Test Bank for Principles of Managerial Finance, 8th Edition
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Test Bank
for
Principles of Managerial
Finance Brief
8th Edition
Chad J. Zutter
University of Pittsburgh
Scott B. Smart
Indiana University
for
Principles of Managerial
Finance Brief
8th Edition
Chad J. Zutter
University of Pittsburgh
Scott B. Smart
Indiana University
1
Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 1 The Role of Managerial Finance
1.1 Finance and the firm.
1) A firm is a business organization that sells goods and services.
Answer: TRUE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
2) In finance we say that the goal of the firm ought to be to maximize profits.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Other things being equal, it is better to receive money sooner rather than later.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
4) Financial managers evaluating decision alternatives or potential actions must consider
________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 1 The Role of Managerial Finance
1.1 Finance and the firm.
1) A firm is a business organization that sells goods and services.
Answer: TRUE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
2) In finance we say that the goal of the firm ought to be to maximize profits.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Other things being equal, it is better to receive money sooner rather than later.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
4) Financial managers evaluating decision alternatives or potential actions must consider
________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
1
Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 1 The Role of Managerial Finance
1.1 Finance and the firm.
1) A firm is a business organization that sells goods and services.
Answer: TRUE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
2) In finance we say that the goal of the firm ought to be to maximize profits.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Other things being equal, it is better to receive money sooner rather than later.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
4) Financial managers evaluating decision alternatives or potential actions must consider
________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 1 The Role of Managerial Finance
1.1 Finance and the firm.
1) A firm is a business organization that sells goods and services.
Answer: TRUE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
2) In finance we say that the goal of the firm ought to be to maximize profits.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Other things being equal, it is better to receive money sooner rather than later.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
4) Financial managers evaluating decision alternatives or potential actions must consider
________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
2
5) If a firm earns a profit, it will necessarily also generate a positive cash flow.
Answer: FALSE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
6) If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning
the highest possible returns on its investments.
Answer: FALSE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
7) Which of the following is an example of a firm's stakeholder?
A) suppliers
B) Federal Reserve
C) media
D) competitors
Answer: A
Diff: 1
Topic: What About Stakeholders?
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
5) If a firm earns a profit, it will necessarily also generate a positive cash flow.
Answer: FALSE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
6) If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning
the highest possible returns on its investments.
Answer: FALSE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
7) Which of the following is an example of a firm's stakeholder?
A) suppliers
B) Federal Reserve
C) media
D) competitors
Answer: A
Diff: 1
Topic: What About Stakeholders?
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
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3
8) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset
costs $35,000 and is expected to provide earnings over a three-year period as described below.
Based on the wealth maximization goal, the financial manager would choose ________.
A) Asset 1
B) Asset 2
C) Asset 3
D) Asset 4
Answer: A
Diff: 2
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
9) In the most recent year, two different companies generated the same earnings per share. The
stocks of these two companies should trade at the same price.
Answer: FALSE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
10) One reason that firms exist is that most investors are risk averse, so they are not willing to
make the kinds of risky investments that firms typically undertake.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
8) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset
costs $35,000 and is expected to provide earnings over a three-year period as described below.
Based on the wealth maximization goal, the financial manager would choose ________.
A) Asset 1
B) Asset 2
C) Asset 3
D) Asset 4
Answer: A
Diff: 2
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
9) In the most recent year, two different companies generated the same earnings per share. The
stocks of these two companies should trade at the same price.
Answer: FALSE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
10) One reason that firms exist is that most investors are risk averse, so they are not willing to
make the kinds of risky investments that firms typically undertake.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
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4
11) Which of the following is TRUE of stakeholders?
A) They are the owners of a firm.
B) They are groups to whom a firm has financial obligations.
C) They are groups having a direct economic link to a firm.
D) They include only the bondholders, common stockholders, and preferred stockholders.
Answer: C
Diff: 1
Topic: What About Stakeholders?
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
12) Which of the following is TRUE regarding cash flow?
A) Profits do not necessarily result in cash flows available to the stockholders.
B) It is guaranteed that the board of directors will increase dividends when net cash flows
increase.
C) A firm's income statement will never show a positive profit when its cash outflows exceed its
cash inflows.
D) An increase in revenue will always result in an increase in cash flow.
Answer: A
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
13) Investors who are risk averse will make risky investments as long as they expect
compensation for doing so.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
14) Which of the following is TRUE of cash flows and risk?
A) Lower cash flow and lower risk result in an increase in share price.
B) Higher cash flow and lower risk result in an increase in share price.
C) Higher cash flow and higher risk result in an increase in share price.
D) Lower cash flow and higher risk result in an increase in share price.
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
11) Which of the following is TRUE of stakeholders?
A) They are the owners of a firm.
B) They are groups to whom a firm has financial obligations.
C) They are groups having a direct economic link to a firm.
D) They include only the bondholders, common stockholders, and preferred stockholders.
Answer: C
Diff: 1
Topic: What About Stakeholders?
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
12) Which of the following is TRUE regarding cash flow?
A) Profits do not necessarily result in cash flows available to the stockholders.
B) It is guaranteed that the board of directors will increase dividends when net cash flows
increase.
C) A firm's income statement will never show a positive profit when its cash outflows exceed its
cash inflows.
D) An increase in revenue will always result in an increase in cash flow.
Answer: A
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
13) Investors who are risk averse will make risky investments as long as they expect
compensation for doing so.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
14) Which of the following is TRUE of cash flows and risk?
A) Lower cash flow and lower risk result in an increase in share price.
B) Higher cash flow and lower risk result in an increase in share price.
