TNM LT TCDN1 CLC coporate finance economy

Finance CLC

1. Chapter 01
Introduction to Corporate Finance

Chapter 01 Introduction to Corporate Finance Answer Key

Mall Chee Question

1. Which one
A. working capital management
1. financial allocation

©. agency cost analysis

D. capital budgeting.

E capital structure

‘of the following terms is defined as the management of a firm's longeterm

Refer to section 1.1

2: Which one ofthe following terms is defined as the mixture ofa firm's debt and equity
Financing?

capital management
cash management
€ cost analysis
D. capital bodgeting
pital structure

Refer ta section 1.1

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2. Chapter 01 + Introduction to Corporate Finance

3. Which one of the following is defined as a firm's short-term assets and its short-term
labilitics?

working capital

1. debt

C. investment capital

D. net capital

E. capital structure

Refer to section 1.1

A488 xa
Diet: Ran
Leaning Objective: 1-1
Sec 1

Topi: king cap

4. A business owned by a solitary individual who has unlimited liability for its debt is called
m

A. corporation,

B. sole proprietorship.

C. gencral partnership.

D. limited partnership.

L. limited liability company.

Refer to section 1.2

quest va
Dieu ani

Leumime Object 1-3
Senor 12

Topic Sole proprietorship

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3. Chapter 01 - Introduction to Corporate Finance

5. A business formed by two or more individuals who each have unlimited liability for all of
the firm's business debts is called a:

A. corporation,

B. sole proprietorship.

€: general partnershi
D. limited partnership.

E. limited liability company.

Refer to section 1.2

ese a
Din Banc

Learning Ohne 13
Seon 12

Topi: General paren

6. A business partner whose potential financial loss in the partnership will not exceed his or
her investment in that partnership is called a:

A. generally partner.

B. sole proprietor.

©. limited partner,

D. corporate shareholder,

1. zero partner.

Refer to section 1.2

ances Na
Dir Barc
Lerner Ob

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4. Chapter 01 - Introduction to Comporate Finance

7. A business created as a distinct legal entity and treated as a legal "person" is called a:
A. corporation.

E. sole proprictorship.

€: general partnership.

D. limited partnership.

L. unlimited liability company.

Refer to section 1.2

Les xa
Dont Bai

8. Which one of the following terms is defined as a conflict of‘ interest between the ‘corporate
shareholders and the corporate managers?

A. articles of incorporation

B. corporate breakdown

€ agency problem

D. bylaws

E. legal liabi

y

Refer to section 1.4

LICE E
Ditch: Ban
Learning Object: tet
Seton 14

Topic Agen problem

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5. Chapter 01 - Introduction to Corporate Finance

9. A stakcholder is:

A. a person who owns shares of stock.

1B. any person who has voting rights based on stock ownership of a corporation.
C. person who initially founded a firm and currently has management control over that firm.
D. a creditor to whom a firm currently awes money.

Es any person or entity other than a slockholder or creditor who potentially has
cash flows of a firm.

claim on the

Refer to section 1.4

Dit
Learning Die 14

10. Which of the following questions are addressed by financial managers?

1. How should a product be marketed?

11. Should customers be given 30 or 45 days to pay for their credit purchases?
UL. Should the firm borrow more money?

IV. Should the firm acquire new equipment?

A. Land IV only

B. I and IN only

C. 1, ll, and H only

D. UI, I, and IV only

EI, MIL, and IV

Refer to section 1.1

auc
Dat
Leanne OSecie 11

Sima tl

Tope Financial management

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6. Chapter 01 - Introduction to Corporate Finance

11. Which one of the following functions should be the respons
than the treasurer?

A. daily cash deposit

B, income tax returns

€. equipment purchase analysis

D. customer credit approval

E. payment to a vendor

ity of the controller rather

Refer to section 1.1

Aus. va
Dito Bu

Learning Oje 141
Secos 1

Tepic: Financial munement

12. The controller ofa corporation generally reports directly to the
A. board of directors. = mete

PR. chairman of the board.
€. chief executive officer,
D. president.

ice president of finance.

Refer to section 1.1

aucsn Na
Daal: Barc
Learning fee Lot
Seow AP

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7. Chapter 01 - Introduction to Corporate Finance

13. Which one of the following correctly defines the upward chain of command in a typi
corporate organizational structure?

