Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate) 9th Edition Test Bank

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Chapter 01 Test Bank-StaticStudent: ___________________________________________________________________________1. Jenna has been promoted and is now in charge of all external financing. In other words, she is in chargeof:A. capitalstructure management.B. asset allocation.C. risk management.D. capital budgeting.E. working capital management.2. Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equityis referred to as the firm's:A. capital structure.B. capital budget.C. asset allocation.D. working capital.E. risk structure.3. Theo’s BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to theseaccounts are referred to as:A. capital structure decisions.B. capital budgeting decisions.C. working capital management.D. operating management.E. fixed account structure.4. Margie opened a used bookstore and is both the 100 percent owner and the store'smanager. Whichtype of business entity does Margie own if she is personally liable for all the store's debts?A. Sole proprietorshipB. Limited partnershipC. CorporationD. Joint stock companyE. General partnership5. Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create abusiness together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill willequally share in the decision making and in the business profits or losses. Which type of business did theycreate if they both have full personal liability for the firm's debts?A. Sole proprietorship

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B. Limited partnershipC. CorporationD. Joint stock companyE. General partnership6. Matt and Aliciacreated a firm that is a separate legal entity and will share ownership of that firm on a75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?A. Limited partnershipB. CorporationC. Sole proprietorshipD. General partnershipE. Public company7. The potential conflict of interest between a firm's owners and its managers is referred to as which type ofconflict?A. OrganizationalB. StructuralC. FormativeD. AgencyE.Territorial8. An employee has a claim on the cash flows of Martin’s Machines. This claim is defined as a claim by oneof the firm's:A. residual owners.B. shareholders.C. financiers.D. provisional partners.E. stakeholders.9. The shareholders of Weil’s Markets would benefit if the firm were to be acquired by Better Foods.However, Weil’s board of directors rejects the acquisition offer. This is an example of:A. a corporate takeover.B. a capital structure issue.C. a working capital decision.D. an agency conflict.E. a compensation issue.10. When conducting a financial analysis of a firm, financial analysts:A. cannot use accounting information as it is historical.B. rely solely on accounting information.C. frequently use accounting information.D. ignore accounting information but do use marketing information.E. assume the future will be a repeat of the past as reflected in the firm’s accounting reports.

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11. Jamie is employed as a currency trader inthe Japanese yen market. Her job falls into which one of thefollowing areas of finance?A. International financeB. Financial institutionsC. Corporate financeD. Capital managementE. Personal finance12. If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working inwhich one of the following financial areas?A. International financeB. Private placementsC. Corporate financeD. Capital managementE. Investments13. Which one of the following occupations best fits into the corporate area of finance?A. Mortgage brokerB. Treasury bill analystC. Chief financial officerD. Insurance risk managerE. Local bank manager14. Which one of the following functions is generally a responsibility assigned to the corporate treasurer?A. Cost accountingB. Data processingC. Corporate taxesD. Financial accountingE. Capital expenditures15. Which one of the following functions should be assigned to the corporatetreasurer rather than to thecontroller?A. Data processingB. Cost accountingC. Tax managementD. Cash managementE. Financial accounting16. Which one of the following correctly defines a common chain of command within a corporation?A. The controller reports directly to the corporate treasurer.B. The treasurer reports directly to the board of directors.C. The chief financial officer reports directly to the board of directors.D. The credit manager reports directly to the controller.