C) Higher cash flow and higher risk result in an increase in share price.
D) Lower cash flow and higher risk result in an increase in share price.
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
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5
15) The goal of business ethics is to motivate business and market participants to adhere to both
the letter and the spirit of laws and regulations in all aspects of business and professional
practice.
Answer: TRUE
Diff: 1
Topic: The Role of Business Ethics
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
16) The primary goal of a financial manager is ________.
A) minimizing risk
B) maximizing profit
C) maximizing wealth
D) minimizing return
Answer: C
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
17) Corporate owners earn a return ________.
A) by realizing gains through increases in share price and interest earnings
B) by realizing gains through increases in share price and cash dividends
C) through capital appreciation and retained earnings
D) through interest earnings and earnings per share
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
18) The wealth of the owners of a corporation is represented by ________.
A) profits
B) earnings per share
C) share value
D) cash flow
Answer: C
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
15) The goal of business ethics is to motivate business and market participants to adhere to both
the letter and the spirit of laws and regulations in all aspects of business and professional
practice.
Answer: TRUE
Diff: 1
Topic: The Role of Business Ethics
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
16) The primary goal of a financial manager is ________.
A) minimizing risk
B) maximizing profit
C) maximizing wealth
D) minimizing return
Answer: C
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
17) Corporate owners earn a return ________.
A) by realizing gains through increases in share price and interest earnings
B) by realizing gains through increases in share price and cash dividends
C) through capital appreciation and retained earnings
D) through interest earnings and earnings per share
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
18) The wealth of the owners of a corporation is represented by ________.
A) profits
B) earnings per share
C) share value
D) cash flow
Answer: C
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
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6
19) Wealth maximization as the goal of a firm implies enhancing the wealth of ________.
A) the auditors
B) the creditors
C) the Federal Reserve
D) the firm's stockholders
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
20) The amount earned during the accounting period on each outstanding share of common stock
is called ________.
A) dividend per share
B) earnings per share
C) net profits after taxes
D) book value per share
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
21) Firm A generates more cash flow while taking less risk than Firm B. The stock price of Firm
A should be higher than the stock price of Firm B.
Answer: TRUE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
19) Wealth maximization as the goal of a firm implies enhancing the wealth of ________.
A) the auditors
B) the creditors
C) the Federal Reserve
D) the firm's stockholders
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
20) The amount earned during the accounting period on each outstanding share of common stock
is called ________.
A) dividend per share
B) earnings per share
C) net profits after taxes
D) book value per share
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
21) Firm A generates more cash flow while taking less risk than Firm B. The stock price of Firm
A should be higher than the stock price of Firm B.
Answer: TRUE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
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7
22) Which of the following is NOT a reason that a firm that maximizes profits may fail to
maximize shareholder wealth.
A) The timing of profits matters. Shareholders might prefer lower profits that arrive sooner.
B) Risk matters. Shareholders are risk averse, so they prefer less risky investments that generate
lower profits.
C) Shareholder wealth depends on cash flow which is not the same as profit.
D) If a firm maximizes profits by engaging in unethical business practices, it's stock price may
be adversely affected.
Answer: B
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
23) ________ pool investment capital, make risky investment decisions, and manage risky
investments on behalf of investors who would otherwise not be able to do so own their own.
A) Firms
B) Stockholders
C) Stakeholders
D) Regulators
Answer: A
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
24) Finance is ________.
A) the system of verifying, analyzing, and recording business transactions
B) the science of the production, distribution, and consumption of goods and services
C) the science and art of how individuals and businesses raise, allocate, and invest money
D) the art of merchandising products and services
Answer: C
Diff: 1
Topic: What is Finance?
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
22) Which of the following is NOT a reason that a firm that maximizes profits may fail to
maximize shareholder wealth.
A) The timing of profits matters. Shareholders might prefer lower profits that arrive sooner.
B) Risk matters. Shareholders are risk averse, so they prefer less risky investments that generate
lower profits.
C) Shareholder wealth depends on cash flow which is not the same as profit.
D) If a firm maximizes profits by engaging in unethical business practices, it's stock price may
be adversely affected.
Answer: B
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
23) ________ pool investment capital, make risky investment decisions, and manage risky
investments on behalf of investors who would otherwise not be able to do so own their own.
A) Firms
B) Stockholders
C) Stakeholders
D) Regulators
Answer: A
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
24) Finance is ________.
A) the system of verifying, analyzing, and recording business transactions
B) the science of the production, distribution, and consumption of goods and services
C) the science and art of how individuals and businesses raise, allocate, and invest money
D) the art of merchandising products and services
Answer: C
Diff: 1
Topic: What is Finance?
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
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8
25) In March 2017, Amazon and Clorox reported nearly identical earnings per share, but the
stock price of Amazon was more than six times higher than the Clorox stock price. The most
likely explanation for that difference is that ________.
A) Clorox is bad for the environment
B) Amazon is a riskier company
C) investors see better long-term prospects for Amazon
D) Amazon has more shares of stock outstanding
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
26) The wealth of corporate owners is measured by the share price of the stock.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
27) Risk, the magnitude and timing of cash flows are the key determinants of share price, which
represent the wealth of the owners in the firm.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
28) A higher earnings per share (EPS) does not necessarily translate into a higher stock price.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
29) The profit maximization goal ignores the timing of returns, does not directly consider cash
flows, and ignores risk.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
25) In March 2017, Amazon and Clorox reported nearly identical earnings per share, but the
stock price of Amazon was more than six times higher than the Clorox stock price. The most
likely explanation for that difference is that ________.