A. The vice president of finance reports lo the chairman of the board.

B. The chief executive oflicer reports to president.

€. The controller reports to the president

D. The treasurer reports to the vice president of finance

U. The chief operations officer reports to the vice president of production.

Refer to section 1.1

usa na
Dieu Banc

Learn Objetos: 1-1
Soon: LT

Topic: Corporate snucture

14. Which one of the following is a capital budgeting decision?

A. determining how many sharcs of stock to issue

B: deciding whether or not to purchase a new machine for the production line
©. deciding how to refinance a debt issue thal is maturing

D. determining how much inventory to keep on hand

E. determining how much money should be kepl in the checking account

Refer to section 1.1

AACSB. Na
Dofus: Ba
Leaning Objective: 1.4
Socom À

Topi" Capt baleine

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8. Chapter 01 « Introduction to Corporate Finance

15. Which of the following
budgeting project?

1. project star up costs

IL timing of all projected cash flows

IIL dependability of future cash flows

IV. dollar amount of each projected cash flow
À. Land IV only

BAT, and IV only

CET, and IT only
D. I, IN, and IV only
EL, I, and IV

ig should a financial manager consider when analyzing a capital

Refer to section 1.1

A438 xa
Dia Bani
earning Offre 11
Senn I

Top Cat but

16. Which one of the folloy
fy determining which one of two projects to accent
N} determining how w allocate investment Fundo 10
dy determining the amount of funds needed to nau
Be determining how much debt should be assumed
E: determining how much inventory will he needed

Wing is a capital structure decision?

multiple projects

ce customer purchases of a new product
to fund a project

to support a project

Refer to section 1.1

ses va
Dit

Learn Obie 11
Se I

Ta

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9. Chapter 01 - Introduction to Corporate Finance

17. The decision to issue additional shares of stock is an example of which one of the
following?

A. working capital management

1. net working capital decision

©. capital budgeting

D. controller's duties

pital structure decision

Refer to section 1.1

cs va
Dieu Bac

Secon HT

Topic Capt r mre

18. Which of the following accounts
1. accounts payable

Il. accounts receivable

IN. fixed assets

IV. inventory

A. Land II only

B. Land UL only

©. Mand IV only

DÍ. IL and IV only

LIL Mtl. and IV only

are included in working capital management?

Refer to section 1.1

aucsn xa
Ditty: Ban
Learning jan, tt
Sion tt

tal management

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10. Chapter 01 - Introduction to Corporate Finance

19, Which one of the following is a working capital management decision?
À. determining the amount of equipment needed lo complete a job

B. determining whether to pay cash for a purchase or use the credit offered by the supplier
determining the amount of long-term debt required to complete a project

D. determining the number of shares of stock to issue to fund an acquisition

E. determining whether or not a project should be accepted

Refer to section 1.1

ace Ka
Décuby: Banc

Learn Objective 1-1

Secon 1

Topic: Working capital management

20. Which one of the following statements concerning a sole proprietorship is correct?
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.

. The owner of a sole proprictorship is personally responsible for all of the company's debts.
D. There are very few sole proprietorships remaining in the U.S. today.

E. A sole proprietorship is structured the same us u limited liability company.

Refer to section 1.2

AACS Na
Dita Bars
Lewening Obere 1.3
Section 12

Tapie Sole proprio

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11. Chapter 01 - Introduction to Corporate Finance

21, Which one of the following statements concerning a sole proprietorship is correct?
A. The life of a sole proprictorship is potentially unlimited.

B.A sole proprictor can gencrally raise large sums of capital quite easily.

C. Transferring ownership of a sole proprielorship is easier than transferring ownership of a
corporation

DA tole propricirship is taxed the same ora C corporation.

Ez Its casy to create a sole proprictors

Refer to section 1.2

Which of the following individuals have unlimited
interest?

1. general partner
11 sole proprietor
ML. stockholder
IV. limited partner
Al only

B. Land ll only

C Hand IV only
D. land ttt only
EL I and IV only

ty based on their ownership

Refer to section 1.2

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12. Chapter 01 - Introduction to Corporate Finance

23. Which one of the following best describes the primary advantage of being a
partner instead of a general partner?

A. tax-free income

18, active participation in the firm's activi
C no potential financial loss

D. greater control over the business alliirs of the partnership
3 um loss limited to the capital invested

los

Refer to section 1.2

Aucse. Na
Ditty: Rai
Leaning Objective: 1:3

24. A general partner:

Az is solely responsible for all the partnership debis.

