Corporate Finance, Global Second Edition Test Bank

Preview (16 of 1008 Pages)

100%

Purchase to unlock

Loading page image...

Test BankforCorporate FinanceFourth EditionGlobal EditionJonathan BerkStanford UniversityPeter DeMarzoStanford UniversityTest BankbyJanet PayneTexas State University&William ChittendenTexas State University

Loading page image...

1Corporate 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

Loading page image...

25)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

Loading page image...

310)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

Loading page image...

413)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

Loading page image...

516)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

Loading page image...

64)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

Loading page image...

78)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

Loading page image...

81.3The 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

Loading page image...

94)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

Loading page image...

108)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

Loading page image...

1Corporate 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

Loading page image...

25)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

Loading page image...

34)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

Loading page image...

49)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

Preview Mode

This document has 1008 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Corporate Finance, Global Second Edition Solution Manual

Texas Life and Health Insurance Exam 150 Questions

Understanding Obligation and Deobligation in Resou

Budgeting for Life After High School

Ch 4 les 1

Understanding Credit Reports Analyzing John's Fina

Financial Planning and Budget Analysis

WACC Project Verizon Communication Inc

CEO pay at John Deere and Caterpillar

Financial Research Report

Company

Explore

Study Tools