A) Clorox is bad for the environment
B) Amazon is a riskier company
C) investors see better long-term prospects for Amazon
D) Amazon has more shares of stock outstanding
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
26) The wealth of corporate owners is measured by the share price of the stock.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
27) Risk, the magnitude and timing of cash flows are the key determinants of share price, which
represent the wealth of the owners in the firm.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
28) A higher earnings per share (EPS) does not necessarily translate into a higher stock price.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
29) The profit maximization goal ignores the timing of returns, does not directly consider cash
flows, and ignores risk.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
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9
30) When considering a firm's financial decision alternative, financial managers should accept
only those actions that are expected to maximize shareholder value.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
31) An increase in a firm's risk will always result in a higher share price since the stockholder
must be compensated for the greater risk.
Answer: FALSE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
32) An objection to managing a firm on behalf of stakeholders rather than shareholders is that
________.
A) stakeholders have no economic interest in the firm
B) stakeholders have an interest only in short-term outcomes
C) there is no clear way to satisfy all stakeholders whose economic interests may be at odds with
each other
D) the goal of managing on behalf of stakeholders is too narrow
Answer: C
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
33) An effective ethics program ________.
A) can weaken corporate value
B) has no effect on a corporation's value
C) can enhance a corporation's value
D) will result in high employee attrition rate
Answer: C
Diff: 1
Topic: Ethics and Share Price
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
30) When considering a firm's financial decision alternative, financial managers should accept
only those actions that are expected to maximize shareholder value.
Answer: TRUE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
31) An increase in a firm's risk will always result in a higher share price since the stockholder
must be compensated for the greater risk.
Answer: FALSE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
32) An objection to managing a firm on behalf of stakeholders rather than shareholders is that
________.
A) stakeholders have no economic interest in the firm
B) stakeholders have an interest only in short-term outcomes
C) there is no clear way to satisfy all stakeholders whose economic interests may be at odds with
each other
D) the goal of managing on behalf of stakeholders is too narrow
Answer: C
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
33) An effective ethics program ________.
A) can weaken corporate value
B) has no effect on a corporation's value
C) can enhance a corporation's value
D) will result in high employee attrition rate
Answer: C
Diff: 1
Topic: Ethics and Share Price
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
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10
34) When considering a firm's financial decision alternative, financial managers should accept
only those actions that are expected to increase the firm's profitability.
Answer: FALSE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
35) ________ are the standards of conduct or moral judgment that apply to persons engaged in
commerce.
A) Government regulations
B) The Uniform Commercial Codes
C) The rules of fair play
D) Business ethics
Answer: D
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
36) Cash flows and risk are the key determinants in share price. Increased risk, other things
remaining the same, results in ________.
A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price
Answer: A
Diff: 2
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
37) Cash flows and risk are the key determinants in share price. Increased cash flow results in
________, other things remaining the same.
A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
34) When considering a firm's financial decision alternative, financial managers should accept
only those actions that are expected to increase the firm's profitability.
Answer: FALSE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Ethical Understanding and Reasoning
35) ________ are the standards of conduct or moral judgment that apply to persons engaged in
commerce.
A) Government regulations
B) The Uniform Commercial Codes
C) The rules of fair play
D) Business ethics
Answer: D
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
36) Cash flows and risk are the key determinants in share price. Increased risk, other things
remaining the same, results in ________.
A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price
Answer: A
Diff: 2
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
37) Cash flows and risk are the key determinants in share price. Increased cash flow results in
________, other things remaining the same.
A) a lower share price
B) a higher share price
C) an unchanged share price
D) an undetermined share price
Answer: B
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
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11
1.2 Managing the firm.
1) A treasurer is responsible for the firm's accounting activities, such as corporate accounting,
tax management, financial accounting, and cost accounting.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 2
Learning Outcome: F-01
AACSB: Analytical Thinking
2) ________ decisions focus on how a company will spend its financial resources on long-term
projects that ultimately determine whether the firm successfully creates value for its owners.
A) Investment
B) Financing
C) Working capital
D) Risk management
Answer: A
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
3) The principle of the time value of money basically says that ________.
A) because firms pay managers a great deal, managers need to use their time very effectively
B) money received today is more valuable than money received in the future because money in
the future is more risky
C) money received today is more valuable than money received in the future because firms and
individuals can invest money they have today and earn a return on that money
D) because of the principal-agent problem, investors cannot trust that money firms promise to
pay in the future will ever arrive
Answer: B
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
1.2 Managing the firm.
1) A treasurer is responsible for the firm's accounting activities, such as corporate accounting,
tax management, financial accounting, and cost accounting.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 2
Learning Outcome: F-01
AACSB: Analytical Thinking
2) ________ decisions focus on how a company will spend its financial resources on long-term
projects that ultimately determine whether the firm successfully creates value for its owners.
A) Investment
B) Financing
C) Working capital
D) Risk management
Answer: A
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
3) The principle of the time value of money basically says that ________.
A) because firms pay managers a great deal, managers need to use their time very effectively
B) money received today is more valuable than money received in the future because money in
the future is more risky
C) money received today is more valuable than money received in the future because firms and
individuals can invest money they have today and earn a return on that money
D) because of the principal-agent problem, investors cannot trust that money firms promise to
pay in the future will ever arrive
Answer: B
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
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12
4) The primary principle that finance borrows from economics is ________.
A) generally accepted accounting principles
B) cash is king
C) marginal cost-benefit analysis
D) shareholder value maximization
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
5) Financing decisions deal with the left-hand side of the firm's balance sheet.
Answer: FALSE
Diff: 1
Topic: Primary Activities of the Financial Manager
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
6) Which of the following activities of a finance manager determines the types of assets the firm
holds?