B. has no say over a firms daily operations.

€. faces double taxation whereas a limited partner docs not.
D. has a maximum loss equal to his or her equity investment.
L. receives a salary in lieu of a portion of the profits

Refer to section 1.2

A4es@- NA
Duel Bai
Lourmng Objective: 1:3

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13. Chapter O1 - Introduction o

Corporate Finance

25. A limited partnership:

A. has an unlimited life,

B. can opt to be taxed as à corporation,

C. terminates at the death of any limited partner.

D. has a greater ability to raise capital than a sole proprictorship.
E. consists solely of limited partners

Refer to section 1.2

Sn
Topic: Parme

26. Which of the following apply to a partnership th:
1. double taxation of partnership profits

IL limited partnership life

IT active involvement in the firm by all the partners

IV. unlimited personal liability for all partnership debis
A. Il only

B. Land II only

€. Wand Ill only

D. LM, and IV only
EI, IM, and IV only

at consists solely of general partners?

Refer to section 1.2

Ditty: Bare
Learning Obie 1-3
ES

Tipe: Partnership

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14. Chapter 01 - Introduction to Corporate Finance

27. Which of the following are advantages of the corporate form of business ownership’
1. limited liability for firm debt

II. double taxation

IIL ability to raise capital

IV. unlimited firm life

À Land tt only

1 Ub and IV only

G.I I, and IV only

D. I, IN, and IV only

EL HI, and IV

Refer to section 1.2

css. wa
Dect Base
earning Chose 14
Sem 1?

Tops Corporation

28. 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 Lo the shareholders when earned,

Corporations can raise large amounts of capital generally easier than partnerships can.
D: Stockholders face no potential losses related to their corporate investment.
L. Corporate sharchalders clect the corporate president.

Refer to section 1.2

es Na
Dont mermar
Learning Obie 13
Sen 12

Taie Coros

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15. Chapter 01 «Introduction 1

Corporate Finance

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 most complicated type of business to form.

D. All business organizations have bylaws.

E. Only firms organized as sole proprietorships have limited lives.

Refer to section 1.2

Ace nu
Dia cme
earning here LA
Seon 12

Topic acne enti

30, The articles of incorporation:

1. describe the purpose of the firm.

IL are amended periodically.

IL. 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. Land IN only

B. Tand IV only

©. and II only

D. Hand IV only

LIU, and IV only

Refer to section 1.2

ACsB Ka
Dita rm

Topic Ami fin

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16. ter 01 - Introduction to Corporate Finance

31, Corporate bylaws:
A. must be amended should a firm decide to increuse the number of shares authorized.
B. cannot be amended once adopted.

€. define the name by which the firm will operate,

D. describe the intended life and purpose of the organization.

E, determine how a corporation regulates itself,

Refer to section 1.2

AACSB: WA
Dita Baie
Learning Objernve 1-3
Section 12

Topic Corporate bylaws

32. Which one of the following characteristics applies to a limited liability company?
A. available only to firms having a single owner

B. limited liability for limited partners only

€. taxed similar to a partnership

D. taxed similar to a C corporation

E. all income generated is totally tax-free

Refer to section 1.2

AACSB. x
Dieu. Itermeiste

Learning Objae LA

Seton 12

Topic: Lime Bah company

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17. Chapter 01 - Introduction to Corporate Finance

Which one of the following business types is best suited to raising large amounts of
capital?

A. sole proprietorship

D. limited liability company

corporation

D. general partnership

E. limited partnership

Refer to section 1.2

AACSB. Na
Dificub Bare
Leaming Objecine: 1-3
Socio 12

Tipit: Corporation

34, Which type of business organization has all the respective rights and privileges of a legal
person?

A. sole proprictorship

B. general partnership

C. limited partnership

D. corporation
E. limited liabili

Refer to section 1.2

AACSB. NA

Du Ban
Objective LS

Corporation

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18. ‘Chapter 01 - Introduction to Corporate Finance

35. Sam, Alfredo, and Juan want to start a small U.S. bi
Wants to limit his liability 16 his initial investment and has no interest in the daily operations,
Sam will contribute his full efforts on a daily basis but has limited funds to invest in the
business, Alfredo will be involved as an active consultant and manager and will ake
sonribute funds, Sam and Alfredo are willing to accept ability fr he firm's debts as they
feel they have nothing to lose by doing so. All three individuals will share inthe firm's profits
and wish to keep the initial organizational costs ofthe business to a minimum, Which form of
business entity should these individuals adopt?
A. sole proprietorship