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E. The controller reports directly to the chief financial officer.17. Capital budgeting includes the evaluation of which of the following?A. Size of future cash flows onlyB. Size and timing of future cash flows onlyC. Timing and risk of future cash flows onlyD. Risk and size of future cash flows onlyE. Size, timing, and risk of future cash flows18. Which one of the following is a working capital decision?A. How should the firm raise additional capital to fund itsexpansion?B. What debt-equity ratio is best suited to the firm?C. What is the cost of debt financing?D. Should the firm borrow money for five or for ten years?E. How much cash should the firm keep in reserve?19. Which one of the following is a capital structure decision?A. Determining the optimal inventory levelB. Establishing the preferred debt-equity levelC. Selecting new equipment to purchaseD. Setting the terms of sale for credit salesE. Determining when suppliers should be paid20. Working capital management includes which one of the following?A. Deciding which new projects to acceptB. Deciding whether to purchase a new machine or fix a currently owned machineC. Determining which customers will be granted creditD. Determining how many new shares of stock should be issuedE. Establishing the target debt-equity ratio21. The daily financial operations of a firm are primarily controlled by managing the:A. total debt level.B. working capital.C. capital structure.D. capital budget.E. long-term liabilities.22. A sole proprietorship:A. provideslimited financial liability for its owner.

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B. involves significant legal costs during the formation process.C. has an unlimited life.D. has its profits taxed as personal income.E. can generally raise significant capital from non-owner sources.23. Which one of the following forms of business organization offers liability protection to some of itsowners but not to all of its owners?A. Sole proprietorshipB. General partnershipC. Limited partnershipD. Limited liability companyE. Corporation24. Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has anoutstanding loan with the local bank but no other debt obligations. There are no specific assets pledged assecurity for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable togenerate sufficient funds to pay the loan payments due to the bank. Which of the following options does thebank have to collect the money it is owed?I. Sell the inventory and apply the proceeds to the debtII. Sell the lighting fixtures from the building and apply the proceeds to the debtIII. Withdraw funds from Maria’s personal account at the bank to pay the store’s debtIV. Sell any assets Maria personally owns and apply the proceeds to the store’s debtA. I onlyB. III onlyC. I and II onlyD. I, II, and III onlyE. I, III, and IV only25. Which one of the following statements correctly applies to a sole proprietorship?A. The business entity has anunlimited life.B. The ownership can easily be transferred to another individual.C. The owner enjoys limited liability for the firm's debts.D. Debt financing is easy to arrange in the firm's name.E. Obtaining additional equity is dependent on the owner's personal finances.26. Which one of the following applies to a general partnership?A. The firm's operations must be controlled by a single partner.B. Any one of the partners can be held solely liable for all of the partnership's debt.C. The profits of the firm are taxed as a separate entity.D. Each partner's liability for the firm's debts is limited to each partner's investment in the firm.E. The profits of a general partnership are taxed the same as those of a corporation.

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27. In a general partnership, each partner is personally liable for:A. only the partnership debts that he or she personally created.B. his or her proportionate share of all partnership debts regardless of which partner incurred thatdebt.C. the total debts of the partnership, even if he or she was unaware of those debts.D. the debts of the partnership up to the amount he or she invested in the firm.E. all personal and partnership debts incurred by any partner, even if he or she was unaware of thosedebts.28. Which one of the following is an advantage of being a limited partner?A. Nontaxable share of any profitsB. Control over the daily operations of the firmC. Losses limited to capital investedD. Unlimited profits without risk of incurring a lossE. Active market for ownership interest29. Which one of the following statements about a limited partnership is correct?A. All partners have their losses limited to their capital investment in the partnership.B. Allpartners are treated equally.C. There must be at least one general partner.D. Equity financing is easy to obtain and unlimited.E. Any partner can transfer his or her ownership interest without ending the partnership.30. A corporation:A. is ultimately controlled by its board of directors.B. is a legal entity separate from its owners.C. is prohibited from entering into contractual agreements.D. has its identity defined by its bylaws.E. has its existence regulated by the rules set forth in its charter.31. Which one of the following is contained in the corporate bylaws?A. Procedures for electing corporate directorsB. State of incorporationC. Number of authorized sharesD. Intended life of the corporationE. Business purpose of the corporation32. One advantage of the corporate form of organization is the:A. taxation of the corporate profits.B. unlimited liability for its shareholders.C. double taxation of profits.

