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Test Bank forFundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W. Westerfield, Bradford
D. Jordan, J. Ari Pandes, Thomas Holloway
Chapter 1-26 Answers are at the Eand of Each Chapter
Chapter 1
Student name:__________
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) The size, timing and risk of cash flows are important when evaluating a capital budgeting
qu
decision.
⊚ true
⊚ false
iz
2) A capital expenditure project becomes desirable when the project is worth more to the firm
than the cost to acquire it.
⊚ true
m
⊚ false
3) A capital expenditure project becomes desirable when the present value of the cash flow
as
generated by the project exceeds the project's present value of cost.
⊚ true
⊚ false
4) Optimal capital structure determines the least expensive sources of funds for the firm to
te
borrow.
⊚ true
⊚ false
rs
5) Optimal capital structure determines how much debt the firm should have in relation to its
level of equity.
⊚ true
⊚ false
6) Capital structure determines the level of current assets that is required to maintain the firm's
operations.
⊚ true
⊚ false
dr.j
,7) Capital structure determines how much risk is associated with the future cash flows of a
project.
⊚ true
⊚ false
8) Determining when a supplier should be paid is a capital structure decision.
⊚ true
⊚ false
9) Establishing the accounts receivable policies is a capital structure decision.
⊚ true
qu
⊚ false
10) Determining the amount of money to borrow to finance a 10-year project is a capital
structure decision.
⊚ true
iz
⊚ false
11) Deciding if a new project should be accepted is a working capital decision.
m
⊚ true
⊚ false
as
12) When evaluating a project in which a firm might invest, the size but not the timing of the
cash flows is important.
⊚ true
⊚ false
te
13) Working capital management addresses the firm's appropriate level of inventory.
⊚ true
⊚ false
rs
14) Common stockholders or limited partners can lose, at most, what they have invested in a
firm.
⊚ true
⊚ false
15) Partnership income is treated as personal income of the partners.
⊚ true
⊚ false
dr.j
,16) A limited partner can lose his or her investment in the partnership.
⊚ true
⊚ false
17) Maximization of the current earnings of the firm is the main goal of the financial manager.
⊚ true
⊚ false
18) The primary goal of a financial manager should be to maximize the value of shares issued to
new investors in the corporation.
⊚ true
qu
⊚ false
19) The primary goal of financial management is to minimize the corporate tax liability.
⊚ true
⊚ false
iz
20) Control of the firm ultimately rests with board of directors. They elect the management, who,
in turn, lead the company.
m
⊚ true
⊚ false
as
21) The goal of financial managers does not imply that illegal or unethical actions should be
taken in the hope of increasing the value of the firm.
⊚ true
⊚ false
te
22) Unethical behaviour does not impact volatility of the stock markets.
⊚ true
⊚ false
rs
23) The board of directors has the power to act on behalf of the shareholders to hire and fire the
operating management of the firm. In a legal sense, the directors are "principals" and the
shareholders are "agents".
⊚ true
⊚ false
24) When owners are managers (such as in a sole proprietorship), a firm will have agency costs.
⊚ true
⊚ false
dr.j
, 25) IBEC Inc. of Toronto spends approximately $2 million annually to hire auditors to go over
the firm's financial statements. This is an example of an indirect agency cost.
⊚ true
⊚ false
26) Control of the firm ultimately rests with shareholders. They elect the board of directors, who
then hire and fire management.
⊚ true
⊚ false
27) Stakeholder theory suggests that employees, customers, suppliers, and various levels of
qu
government all have financial interests in the firm.
⊚ true
⊚ false
28) Corporate social responsibility (CSR) is also referred to as corporate sustainability.
iz
⊚ true
⊚ false
m
29) Corporate social responsibility (CSR) is also referred to as the triple bottom line.
⊚ true
⊚ false
as
30) The triple bottom line is defined as a company's commitment to operate in an economically,
socially and environmentally sustainable manner.
⊚ true
te
⊚ false
31) There is a significant relationship between CSR activity and corporate performance.
⊚ true
rs
⊚ false
32) Research results on CSR activity and corporate performance has been mixed.
⊚ true
⊚ false
dr.j
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