A) budget allocation
B) investment decisions
C) financing decisions
D) analyzing and planning cash flows
Answer: B
Diff: 1
Topic: Primary Activities of the Financial Manager
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
7) You own a building supply store. Today you sold construction materials to a contractor for
$10,000 that you acquired a week ago for $8,000. You paid for the materials in cash, but you
sold them to the contractor on credit, and you expect him to pay his bill in a few months. Based
on this information during the week you earned a positive profit but experienced a negative cash
flow.
Answer: TRUE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
4) The primary principle that finance borrows from economics is ________.
A) generally accepted accounting principles
B) cash is king
C) marginal cost-benefit analysis
D) shareholder value maximization
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
5) Financing decisions deal with the left-hand side of the firm's balance sheet.
Answer: FALSE
Diff: 1
Topic: Primary Activities of the Financial Manager
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
6) Which of the following activities of a finance manager determines the types of assets the firm
holds?
A) budget allocation
B) investment decisions
C) financing decisions
D) analyzing and planning cash flows
Answer: B
Diff: 1
Topic: Primary Activities of the Financial Manager
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
7) You own a building supply store. Today you sold construction materials to a contractor for
$10,000 that you acquired a week ago for $8,000. You paid for the materials in cash, but you
sold them to the contractor on credit, and you expect him to pay his bill in a few months. Based
on this information during the week you earned a positive profit but experienced a negative cash
flow.
Answer: TRUE
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
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8) There is a tendency for CEOs of larger companies to earn more money than CEOs of smaller
companies. Suppose a CEO decides to acquire another company, thus increasing the size of the
CEO's firm. Suppose also that the price of the stock of the acquiring firm falls when it learns of
the upcoming acquisition. This appears to be an example of ________.
A) a CEO pursuing profit maximization rather than wealth maximization
B) the principal-agent problem
C) a CEO behaving unethically
D) the general principal that acquisitions are generally not good investments
Answer: B
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
9) A corporation's stockholders elect its CEO.
Answer: FALSE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
10) The money that firms raise to finance their activities is called ________.
A) the capital budget
B) working capital
C) capital
D) accruals
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
11) Marginal cost-benefit analysis states that financial decisions should be made and actions
should be taken only when the added benefits exceed the added costs.
Answer: TRUE
Diff: 1
Topic: Relationship to Economics
Learning Obj.: LG 4
Learning Outcome: F-03
AACSB: Analytical Thinking
8) There is a tendency for CEOs of larger companies to earn more money than CEOs of smaller
companies. Suppose a CEO decides to acquire another company, thus increasing the size of the
CEO's firm. Suppose also that the price of the stock of the acquiring firm falls when it learns of
the upcoming acquisition. This appears to be an example of ________.
A) a CEO pursuing profit maximization rather than wealth maximization
B) the principal-agent problem
C) a CEO behaving unethically
D) the general principal that acquisitions are generally not good investments
Answer: B
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
9) A corporation's stockholders elect its CEO.
Answer: FALSE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
10) The money that firms raise to finance their activities is called ________.
A) the capital budget
B) working capital
C) capital
D) accruals
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
11) Marginal cost-benefit analysis states that financial decisions should be made and actions
should be taken only when the added benefits exceed the added costs.
Answer: TRUE
Diff: 1
Topic: Relationship to Economics
Learning Obj.: LG 4
Learning Outcome: F-03
AACSB: Analytical Thinking
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14
12) The treasurer typically manages a firm's cash, investing surplus funds when available and
securing outside financing when needed.
Answer: TRUE
Diff: 1
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
13) A corporate treasurer's focus tends to be more external, while the controller's focus is more
internal.
Answer: TRUE
Diff: 1
Topic: Organization of the Finance Function
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
14) The accrual method recognizes revenue at the point of sale and recognizes expenses when
incurred.
Answer: TRUE
Diff: 1
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
15) A treasurer is commonly responsible for handling ________.
A) tax management
B) corporate accounting
C) investing surplus funds
D) cost accounting
Answer: C
Diff: 1
Topic: Organization of the Finance Function
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
12) The treasurer typically manages a firm's cash, investing surplus funds when available and
securing outside financing when needed.
Answer: TRUE
Diff: 1
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
13) A corporate treasurer's focus tends to be more external, while the controller's focus is more
internal.
Answer: TRUE
Diff: 1
Topic: Organization of the Finance Function
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
14) The accrual method recognizes revenue at the point of sale and recognizes expenses when
incurred.
Answer: TRUE
Diff: 1
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
15) A treasurer is commonly responsible for handling ________.
A) tax management
B) corporate accounting
C) investing surplus funds
D) cost accounting
Answer: C
Diff: 1
Topic: Organization of the Finance Function
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
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15
16) Which of the following is TRUE of accrual basis accounting?
A) Expenses are recognized either when they are incurred or cash is paid.
B) Revenue is recognized when a customer pays cash.
C) Expenses are recognized when they are incurred.
D) Revenue is recognized when a customer pays cash or shows interest to purchase the product
or service.
Answer: C
Diff: 1
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
17) Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of
merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full
for the merchandise during the year, it is yet to collect at year end from the customer. The net
profit and cash flow from this sale for the year are ________.
A) $3,000 and $10,000, respectively
B) $3,000 and -$7,000, respectively
C) $7,000 and -$3,000, respectively
D) $3,000 and $7,000, respectively
Answer: B
Diff: 2
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-02
AACSB: Analytical Thinking
18) A firm has just ended its calendar year making a sale in the amount of $150,000 of
merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full
for the merchandise during the year, it is yet to collect at year end from the customer. The net
profit and cash flow from this sale for the year are ________.