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D. abilityto raise larger sums of equity capital than other organizational forms.E. ease of formation compared to other organizational forms.33. Corporate shareholders:A. are proportionately liable for the firm's debts.B. are protected from all financial losses.C. have the ability to change the corporation's bylaws.D. receive tax-free distributions since all profits are taxed at the corporate level.E. have basically no control over the actual corporation.34. A limited liability company (LLC):A. is a hybrid between a sole proprietorship and a partnership.B. prefers its profits be taxed as personal income to its owners.C. that meets the IRS criteria to be an LLC will be taxed like a corporation.D. provides limited liability for some, but not all, of its owners.E. cannot be created for professional service firms, such as accountants and attorneys.35. Limited liability companies are primarily designed to:A. allow a portion of their owners to enjoy limited liability while granting the other portion of theirowners control over the entity.B. provide the benefits of the corporate structure only to foreign-based entities.C. spin off a wholly owned subsidiary.D. allow companies to reorganize themselves through the bankruptcy process.E. provide limited liability while avoiding double taxation.36. The primary goal of financial management is to maximize:A. current profits.B. market share.C. current dividends.D. themarket value of existing stock.E. revenue growth.37. The primary goal of financial management is most associated with increasing the:A. dollar amount of each sale.B. traffic flow within the firm's stores.C. the fixed costs while lowering the variable costs.D. firm's liquidity.E. market value of the firm.38. The goal of financial management is to increase the:A. future value of the firm's total equity.B. book value of equity.C. dividends paid per share.D. current market value per share.

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E. number of shares outstanding.39. What is the primary goal of financial management for a sole proprietorship?A. Maximize net income given the current resources of the firmB. Decrease long-term debt to reduce the risk to the ownerC. Minimize the tax impact on the proprietorD. Maximize the market value of the equityE. Minimize the reliance on fixed costs40. The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?A.Increased stock market volatilityB. Corporate accounting and financial fraudC. Increased executive compensationD. Increased foreign investment in U.S. stock marketsE. Increased use of tax loopholes41. The Sarbanes-Oxley Act of 2002 has:A. reduced the annual compliance costs of all publicly traded firms in the U.S.B. decreased senior management's involvement in the corporate annual report.C. greatly increased the number of U.S. firms that are going public for the first time.D. decreased the number of U.S. firms going public on foreign exchanges.E. essentially made officers of publicly traded firms personally responsible for the firm's financialstatements.42. Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?A. Decrease the number of corporations that can be publicly tradedB. Increase the protections against corporate fraudC. Limit secondary issues of corporate securitiesD. Increase the dividends paid to shareholdersE. Increase the number of firms that "go dark"43. The Sarbanes-Oxley Act:A. require the corporate officers to personally attest that the financial statements are a fairrepresentation of the company’s financial results.B. requiresall corporations to fully disclose its financial dealings to the general public.C. places the responsibility for a firm's financial statements solely on the chief financial officer.D. requires that the board of directors be solely responsible for the firm's financial dealings.E. places total responsibility for the financial statements of a firm on the auditor who certifies thestatements.44. Which one of the following situations is most apt to create an agency conflict?A. Compensating a manager based on his or her division's net incomeB. Giving all employees a bonus if a certain level of efficiency is maintainedC. Hiring an independent consultant to study the operating efficiency of the firmD. Basing management bonuses on the length of employmentE. Laying off employees during a slack period45. An agency issue is most apt to develop when:

