Test Bank For Fundamentals Of Corporate Finance Standard Edition, 10th Edition

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Chapter 01Introduction to Corporate FinanceMultiple Choice Questions1.Which one of the following terms is defined as the management of a firm's long-term investments?A.working capital managementB.financial allocationC.agency cost analysisD.capital budgetingE.capital structure2.Which one of the following terms is defined as the mixture of a firm's debt andequity financing?A.working capital managementB.cash managementC.costanalysisD.capital budgetingE.capital structure3.Which one of the following is defined as a firm's short-term assets and its short-term liabilities?A.working capitalB.debtC.investment capitalD.net capitalE.capital structure

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4.A business owned by a solitary individual who has unlimited liability for its debt iscalled a:A.corporation.B.sole proprietorship.C.general partnership.D.limited partnership.E.limitedliability company.5.A business formed by two or more individuals who each have unlimited liability forall of the firm's business debts is called a:A.corporation.B.sole proprietorship.C.general partnership.D.limitedpartnership.E.limited liability company.6.A business partner whose potential financial loss in the partnership will notexceed his or her investment in that partnership is called a:A.generally partner.B.sole proprietor.C.limited partner.D.corporate shareholder.E.zero partner.7.A business created as a distinct legal entity and treated as a legal "person" iscalled a:A.corporation.B.sole proprietorship.C.general partnership.D.limited partnership.E.unlimited liability company.

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8.Which one of the following terms is defined as a conflict of interest between thecorporate shareholders and the corporate managers?A.articles of incorporationB.corporatebreakdownC.agency problemD.bylawsE.legal liability9.A stakeholder is:A.a person who owns shares of stock.B.anyperson who has voting rights based on stock ownership of a corporation.C.a person who initially founded a firm and currently has management controlover that firm.D.a creditor to whom a firm currently owes money.E.anyperson or entity other than a stockholder or creditor who potentially has aclaim on the cash flows of a firm.10.Which of the following questions are addressed by financial managers?I. How should a product be marketed?II. Shouldcustomers be given 30 or 45 days to pay for their credit purchases?III. Should the firm borrow more money?IV. Should the firm acquire new equipment?A.I and IV onlyB.II and III onlyC.I, II, and III onlyD.II, III, and IV onlyE.I, II, III, and IV

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11.Which one of the following functions should be the responsibility of the controllerrather than the treasurer?A.daily cash depositB.income tax returnsC.equipment purchase analysisD.customer creditapprovalE.payment to a vendor12.The controller of a corporation generally reports directly to the:A.board of directors.B.chairman of the board.C.chief executive officer.D.president.E.vicepresident of finance.13.Which one of the following correctly defines the upward chain of command in atypical corporate organizational structure?A.The vice president of finance reports to the chairman of the board.B.The chiefexecutive officer reports to president.C.The controller reports to the president.D.The treasurer reports to the vice president of finance.E.The chief operations officer reports to the vice president of production.14.Which one ofthe following is a capital budgeting decision?A.determining how many shares of stock to issueB.deciding whether or not to purchase a new machine for the production lineC.deciding how to refinance a debt issue that is maturingD.determining how much inventory to keep on handE.determining how much money should be kept in the checking account

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15.Which of the following should a financial manager consider when analyzing acapital budgeting project?I. project start up costsII. timing of all projected cash flowsIII. dependability of future cash flowsIV. dollar amount of each projected cash flowA.I and IV onlyB.I, II, and IV onlyC.I, II, and III onlyD.II, III, and IV onlyE.I, II, III, and IV16.Which one of the following is a capital structure decision?A.determining which one of two projects to acceptB.determining how to allocate investment funds to multiple projectsC.determining the amount of funds needed to financecustomer purchases of anew productD.determining how much debt should be assumed to fund a projectE.determining how much inventory will be needed to support a project17.The decision to issue additional shares of stock is an example ofwhich one of thefollowing?A.working capital managementB.net working capital decisionC.capital budgetingD.controller's dutiesE.capital structure decision

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18.Which of the following accounts are included in workingcapital management?I. accounts payableII. accounts receivableIII. fixed assetsIV. inventoryA.I and II onlyB.I and III onlyC.II and IV onlyD.I, II, and IV onlyE.II, III, and IV only19.Which one of thefollowing is a working capital management decision?A.determining the amount of equipment needed to complete a jobB.determining whether to pay cash for a purchase or use the credit offered by thesupplierC.determining the amount of long-term debt required to complete a projectD.determining the number of shares of stock to issue to fund an acquisitionE.determining whether or not a project should be accepted20.Which one of the following statements concerning a soleproprietorship iscorrect?A.A sole proprietorship is designed to protect the personal assets of the owner.B.The profits of a sole proprietorship are subject to double taxation.C.The owner of a sole proprietorship is personally responsible for all of thecompany's debts.D.There are very few sole proprietorships remaining in the U.S. today.E.A sole proprietorship is structured the same as a limited liability company.