A) $0 and $150,000, respectively
B) $37,500 and -$150,000, respectively
C) $37,500 and -$112,500, respectively
D) $150,000 and $112,500, respectively
Answer: C
Diff: 2
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-02
AACSB: Analytical Thinking
16) Which of the following is TRUE of accrual basis accounting?
A) Expenses are recognized either when they are incurred or cash is paid.
B) Revenue is recognized when a customer pays cash.
C) Expenses are recognized when they are incurred.
D) Revenue is recognized when a customer pays cash or shows interest to purchase the product
or service.
Answer: C
Diff: 1
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
17) Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of
merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full
for the merchandise during the year, it is yet to collect at year end from the customer. The net
profit and cash flow from this sale for the year are ________.
A) $3,000 and $10,000, respectively
B) $3,000 and -$7,000, respectively
C) $7,000 and -$3,000, respectively
D) $3,000 and $7,000, respectively
Answer: B
Diff: 2
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-02
AACSB: Analytical Thinking
18) A firm has just ended its calendar year making a sale in the amount of $150,000 of
merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full
for the merchandise during the year, it is yet to collect at year end from the customer. The net
profit and cash flow from this sale for the year are ________.
A) $0 and $150,000, respectively
B) $37,500 and -$150,000, respectively
C) $37,500 and -$112,500, respectively
D) $150,000 and $112,500, respectively
Answer: C
Diff: 2
Topic: Relationship to Accounting
Learning Obj.: LG 4
Learning Outcome: F-02
AACSB: Analytical Thinking
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16
19) Stockholders expect to earn higher rates of return on investments with lower risk and lower
rates of return on investments with higher risk.
Answer: FALSE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
20) As the risk of a stock investment increases, investors' ________.
A) return will increase
B) return will decrease
C) required rate of return will decrease
D) required rate of return will increase
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
21) The principal-agent problem arises when ________.
A) the owners of the firm are not the people managing the firm
B) the owners of the firm also manage the firm
C) managers serve on a firm's board of directors
D) a firm is organized as a sole proprietorship
Answer: A
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
22) Which of the following works as a conduit of information between the firm and its investors?
A) the treasurer
B) the controller
C) the director of internal audit
D) the director of investor relations
Answer: D
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
19) Stockholders expect to earn higher rates of return on investments with lower risk and lower
rates of return on investments with higher risk.
Answer: FALSE
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
20) As the risk of a stock investment increases, investors' ________.
A) return will increase
B) return will decrease
C) required rate of return will decrease
D) required rate of return will increase
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
21) The principal-agent problem arises when ________.
A) the owners of the firm are not the people managing the firm
B) the owners of the firm also manage the firm
C) managers serve on a firm's board of directors
D) a firm is organized as a sole proprietorship
Answer: A
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
22) Which of the following works as a conduit of information between the firm and its investors?
A) the treasurer
B) the controller
C) the director of internal audit
D) the director of investor relations
Answer: D
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
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17
23) ________ decisions refer to how a firm manages its short-term resources on a day-to-day
basis.
A) Financing
B) Investment
C) Working capital
D) Managerial finance
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
24) There is a tradeoff between risk and return (i.e., to earn higher returns you generally have to
take more risk) because ________.
A) investors like risk and return and want more of both
B) investors are risk averse, so they will not accept riskier investments unless they offer higher
returns
C) to earn higher returns you have to make bigger investments and bigger investments are
always riskier than smaller ones
D) investors care about returns but not about risks
Answer: A
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Reflective Thinking
25) The time value of money principle implies that all other things being equal, investments that
produce profits faster are preferred over those that produce more distant profits.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
23) ________ decisions refer to how a firm manages its short-term resources on a day-to-day
basis.
A) Financing
B) Investment
C) Working capital
D) Managerial finance
Answer: C
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
24) There is a tradeoff between risk and return (i.e., to earn higher returns you generally have to
take more risk) because ________.
A) investors like risk and return and want more of both
B) investors are risk averse, so they will not accept riskier investments unless they offer higher
returns
C) to earn higher returns you have to make bigger investments and bigger investments are
always riskier than smaller ones
D) investors care about returns but not about risks
Answer: A
Diff: 2
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Reflective Thinking
25) The time value of money principle implies that all other things being equal, investments that
produce profits faster are preferred over those that produce more distant profits.
Answer: TRUE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
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18
26) The ________ has a role that focuses on budgeting, accounting, and tracking the
performance of a single business unit.
A) controller
B) treasurer
C) chief financial officer
D) director of risk management
Answer: A
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
27) When managers are trying to create value for shareholders, their primary focus should be on
earnings rather than cash flow.
Answer: FALSE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
1.3 Organization forms, taxation, and the principal-agent relationship.
1) Which of the following legal forms of organization is most expensive to organize?
A) sole proprietorships
B) partnerships
C) corporations
D) limited partnership
Answer: C
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
2) Which of the following legal forms of organization has the ease of dissolution?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: A
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
26) The ________ has a role that focuses on budgeting, accounting, and tracking the
performance of a single business unit.
A) controller
B) treasurer
C) chief financial officer
D) director of risk management
Answer: A
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
27) When managers are trying to create value for shareholders, their primary focus should be on
earnings rather than cash flow.
Answer: FALSE
Diff: 1
Topic: Managing the firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
1.3 Organization forms, taxation, and the principal-agent relationship.
1) Which of the following legal forms of organization is most expensive to organize?