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A. a firm encounters a period of stagnant growth.B. a firm downsizes.C. the control of a firm is separated from the firm’s ownership.D. the firm’s owner is also its key manager.E. a firm is structured as a general partnership.46. Which one of the following is most apt to align management's priorities with shareholders' interests?A. Holding corporate and shareholder meetings athigh-end resort-type locations preferred bymanagersB. Compensating managers with shares of stock that must be held for a minimum of three yearsC. Paying a special management bonus on every fifth year of employmentD. Increasing the number of paid holidays that long-term employees are entitled to receiveE. Allowing employees to retire early with full retirement benefits47. Probably the least effective means of aligning management goals with shareholder interests is:A. thepotential for a proxy fight by an unhappy segment of shareholders.B. basing all management bonuses on performance goals.C. holding management salaries steady while increasing stock option grants.D. the threat of a takeover of the firm.E. automatically increasing management salaries on an annual basis.48. Levi had an unexpected surprise when he returned home this morning. He found that a chemical spillfrom a local manufacturer had spilled over onto his property. The potential claim that he has against thismanufacturer is that of a(n):A. general creditor.B. debtholder.C. shareholder.D. stakeholder.E. agent.49. One example of a primary market transaction would be the:A. sale of 100 shares of stock by Maria to her best friend.B. purchase by Theo of 5,000 shares of stock from his father.C. sale of 1,000 shares of newly issued stock by Alt Company to Miquel.D. sale by Terry of 50,000 shares of stock to his brother.E. sale of 5,000 shares of stock owned by a corporate CEO to his son.50. You contacted your stock broker this morning and placed an order to sell 300 shares of a stock thattrades on the NYSE. This sale will occur in the:A. dealer market.B. over-the-counter market.C. secondary market.D.primary market.E. tertiary market.51. Which one of the following statements is correct?

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A. All secondary markets are dealer markets.B. All secondary markets are broker markets.C. All stock trades between existing shareholders are primary market transactions.D. All stock transactions are secondary market transactions.E. All over-the-counter sales occur in dealer markets.52. The issuer of a security must be involved in all _____ transactions involving that security.A. exchange-listedB. secondary marketC. over-the-counterD. dealer marketE. primary market53. Which one of the following parties can sell shares of ABC stock in the primary market?A. ABC companyB. Any corporation, other than the ABC companyC. Any institutional shareholderD. Any private individual shareholderE. Only officers and directors of ABC company54. Security dealers:A. match buyers with sellers.B. buyand sell from their own inventory.C. operate on a physical trading floor.D. operate exclusively in auction markets.E. are limited to trading non-listed stocks.55. An auction market:A. is an electronic means of exchanging securities.B. has a physical trading floor.C. handles primary market transactions exclusively.D. is also referred to as an OTC market.E. is dealer-based.56. Which one of the following statements is correct?A. NASDAQ has more listed stocks than does the NYSE.B. The NYSE is a dealer market.C. NASDAQ is an auction market.D. NASDAQ has the most stringent listing requirements of any U.S. exchange.E. The trading floor for NASDAQ is located in Chicago.

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57. A private placement is most apt to involve:A. a large number of private investors.B. only foreign investors.C. a life-insurance company.D. several private securities dealers.E. the U.S. Treasury department.58. Which one of the following statements is correct?A. All ofthe major stock exchanges are U.S. based.B. The NYSE was created by the National Association of Securities Dealers in the early 1930s.C. The Chicago Stock Exchange is a dealer market.D. OTC markets have a physical trading floor generally located in either New York City or Chicago.E. The primary purpose of the NYSE is to match buyers with sellers.

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Chapter 01 Test Bank-StaticKey1. Jenna has been promoted and is now in charge of all externalfinancing. In other words, she is in chargeof:A.capital structure management.B. asset allocation.C. risk management.D. capital budgeting.E. working capital management.Accessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.2 Business Finance and the Financial ManagerTopic: Financial management decisions2. Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equityis referred to as the firm's:A.capital structure.B. capital budget.C. asset allocation.D. working capital.E. risk structure.Accessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.2 Business Finance and the Financial ManagerTopic: Financial management decisions3. Theo’s BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to theseaccounts are referred to as:A. capital structure decisions.B. capital budgeting decisions.C.workingcapital management.D. operating management.E. fixed account structure.Accessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the roleof the financial manager.Section: 1.2 Business Finance and the Financial ManagerTopic: Financial management decisions4. Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Whichtype of business entity does Margie own if she is personally liable for all the store's debts?A.Sole proprietorshipB. Limited partnershipC. CorporationD. Joint stock company