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21.Which one of the following statementsconcerning a sole proprietorship iscorrect?A.The life of a sole proprietorship is potentially unlimited.B.A sole proprietor can generally raise large sums of capital quite easily.C.Transferring ownership of a soleproprietorship is easier than transferringownership of a corporation.D.A sole proprietorship is taxed the same as a C corporation.E.It is easy to create a sole proprietorship.22.Which of the following individuals have unlimitedliability based on their ownershipinterest?I. general partnerII. sole proprietorIII. stockholderIV. limited partnerA.II onlyB.I and II onlyC.II and IV onlyD.I, II, and III onlyE.I, II, and IV only23.Which one ofthe following best describes the primary advantage of being alimited partner instead of a general partner?A.tax-free incomeB.active participation in the firm's activitiesC.no potential financial lossD.greater control over thebusiness affairs of the partnershipE.maximum loss limited to the capital invested

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24.A general partner:A.is personally responsible for all the partnership debts.B.hasno say over a firm's daily operations.C.faces double taxation whereas a limited partner does not.D.has a maximum loss equal to his or her equity investment.E.receivesa salary in lieu of a portion of the profits.25.A limited partnership:A.has an unlimited life.B.can opt to be taxed as a corporation.C.terminates at the death of any limited partner.D.hasa greater ability to raise capital than a sole proprietorship.E.consists solely of limited partners.26.Which of the following apply to a partnership that consists solely of generalpartners?I. double taxation of partnership profitsII.limited partnership lifeIII. active involvement in the firm by all the partnersIV. unlimited personal liability for all partnership debtsA.II onlyB.I and II onlyC.II and III onlyD.I, II, and IV onlyE.II, III, and IV only

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27.Which of the following are advantages of the corporate form of businessownership?I. limited liability for firm debtII. double taxationIII. ability to raise capitalIV. unlimited firm lifeA.I and II onlyB.III and IV onlyC.I,III, and IV onlyD.II, III, and IV onlyE.I, II, III, and IV28.Which one of the following statements is correct?A.The majority of firms in the U.S. are structured as corporations.B.Corporate profits are taxable income to theshareholders when earned.C.Corporations can raise large amounts of capital generally easier thanpartnerships can.D.Stockholders face no potential losses related to their corporate investment.E.Corporate shareholders elect the corporate president.29.Which one of the following statements is correct?A.A general partnership is legally the same as a corporation.B.Both sole proprietorship and partnership income is taxed as individual income.C.Partnerships are the mostcomplicated type of business to form.D.All business organizations have bylaws.E.Only firms organized as sole proprietorships have limited lives.

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30.The articles of incorporation:I. describe the purpose of the firm.II. areamended periodically.III. set forth the number of shares of stock that can be issued.IV. detail the method that will be used to elect corporate directors.A.I and III onlyB.I and IV onlyC.II and III onlyD.II and IV onlyE.I,III, and IV only31.Corporate bylaws:A.must be amended should a firm decide to increase the number of sharesauthorized.B.cannot be amended once adopted.C.definethe name by which the firm will operate.D.describe the intended life and purpose of the organization.E.determine how a corporation regulates itself.32.Which one of the following characteristics applies to a limited liabilitycompany?A.available only to firms having a single ownerB.limited liability for limited partners onlyC.taxed similar to a partnershipD.taxed similar to a C corporationE.all income generated is totally tax-free