A) sole proprietorships
B) partnerships
C) corporations
D) limited partnership
Answer: C
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
2) Which of the following legal forms of organization has the ease of dissolution?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: A
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
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19
3) Under which of the following legal forms of organization is ownership readily transferable?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: D
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
4) Which of the following forms of organizations is the easiest to form?
A) sole proprietorships
B) limited liability corporation
C) limited partnership
D) S-corporations
Answer: A
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
5) A major weakness of a partnership is ________.
A) the difficulty in maintaining owners' control
B) the difficulty in liquidating or transferring ownership
C) the double taxation of income
D) its high organizational costs
Answer: B
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Under which of the following legal forms of organization is ownership readily transferable?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: D
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
4) Which of the following forms of organizations is the easiest to form?
A) sole proprietorships
B) limited liability corporation
C) limited partnership
D) S-corporations
Answer: A
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
5) A major weakness of a partnership is ________.
A) the difficulty in maintaining owners' control
B) the difficulty in liquidating or transferring ownership
C) the double taxation of income
D) its high organizational costs
Answer: B
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
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6) Which of the following is a strength of a corporation?
A) low taxes
B) limited liability
C) low organization costs
D) less government regulation
Answer: B
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
7) Which of the following legal forms of organizations is characterized by unlimited liability?
A) sole proprietorship
B) limited partnership
C) corporation
D) C-corporation
Answer: A
Diff: 2
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
8) Which of the following is TRUE of a partnership and a corporation?
A) In a corporation, income is taxed at the corporate level; whereas, in a partnership, income is
taxed twice.
B) In a partnership, income is taxed once at the individual level; whereas, in a corporation,
income is taxed twice.
C) Income from both forms of organizations are double-taxed.
D) In a partnership, income is exempted from tax up to $10 million; whereas, in a corporation,
income is taxed twice.
Answer: B
Diff: 1
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
6) Which of the following is a strength of a corporation?
A) low taxes
B) limited liability
C) low organization costs
D) less government regulation
Answer: B
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
7) Which of the following legal forms of organizations is characterized by unlimited liability?
A) sole proprietorship
B) limited partnership
C) corporation
D) C-corporation
Answer: A
Diff: 2
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
8) Which of the following is TRUE of a partnership and a corporation?
A) In a corporation, income is taxed at the corporate level; whereas, in a partnership, income is
taxed twice.
B) In a partnership, income is taxed once at the individual level; whereas, in a corporation,
income is taxed twice.
C) Income from both forms of organizations are double-taxed.
D) In a partnership, income is exempted from tax up to $10 million; whereas, in a corporation,
income is taxed twice.
Answer: B
Diff: 1
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
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21
9) Which of the following is TRUE of sole proprietorships and corporations?
A) It is difficult to transfer ownership of corporations compared to that of sole proprietorships.
B) Income from both forms of organizations are taxed only at the corporate level.
C) Both sole proprietorships and corporations are equally scrutinized and regulated by
government bodies.
D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners
have limited liability.
Answer: D
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
10) In partnerships, partners can readily transfer their wealth to other partners.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
11) A sole proprietor has unlimited liability; his or her total investment in the business, but not
his or her personal assets, can be taken to satisfy creditors.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
12) In a limited partnership, all partners' liabilities are limited to their investment in the
partnership.
Answer: TRUE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
9) Which of the following is TRUE of sole proprietorships and corporations?
A) It is difficult to transfer ownership of corporations compared to that of sole proprietorships.
B) Income from both forms of organizations are taxed only at the corporate level.
C) Both sole proprietorships and corporations are equally scrutinized and regulated by
government bodies.
D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners
have limited liability.
Answer: D
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
10) In partnerships, partners can readily transfer their wealth to other partners.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
11) A sole proprietor has unlimited liability; his or her total investment in the business, but not
his or her personal assets, can be taken to satisfy creditors.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
12) In a limited partnership, all partners' liabilities are limited to their investment in the
partnership.
Answer: TRUE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
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13) Under a progressive tax structure in which tax rates rise with income levels ________.
A) the marginal tax rate and the average tax rate are the same
B) the average tax rate is what really matters when an individual or business is making a
financial decision
C) the marginal tax rate is usually less than the average tax rate
D) the marginal tax rate is usually greater than the average tax rate
Answer: D
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
14) The term "double taxation" means that ________.
A) partnerships and sole proprietorships pay tax on the income that they earn, and then income
distributed from the business to the owner is taxed again at the individual level
B) the highest federal income tax rate faced by corporations is twice the highest tax rate faced by
individuals
C) corporations pay tax on the income they earn and then shareholders pay tax on income that
the corporation distributes to them
D) a corporation pays tax on the interest it pays to bondholders and then bondholders pay tax
again on the interest payments they receive from firms
Answer: C
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Reflective Thinking
15) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income
above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business
earns $50,000 in income this year. It's marginal tax rate is ________.
A) 10%
B) 12%
C) 22%
D) greater than 22%
Answer: C
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
13) Under a progressive tax structure in which tax rates rise with income levels ________.
A) the marginal tax rate and the average tax rate are the same
B) the average tax rate is what really matters when an individual or business is making a
financial decision
C) the marginal tax rate is usually less than the average tax rate
D) the marginal tax rate is usually greater than the average tax rate
Answer: D
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
14) The term "double taxation" means that ________.
A) partnerships and sole proprietorships pay tax on the income that they earn, and then income
distributed from the business to the owner is taxed again at the individual level
B) the highest federal income tax rate faced by corporations is twice the highest tax rate faced by
individuals
C) corporations pay tax on the income they earn and then shareholders pay tax on income that
the corporation distributes to them
D) a corporation pays tax on the interest it pays to bondholders and then bondholders pay tax
again on the interest payments they receive from firms
Answer: C
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Reflective Thinking
15) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income
above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business
earns $50,000 in income this year. It's marginal tax rate is ________.
