the shares of stock D) How the board of directors is to be structured 8) When a corporatio n fails, the maximum that can be lost by an individual shareholder is: Version 1 3 A) the amount of their initial investment. B) the amount of their share of the profits. C) their proportionate share required to pay the corporation's debts. D) the amount of their personal wealth. 9) Which of the following is a disadvantage to incorporating a business? A) Easier access to financial markets B) Limited liability C) Becoming a permanent legal entity D) Profits taxed at the corporate level and the shareholder level 10) Unlimited liability is faced by the owners of: A) corporations. B) partnerships and corporations. C) sole proprietorships and general partnerships. D) all forms of business organizat ion. 11) Which one of these statements correctly applies to a limited partnership? A) All partners share the daily management duties. B) All partners enjoy limited personal liability. C) General partners have unlimited personal l iability. D) Taxes are imposed at both the firm and the personal level on profits earned. 12) In the case of a limited liability partnership, _________ has/have limited liability. Version 1 4 A) only some of partners B) only the managing par tner C) all of the partners D) none of the partners 13) A board of directors is elected as a representative of the corporation's: A) top management. B) stakeholders. C) shareholders. D) customers. 14) The legal "life" of a corporation is: A) coincidental with that of its CEO. B) equal to the life of its board of directors. C) permanent, as long as shareholders don't change. D) permanent, regardless of current ownership. 15) In which type of organizational structure is the agency problem least likely to exist? A) Limited liability corporation B) Partnership C) Professional corporation D) Sole proprietorship 16) When the management of a business is cond ucted by individuals other than the sole owners, the business is most likely to be a: Version 1 5 A) corporation. B) sole proprietorship. C) partnership. D) general partner. 17) "Double taxation" refers to: A) all partners paying e qual taxes on profits. B) corporations paying taxes on both dividends and retained earnings. C) paying taxes on profits at the corporate level and dividends at the personal level. D) the fact that marginal tax rates are doubled for corporations. 18) A corporation is considered to be closely held when: A) only a few shareholders exist. B) the market value of the shares is stable. C) it operates in a small geographic area. D) management also serves as the board of directors . 19) Which of the following is NOT a requirement of the Sarbanes -Oxley Act of 2002? A) The compensation committee must be appointed by an outside director B) The CEO and CFO must sign off personally on corporate accounting result s C) The board of directors must meet in executive session D) More board of directors members are independent 20) Corporations are referred to as public companies when their: Version 1 6 A) shareholders have no tax liability. B) shares are held by the federal or state government. C) stock is publicly traded. D) products or services are available to the public. 21) A common problem for closely held corporations is: A) the lack of access to substantial amounts of capital. B) the restriction that shareholders receive only one vote each. C) the separation of ownership and management. D) an abundance of agency problems. 22) Corporate managers are expected to make corporate decisions that are in the best interest of: A) top corporate management. B) the corporation's board of directors. C) the corporation's shareholders. D) all corporate employees. 23) Which one of the following is a financial asset? A) A corporate bond B) A machine C) A patent D) A factory 24) Which of the following statements best distinguishes the difference between real and financial assets? Version 1 7 A) Real assets have less value than financial assets. B) Real assets are tangible; financial assets are not. C) Financial assets represent claims to income that are generated by real assets. D) Financial assets appreciate in value; real assets depreciate in value. 25) Which one of the following is a real asset? A) A patent B) A personal IOU C) A checking account balance D) A share of stock 26) Which one of these is not considered to be a security? A) Shares of GE stock B) A bond traded in the financial market C) A mortgage loan issued and held by a bank D) A convertible bond issued to the public 27) Corporations that issue financial securities such as stock or debt obligations to the public do so primarily to: A) increase sales. B) become profitable. C) increase their access to funds. D) avoid double taxation of their profits. 28) Which one of the following would be considered a capital budgeting decision? Version 1 8 A) Planning to issue common stock rather than issuing prefe rred stock B) Deciding to expand into a new line of products, at a cost of $5 million C) Repurchasing shares of common stock D) Issuing debt in the form of long -term bonds 29) Which one of these is a capital budgeting decision? A) Deciding between issuing stock or debt securities B) Deciding whether or not the firm should go public C) Deciding if the firm should repurchase some of its outstanding shares D) Deciding whether to buy a new machine or repair the old machine 30) The best criterion for success in a capital budgeting decision would be to: A) minimize the cost of the investment. B) maximize the number of capital budgeting projects. C) maximize the value added to the firm. D) finance all capital budgeting projects with debt. 31) The overall goal of capital budgeting projects should be to: A) decrease the firm's reliance on debt. B) increase the firm's sales. C) increase the firm's outstanding shares of stock. D) increase the wealth of the firm's shareholders. 32) An example of a firm's financing decision would be: Version 1 9 A) acquiring a competitive firm. B) determining how much to pay for a specific asset. C) issuing 10 -year versus 20 -year bonds. D) deciding whether or not to increase the price of its products. 33) Which of the following is a capital budgeting decision? A) Should the firm borrow money from a bank or sell bonds? B) Should the firm shut down an unprofitable factory? C) Should the firm buy or lease a new machine that it is committed to acquiring? D) Should the firm issue preferred stock or common stock? 