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33.Whichone of the following business types is best suited to raising large amountsof capital?A.sole proprietorshipB.limited liability companyC.corporationD.general partnershipE.limited partnership34.Which type ofbusiness organization has all the respective rights and privileges ofa legal person?A.sole proprietorshipB.general partnershipC.limited partnershipD.corporationE.limited liability company35.Sam, Alfredo, and Juan wantto start a small U.S. business. Juan will fund theventure but wants to limit his liability to his initial investment and has no interest inthe daily operations. Sam will contribute his full efforts on a daily basis but haslimited funds to invest in the business. Alfredo will be involved as an activeconsultant and manager and will also contribute funds. Sam and Alfredo arewilling to accept liability for the firm's debts as they feel they have nothing to loseby doing so. All three individuals will sharein the firm's profits and wish to keepthe initial organizational costs of the business to a minimum. Which form ofbusiness entity should these individuals adopt?A.sole proprietorshipB.joint stock companyC.limited partnershipD.general partnershipE.corporation

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36.Sally and Alicia currently are general partners in a business located in Atlanta,Georgia. They are content with their current tax situation but are both veryuncomfortable with the unlimitedliability to which they are each subjected. Whichform of business entity should they consider to replace their general partnershipassuming they wish to remain the only two owners of their business? Whicheverorganization they select, they wish to be treated equally.A.sole proprietorshipB.joint stock companyC.limited partnershipD.limited liability companyE.corporation37.Which one of the following best states the primary goal of financial management?A.maximize current dividends per shareB.maximize the current value per shareC.increase cash flow and avoid financial distressD.minimize operational costs while maximizing firm efficiencyE.maintain steady growth while increasingcurrent profits38.Which one of the following best illustrates that the management of a firm isadhering to the goal of financial management?A.increase in the amount of the quarterly dividendB.decrease in the per unit productioncostsC.increase in the number of shares outstandingD.decrease in the net working capitalE.increase in the market value per share

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39.Why should financial managers strive to maximize the current value per share ofthe existingstock?A.doing so guarantees the company will grow in size at the maximum possiblerateB.doing so increases employee salariesC.because they have been hired to represent the interests of the currentshareholdersD.because this willincrease the current dividends per shareE.because managers often receive shares of stock as part of their compensation40.Decisions made by financial managers should primarily focus on increasing whichone of the following?A.size ofthe firmB.growth rate of the firmC.gross profit per unit producedD.market value per share of outstanding stockE.total sales41.The Sarbanes-Oxley Act of 2002 is a governmental response to:A.decreasingcorporate profits.B.the terrorists attacks on 9/11/2001.C.a weakening economy.D.deregulation of the stock exchanges.E.management greed and abuses.42.Which one of the following is an unintended result of theSarbanes-Oxley Act?A.more detailed and accurate financial reportingB.increased management awareness of internal controlsC.corporations delisting from major exchangesD.increased responsibility for corporate officersE.identification of internal control weaknesses

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43.A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:A.mustcontinue to provide audited financial statements to the public.B.must continue to provide a detailed list of internal control deficiencies on anannual basis.C.canprovide less information to its shareholders than it did prior to "going dark".D.cancontinue publicly trading its stock but only on the exchange on which itwas previously listed.E.ceases to exist.44.Which of the following are results related to the enactment of the Sarbanes-OxleyAct of 2002?I. increased foreign stockexchange listings of U.S. stocksII. decreased compliance costsIII. increased privatization of public corporationsIV. increased public disclosure by all corporationsA.I and III onlyB.II and IV onlyC.I, II, and III onlyD.II, III,and IV onlyE.I, III, and IV only45.Which one of the following actions by a financial manager is most apt to create anagency 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.refusing to expand the company if doing so will lower the value of the equityD.agreeing to pay bonuses based on the market value of the company stockrather than on the firm's level of salesE.increasing current profits when doing so lowers the value of the firm's equity

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46.Which of the following help convince managers to work in the best interest of thestockholders? Assume there are no golden parachutes.I.compensation based on the value of the stockII. stock option plansIII. threat of a company takeoverIV. threat of a proxy fightA.I and II onlyB.III and IV onlyC.I, II, and III onlyD.I, III, and IV onlyE.I, II, III, and IV47.Which form of business structure is most associated with agency problems?A.sole proprietorshipB.general partnershipC.limited partnershipD.corporationE.limited liability company48.Which one of the following is anagency cost?A.accepting an investment opportunity that will add value to the firmB.increasing the quarterly dividendC.investing in a new project that creates firm valueD.hiring outside accountants to audit the company'sfinancial statementsE.closing a division of the firm that is operating at a loss

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