A) 10%
B) 12%
C) 22%
D) greater than 22%
Answer: C
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
Loading page 24...
23
16) Corporate governance refers to ________.
A) the rules, processes, and laws by which companies are operated, controlled, and regulated
B) the fact that corporations heavily influence the actions of governments through their lobbying
efforts
C) the notion that corporations act like a democracy in the sense that every shareholder has an
equal vote on corporate decisions
D) the idea that a corporate CEO is really accountable to no one and must be constrained by
government action
Answer: A
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
17) Agency costs are ________.
A) costs that managers bear when they do not act in the interests of shareholders
B) costs that firms must pay to comply with the regulations imposed by federal government
agencies
C) costs that are exempt from taxation
D) costs that shareholders bear because managers pursue their own interests rather than acting in
the interests of shareholders
Answer: D
Diff: 2
Topic: Legal Forms of Business Organization
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
18) Firms are legally required to pay dividends to stockholders just as they must make interest
payments to lenders.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Reflective Thinking
16) Corporate governance refers to ________.
A) the rules, processes, and laws by which companies are operated, controlled, and regulated
B) the fact that corporations heavily influence the actions of governments through their lobbying
efforts
C) the notion that corporations act like a democracy in the sense that every shareholder has an
equal vote on corporate decisions
D) the idea that a corporate CEO is really accountable to no one and must be constrained by
government action
Answer: A
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
17) Agency costs are ________.
A) costs that managers bear when they do not act in the interests of shareholders
B) costs that firms must pay to comply with the regulations imposed by federal government
agencies
C) costs that are exempt from taxation
D) costs that shareholders bear because managers pursue their own interests rather than acting in
the interests of shareholders
Answer: D
Diff: 2
Topic: Legal Forms of Business Organization
Learning Obj.: LG 6
Learning Outcome: F-01
AACSB: Reflective Thinking
18) Firms are legally required to pay dividends to stockholders just as they must make interest
payments to lenders.
Answer: FALSE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Reflective Thinking
Loading page 25...
24
19) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income
above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business
earns $50,000 in income this year. Its average tax rate is closest to ________.
A) 22%
B) 14%
C) 10%
D) 17%
Answer: B
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
20) Dividends are periodic distributions of cash to the stockholders of a firm.
Answer: TRUE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Reflective Thinking
21) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income
above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business
earns $50,000 in income this year. It tax liability is ________.
A) $6,800
B) $11,000
C) $9,800
D) $5,800
Answer: A
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
22) Under a flat tax structure, where the same tax rate applies to all income levels ________.
A) the marginal tax rate is greater than the average tax rate
B) the marginal tax rate is less than the average tax rate
C) the marginal tax rate is equal to the average tax rate
D) the marginal tax rate is irrelevant
Answer: C
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
19) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income
above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business
earns $50,000 in income this year. Its average tax rate is closest to ________.
A) 22%
B) 14%
C) 10%
D) 17%
Answer: B
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
20) Dividends are periodic distributions of cash to the stockholders of a firm.
Answer: TRUE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Reflective Thinking
21) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income
above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business
earns $50,000 in income this year. It tax liability is ________.
A) $6,800
B) $11,000
C) $9,800
D) $5,800
Answer: A
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
22) Under a flat tax structure, where the same tax rate applies to all income levels ________.
A) the marginal tax rate is greater than the average tax rate
B) the marginal tax rate is less than the average tax rate
C) the marginal tax rate is equal to the average tax rate
D) the marginal tax rate is irrelevant
Answer: C
Diff: 2
Topic: Taxes
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
Loading page 26...
25
23) In partnerships, owners have unlimited liability and may have to cover debts of other less
financially sound partners.
Answer: TRUE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
24) The board of directors is responsible for managing day-to-day operations and carrying out
the policies established by the chief executive officer.
Answer: FALSE
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
25) Institutional investors are professional investors who work on behalf of individuals, business,
and government.
Answer: TRUE
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
26) The major purpose of the Sarbanes-Oxley Act of 2002 was to place caps on the
compensation that could be paid to corporate executives.
Answer: FALSE
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
23) In partnerships, owners have unlimited liability and may have to cover debts of other less
financially sound partners.
Answer: TRUE
Diff: 1
Topic: Legal Forms of Business Organization
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
24) The board of directors is responsible for managing day-to-day operations and carrying out
the policies established by the chief executive officer.
Answer: FALSE
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
25) Institutional investors are professional investors who work on behalf of individuals, business,
and government.
Answer: TRUE
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
26) The major purpose of the Sarbanes-Oxley Act of 2002 was to place caps on the
compensation that could be paid to corporate executives.
Answer: FALSE
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
Loading page 27...
26
27) The board of directors is typically responsible for ________.
A) approving strategic goals and plans
B) managing day-to-day operations
C) arranging finance for approved long-term investments
D) maintaining and controlling the firm's daily cash balances
Answer: A
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
28) The responsibility for managing day-to-day operations and carrying out corporate policies
belongs to the ________.
A) board of directors
B) chief executive officer
C) stockholders
D) creditors
Answer: B
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
29) Which of the following is an example of agency cost?
A) costs incurred for setting up an agency
B) failure to make an investment that would make shareholders wealthier
C) payment of income tax
D) payment of interest
Answer: B
Diff: 1
Topic: The Agency Issue
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Ethical Understanding and Reasoning
27) The board of directors is typically responsible for ________.