B. joint stock company

G limited partnership

D: general partnership

E. comporation

usiness, Juan will fund the venture but

Refer to section 1.2

Tape Uni peri

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 very uncomfortable with the
unlimited lability to which they are each subjected. Which farm of business entity should
they consider to replace their general partnership assuming they wish to remain the only two
‘owners oftheir business? Whichever organization they select, they wish to be treated equally.
A. sole proprictorship.
Li joint stock company

ited partners
D. limited liability company
F. corporation

Refer to section 1.2

AACSB Rift tating
ii” larme
EUR

Tepe Em ha compu

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19. roduction to Corporate Finance

Chapter O1 - 1

37. Which one of the following best states the primary goal of financial management?
A. maximize current dividends per share

B. maximize the current value per share

C: increase cash flow and avoid financial distress

D. minimize operational costs while maximizing firm effi
E. maintain steady growth while increasing current profits

Refer to section 1.3

Acs WA
Din Bare

Learning Objermne: 12

Section 13

Tope: Goal of financial manasement

38. Which one of the following best illustrates that the management of a firm is adhering to
the goal of financial management’?

A. increase in the amount of the quarterly dividend

B. decrease in the per unit production costs

C. increase in the number of shares outstanding

D. decrease in the net working capital

E. inercas in the market value per share

Refer to section 1.3

Acs Na
Dub termine

Leumung Objective. 12

Samen 14

Tope: Gal of financial management

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20. Char educ 1 Copo Fiance

39. Why sho
‘exiting ach?
A doing so guaraness the company will grow in ice a the naximunı pos
1 doing ms increase employes lies

LL cam they have been hire ope thy nro he eurent share
1 because this wil increase the current dividends pe sare

1. bocas managers oe receive slures Of sock as par of thelr compensation

nancial manage rive Lo masimize the current value per share ofthe

Refer to section 13

ons made by financia managers should primarily focus on increasing which one of
the following?

À sie afte fer

U growls mte ofthe em

© rons profit pr unit produced

D. market vale per share of outstanding nick

toa sales

Refer to section 13

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21. Char educ 1 Copo Fiance

39. Why sho
‘exiting ach?
A doing so guaraness the company will grow in ice a the naximunı pos
1 doing ms increase employes lies

LL cam they have been hire ope thy nro he eurent share
1 because this wil increase the current dividends pe sare

1. bocas managers oe receive slures Of sock as par of thelr compensation

nancial manage rive Lo masimize the current value per share ofthe

Refer to section 13

ons made by financia managers should primarily focus on increasing which one of
the following?

À sie afte fer

U growls mte ofthe em

© rons profit pr unit produced

D. market vale per share of outstanding nick

toa sales

Refer to section 13

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22. Sarhanes-Onley Act of 2002 I a governmental response 10
1 corporate pris
cha on 9112001,

ofthe siock exchanges,
eed and abuses.

LL corporations deiting rom major exchanges
Dr increased esponsibility for corporate offices
ideation of iernal convo weaknesses

Refer to section 1.3

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23. Cape octo Cope Fis

43. A firm which opts to "go dark” in response tothe Sarbanes-Oxley Act
A. tet soctine 10 provide suited flanncial statement 6 che public

13 ma continue uo ride detail to internal control deficiecios on an annual has
¿cam provide less information to ts sharcholder han i ch prior to "going dr”.

1 an continue publicly trading it stock but only on the exchange on Which it was previously
Ha

Econectociia.

Refer to section 13

the enactment ofthe SurbaneOrley Act of

44, Which ofthe following are results clad
200

{increased foreign stock exchange listings of US, stocks
Ti decreased compliance costs

II increscedprivasization of public corporations

IN increased public disclosure by all corporaions
Tan only

Fe ana ty.

and
TAH, and IV only
LLE and IV only

Refer to section 13

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24. Cape OF aad 1 Con Finance

45, Which one ofthe following actions by a Financial manager is mot apto reste an agency
problem?