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E. General partnershipAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-03 Compare the financial implications of the different forms of business organizations.Section: 1.3 Forms of Business OrganizationTopic: Forms of business organization5. Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create abusiness together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill willequally share in the decision making and in the business profits or losses. Which type of business did theycreate if they both have full personal liability for the firm's debts?A. Sole proprietorshipB. Limited partnershipC. CorporationD. Joint stock companyE.General partnershipAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-03 Compare the financial implications of the different forms of business organizations.Section: 1.3 Forms of Business OrganizationTopic: Forms of business organization6. Matt and Alicia created a firm that is aseparate legal entity and will share ownership of that firm on a75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?A. Limited partnershipB.CorporationC. Sole proprietorshipD. GeneralpartnershipE. Public companyAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-03 Compare the financial implications of the different forms of business organizations.Section: 1.3 Forms of Business OrganizationTopic: Forms of business organization7. The potential conflict of interest between a firm's owners and its managers is referred to as which type ofconflict?A. OrganizationalB. StructuralC. FormativeD.AgencyE. TerritorialAACSB: EthicsAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-04 Describe the conflicts of interest that can arise between managers and owners.Section: 1.5 The Agency Problem and Control fothe CorporationTopic: Agency costs and problems8. An employee has a claim on the cash flows of Martin’s Machines. This claim is defined as a claim by oneof the firm's:A. residual owners.

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B. shareholders.C. financiers.D. provisional partners.E.stakeholders.Accessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-04 Describe the conflicts of interest that can arise between managers and owners.Section: 1.5 The Agency Problem and Control fo the CorporationTopic: Introduction to corporate finance9. The shareholders of Weil’s Markets would benefit if the firm were to be acquired by Better Foods.However, Weil’s board of directors rejects the acquisition offer. This is an example of:A. a corporate takeover.B. a capital structure issue.C. a working capital decision.D.an agency conflict.E. a compensation issue.Accessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-04 Describe the conflicts of interest that can arise between managers and owners.Section: 1.5 The Agency Problem and Control fo the CorporationTopic: Agency costs and problems10. When conducting a financial analysis of a firm, financialanalysts:A. cannot use accounting information as it is historical.B. rely solely on accounting information.C.frequently use accounting information.D. ignore accounting information but do use marketing information.E. assume the future will be a repeat of the past as reflected in the firm’s accounting reports.Accessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.1 Finance: A Quick LookTopic: Introduction to corporate finance11. Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of thefollowing areas of finance?A.InternationalfinanceB. Financial institutionsC. Corporate financeD. Capital managementE. Personal financeAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.1 Finance: A Quick LookTopic: Introduction to corporate finance12. If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working inwhich one of thefollowing financial areas?

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A. International financeB. Private placementsC. Corporate financeD. Capital managementE.InvestmentsAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.1 Finance: A Quick LookTopic: Introduction to corporate finance13. Which one of the following occupations best fits into the corporate area of finance?A. Mortgage brokerB. Treasury bill analystC.Chief financial officerD. Insurance risk managerE. Local bank managerAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.1 Finance: A Quick LookTopic: Introduction to corporate finance14. Which one of the following functions is generally a responsibility assigned to the corporate treasurer?A. Cost accountingB. Data processingC. Corporate taxesD. Financial accountingE.Capital expendituresAccessibility: KeyboardNavigationBlooms: UnderstandDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.2 Business Finance and the Financial ManagerTopic: Management organization and roles15. Which one of the following functions should be assigned to the corporate treasurer rather than to thecontroller?A. Data processingB. Cost accountingC. Tax managementD.Cash managementE. Financial accountingAccessibility: Keyboard NavigationBlooms: RememberDifficulty: 1 BasicLearning Objective: 01-01 Discuss the basic types of financial management decisions and the role of the financial manager.Section: 1.2 Business Finance and the Financial ManagerTopic: Management organization and roles16. Which one of the following correctly defines a common chain of command within a corporation?A. The controller reports directly to the corporate treasurer.B. The treasurer reports directly to the board ofdirectors.C. The chief financial officer reports directly to the board of directors.

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