A) approving strategic goals and plans
B) managing day-to-day operations
C) arranging finance for approved long-term investments
D) maintaining and controlling the firm's daily cash balances
Answer: A
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
28) The responsibility for managing day-to-day operations and carrying out corporate policies
belongs to the ________.
A) board of directors
B) chief executive officer
C) stockholders
D) creditors
Answer: B
Diff: 1
Topic: Corporate Governance
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Analytical Thinking
29) Which of the following is an example of agency cost?
A) costs incurred for setting up an agency
B) failure to make an investment that would make shareholders wealthier
C) payment of income tax
D) payment of interest
Answer: B
Diff: 1
Topic: The Agency Issue
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Ethical Understanding and Reasoning
Loading page 28...
27
30) Which of the following is a routine way that boards try to align the interests of managers and
stockholders?
A) fire managers who are inefficient
B) remove management's perquisites
C) tie management compensation to the performance of the company's common stock price
D) tie management compensation to the level of dividend per share
Answer: C
Diff: 1
Topic: The Agency Issue
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Ethical Understanding and Reasoning
31) The marginal tax rate paid on a firm's ordinary income can be calculated by dividing its taxes
by its net income.
Answer: FALSE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
32) The average tax rate paid on the firm's ordinary income can be calculated by dividing its
taxes by its taxable income.
Answer: TRUE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
33) The tax deductibility of various expenses such as general and administrative expenses
________.
A) increases their pretax cost
B) reduces their after-tax cost
C) has no effect on their after-tax cost
D) has an unpredictable effect on their after-tax cost
Answer: B
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
30) Which of the following is a routine way that boards try to align the interests of managers and
stockholders?
A) fire managers who are inefficient
B) remove management's perquisites
C) tie management compensation to the performance of the company's common stock price
D) tie management compensation to the level of dividend per share
Answer: C
Diff: 1
Topic: The Agency Issue
Learning Obj.: LG 6
Learning Outcome: F-26
AACSB: Ethical Understanding and Reasoning
31) The marginal tax rate paid on a firm's ordinary income can be calculated by dividing its taxes
by its net income.
Answer: FALSE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
32) The average tax rate paid on the firm's ordinary income can be calculated by dividing its
taxes by its taxable income.
Answer: TRUE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
33) The tax deductibility of various expenses such as general and administrative expenses
________.
A) increases their pretax cost
B) reduces their after-tax cost
C) has no effect on their after-tax cost
D) has an unpredictable effect on their after-tax cost
Answer: B
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
Loading page 29...
28
34) Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the
average tax rate for Jennings, Inc.?
A) 34 percent
B) 46 percent
C) 25 percent
D) 40 percent
Answer: A
Diff: 2
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
35) The average tax rate of a corporation with ordinary income of $105,000 and a tax liability of
$24,200 is ________.
A) 46 percent
B) 23 percent
C) 34 percent
D) 15 percent
Answer: B
Diff: 2
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
36) If a corporation sells certain capital equipment for more than its initial purchase price, the
difference between the sale price and the purchase price is called a(n) ________.
A) ordinary gain
B) revenue gain
C) capital gain
D) abnormal gain
Answer: C
Diff: 1
Topic: Capital Gains
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
34) Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the
average tax rate for Jennings, Inc.?
A) 34 percent
B) 46 percent
C) 25 percent
D) 40 percent
Answer: A
Diff: 2
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
35) The average tax rate of a corporation with ordinary income of $105,000 and a tax liability of
$24,200 is ________.
A) 46 percent
B) 23 percent
C) 34 percent
D) 15 percent
Answer: B
Diff: 2
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
36) If a corporation sells certain capital equipment for more than its initial purchase price, the
difference between the sale price and the purchase price is called a(n) ________.
A) ordinary gain
B) revenue gain
C) capital gain
D) abnormal gain
Answer: C
Diff: 1
Topic: Capital Gains
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
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29
37) In general, most corporate capital gains are taxed at ________ tax rate.
A) the average
B) the regular corporate
C) the historic
D) a 30 percent
Answer: B
Diff: 1
Topic: Capital Gains
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
38) Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 6
percent, or preferred stock at an annual cost of 8 percent. If the corporation has a 21 percent tax
rate, the after-tax cost of each is ________.
A) debt: $60,000; preferred stock: $80,000
B) debt: $47,400; preferred stock: $63,200
C) debt: $47,400; preferred stock: $80,000
D) debt: $60,000; preferred stock: $63,200
Answer: C
Diff: 2
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
39) The marginal tax rate represents the rate at which the next dollar of income is taxed.
Answer: TRUE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
40) All dividend income received by a corporation is exempted from taxation.
Answer: FALSE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
37) In general, most corporate capital gains are taxed at ________ tax rate.
A) the average
B) the regular corporate
C) the historic
D) a 30 percent
Answer: B
Diff: 1
Topic: Capital Gains
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
38) Corporation X needs $1,000,000 and can raise this through debt at an annual rate of 6
percent, or preferred stock at an annual cost of 8 percent. If the corporation has a 21 percent tax
rate, the after-tax cost of each is ________.
A) debt: $60,000; preferred stock: $80,000
B) debt: $47,400; preferred stock: $63,200
C) debt: $47,400; preferred stock: $80,000
D) debt: $60,000; preferred stock: $63,200
Answer: C
Diff: 2
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
39) The marginal tax rate represents the rate at which the next dollar of income is taxed.
Answer: TRUE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 5
Learning Outcome: F-01
AACSB: Analytical Thinking
40) All dividend income received by a corporation is exempted from taxation.
Answer: FALSE
Diff: 1
Topic: Ordinary Income
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
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Finance