À reusing 0 borro money wie doing will rete las For the firm

1 reusing oler ell price dong o vil reduce the nt profite

€. tefusog 10 expand the company if doing o vil lve the vale of the equity

1D ageing to pay boues based on the mark valu of ie company stock rather than ou the
firm's level of les

increasing current profits when doing so lowers the value of the firm's equity

Refer to section 1.4

46. Which of he following help convince managers to work inthe best interest ofthe
stockholders? Assume there are no golden parachutes.
[compensation based on the val of the sock
Tock option plane
‘threat ofa company takeover
IN threat ofa prony fight
y Land Monty
land IV only
€ kl and MM only
DL Mi, and IV only
ELM. il, ao IV

Refer to section 1.4

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25. 447, Which frm of business sruture i mos! oise with agency problems?
A gle proprietorship

1, general pormerhip

C limited partnership

D.corpoeston

limited lability company

Refer to section 14

Felesing a diviion oft firm that is operating a ose

Refer to section 14

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26. Chapter rdc ta Cored Finance

49. Which one ofthe following is least likely to be an agency problem?
A. inereweing the sie ol lim
1 concentration maximiring curen ori
sion with net Isses
market vale ol Une Gn shares
tent for a new product

Refer to section LA

Emmy fight

Refer to section 14

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27. (Chapter 01 Introduction to Corporate Finance

51. Which one of the flowing grans an individual the right to vote on behalf of a
A proxy

1h by-laws

C. indenture agreement

D stuck option

T. stock andit

Refer to section 1.4

52, Which one ofthe following partes has ultimate control of corporation?
N. chairman of the Roard

8 board of directors

€ chiel executive oliesr

p. chief operating office

La shurchuhdrs

Refer to section 1.4

auese SA
SA

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28. Cape educ 1 Crane Face

$53. Which ofthe following partes are considered stakeholders ofa fm?
L employee

Ticloneterm credior

AL government

IV. commen stockholder

À Lens

Bon.

tend only

17 Mand I only

DATENT

Refer section LA

4, Which ofthe following represent cash outlows frm a corporation?
1 issuance of securities

IL payment of dividends

UL new Joan proceeds

IV payment of govemment tates

À Land It oly

BL Han IV oniy

C Land TV only

DL. and IV only

Ll and LV only

Refer to section 1.5

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29. Chapter dat o Copa Fiance

8. Which ofthe following ar cash Plows fom a corporation into the Financial mark
[repayment of long-term debt

ll payment of government taxes

IL payment of fa terest

IN. payment of quaneriy dividend

À Land only

Land tt only

© Tang IV only

DLL and IV only

EL, and it only

Refer to section 1.5

56. Which one ofthe following ie w primary rel transaction?
À sale cure out stk by a dene 1 un individ inventor
BL ile ofa new share of toc w an individual investor

LC stock nership treo From on shui wo tie shoreluldor

1 gif ofi from ane shareholder Lo anolher shurcholder

Lift of stock by a shareholder oa fly member

Refer to section 15

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30. (hope Otto Cop Finance

57, Sharholder A sold $00 shares of ABC stock on the New York Stock Exchange. This
A. took place inthe primary market.

1 occurred ina deter mutt

‘Cs Fate in the secondary nut

D iavolved a prov)

was. private placement

Refer to section 1.5

58. Public offerings of debt and equity must be registered with which one ofthe following?
A, Rew York Bound of Governors

8. Fader Reserve

€ NYSE Registration Office

DL. Sccuries and change Commission

1. Market Dealers Exchange

Refer to section 1.5

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31. Chap Lot to Capra Face

59. Which onc of the following statements is generally correct?
A. Private placements mast be registered will the SLC.

PA secondary makes ar action mets,

(©. Dealer markets have physical trading Mor.

DL. Aucuon ies match buy ad sell ode

F Dealers amango trade hut never own the ascitis trad,

Refer to section 15

60. Which one ofthe following statements concerning sock exchanges is correct?
À NASDAQi a broker market
1 The NYSE is a desler marke
he exchange with the suite: listing voguitentens is NASDAQ.
DL Some lage companies are lized on NASDAQ,
I Most deb securas are waded on the NYSE.

Refer to section 1.8

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32. (61. Shareholder A sold shares of Maplewood Cabinets tock to Shareholder B. The stock is
ls onthe NYSE. This trado occur in which one of the following?

À primary, dealer market

1 secondary, eur market

primary, auction market

secondary, ction market

F secondary, OTC make

Refer to section 15

62, Which one ofthe flowing statements correct conceming the NYSL?
X The publicly traded shares 0 a NYSE lied ie mus be worth atleast $250 milion,
1, The NYSE isthe largest dealer market fr listed securities ia th United States.
The Fisting requirements forte NYSE. are more irimgon than the of NASDAQ.

D Any corporation doing tae non Me NYSE cando so for

F.The NYSE isan OTC maker fncloning 3 bth a primary and a secondary mark

Refer to section 1.

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