34) Which of these duties are responsibilities of the corporate treasu rer? A) Financial statements and taxes B) Cash management and tax reporting C) Cash management and banking relationships D) Raising capital and financial statements 35) The term "capital structure" refers to: A) the mix of long -term debt and equity financing. B) the length of time needed to repay debt. C) whether or not the firm invests in capital budgeting projects. D) the types of assets a firm acquires. 36) Firms can alter their capital structure by : Version 1 10 A) not accepting any new capital budgeting projects. B) investing in intangible assets. C) issuing stock to repay debt. D) becoming a limited liability company. 37) Which one of these statements is correct? A) Financial managers have a fiduciary duty to stockholders. B) Financial managers are concerned only with funds that flow to investors. C) The chief financial officer generally reports directly to the corporate treasurer. D) The corporate controller is p rimarily responsible for overseeing a firm's cash functions. 38) A firm decides to pay for a small investment project through a $1 million increase in short -term bank loans. This is best described as an example of a(n): A) financing decision. B) investment decision. C) capital budgeting decision. D) capital expenditure decision. 39) Which of the following is NOT a claim on the assets of a company? A) Bond B) Patent C) Promissory note D) Loan 40) The short -term decisions of financial managers are comprised of: Version 1 11 A) capital structure decisions only. B) investment decisions only. C) financing decisions only. D) both investment and financing decisions. 41) A block ho lder is commonly defined as an investor who: A) owns 5% or more of a firm's outstanding shares. B) invests in more than one firm within the same industry. C) is another corporation. D) is also one of the firm's managers or directors. 42) Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm? A) Treasurer B) Controller C) Chief operating officer D) Board of directors 43) In a large corporation, preparation of the firm ’s financial statements would most likely be conducted by the: A) treasurer. B) controller. C) chief financial officer. D) financial manager. Version 1 12 44) In a firm having both a treasurer and a contro ller, which of the following would most likely be handled by the controller? A) Internal auditing B) Credit management C) Banking relationships D) Insurance 45) Which one of the following statements more accurately describes the controller than the treasurer? A) Reports directly to the chief executive officer B) Monitors capital expenditures to make sure that they are not misappropriated C) Responsible for investing the firm's spare cash D) Responsible for arranging any issue of common stock 46) A chief financial officer would typically: A) report to the treasurer, but supervise the controller. B) report to the controller, but supervise the treasurer. C) report to both the treasurer and cont roller. D) supervise both the treasurer and controller. 47) Which one of these determines the minimum acceptable rate of return on a capital investment? A) The alternative investment opportunities available to investors B) The pr ofit margin of the existing firm C) The rate of return on the firm's outstanding shares D) The rate of return on risk -free debt securities Version 1 13 48) A financial analyst in a corporation may be involved with all of the following EXCEPT: A) analyzing a new investment project. B) monitoring risk. C) managing investment of the company's cash. D) purchasing the firm's plant and equipment. 49) Investment banks like Morgan Stanley or Goldman Sachs: A) collect deposi ts and relend the cash to corporations and individuals. B) help companies sell their securities to investors. C) design and sell insurance policies for businesses. D) lend to corporations and investors in commercial real estate. 50) The primary goal of corporate management should be to: A) maximize the number of shareholders. B) maximize the firm's profits. C) minimize the firm's costs. D) maximize the shareholders' wealth. 51) A corporate board of directors sh ould provide support for the top management team: A) under all circumstances. B) in all decisions related to cash dividends. C) only when the board approves of management's actions. D) under no circumstances; it is an adversarial system. Version 1 14 52) Which of the following appears to be the most appropriate goal for corporate management? A) Maximizing market value of the company's shares B) Maximizing the company's market share C) Maximizing the current profits of the compa ny D) Minimizing the company's liabilities 53) A firm with spare cash: A) should always reinvest it in new equipment. B) should pay it out to shareholders unless the firm can earn a higher rate of return on the cash than the shar eholders can earn by investing in the capital market. C) should invest it in the safest projects available. D) should always invest it in U.S. equities since these securities have a higher rate of return than Treasury bills. 54) Financial managers should only accept investment projects that: A) increase the current profits of the firm. B) can increase the firm's market share. C) earn a higher rate of return than the firm currently earns on its existing projects. D) ea rn a higher rate of return than shareholders can get by investing on their own. 55) Agency problems can least be controlled by: A) establishing good internal controls and procedures. B) designing compensation packages that align m anager's goals with those of the shareholders. C) good systems of corporate governance. D) electing senior managers to the board of directors. Version 1 15 56) Which one of these best defines the objective of a well -functioning financial market? A) Establishing accurate security prices B) Creating higher security prices C) Eliminating short -selling profits D) Increasing shareholder value by any means possible 57) Ethical decision making by management has a payoff for sharehol ders in terms of: A) improved capital structure. B) enhanced firm reputation value. C) increased managerial benefits. D) higher current dividend payments. 58) Ethical decision making in business: A) reduces the firm's p rofits. B) requires adherence to implied rules as well as written rules. C) is not in the best interests of shareholders. D) is less important than good capital budgeting decisions. 59) A corporate director: A) is selected by and can be removed by management. B) can be voted out of power by the shareholders. C) has a lifetime appointment to the board. D) is selected by a vote of all corporate stakeholders.