TEST BANK for Fundamentals of Corporate Finance 5th Edition by Parrino, Kidwell, Bates & Gillan, Chapters 1 - 21, Complete Newest Version
TEST BANK For Fundamentals of Corporate Finance, 5th Edition by Robert Parrino, David Kidwell, Verified Chapters 1 - 21, Complete Newest Version TEST BANK Fo...
TEST BANK
Fundamentals of Corporate Finance, 5th Edition
by Robert Parrino, David Kidwell, All Chapters 1 - 21
1
,2
,Chapter 1 The Financial Manager and the Firm
1) The financial manager is responsible for making decisions that are in the best interests of the
firm's owners.
Answer: TRUE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: FSA
AICPA: Process and Resource Management Perspectives
2) A patent is a productive asset for a technology-based firm.
Answer: TRUE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
3) Intangible assets generate most of a manufacturing firm's cash flows.
Answer: FALSE
Diff: 2
Learning Objective: LO 1
Bloomcode: Application AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
4) The most fundamental way a business can grow in size is by reinvesting cash flows or earnings.
Answer: TRUE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: FSA
AICPA: Process and Resource Management Perspectives
3
,5) A firm that goes bankrupt will always be liquidated.
Answer: FALSE
Diff: 2
Learning Objective: LO 1
Bloomcode: Application AACSB:
Analytic
IMA: Corporate Finance AICPA:
Resource Management
6) Capital assets are generally short term in nature.
Answer: FALSE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
7) A good capital budgeting or investment decision is one in which the benefits are worth more to
the firm than the cost of the project.
Answer: TRUE
Explanation: Regardless of the project, a good investment is one in which the benefits are worth
more to the firm than the costs of the asset.
Diff: 2
Learning Objective: LO 1
Bloomcode: Analysis AACSB:
Analytic
IMA: Budget Preparation
AICPA: Resource Management
8) Investment decisions determine how firms raise capital to pay for their investments.
Answer: FALSE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Investment Decisions AICPA:
Strategic/Critical Thinking
9) Net working capital is the dollar difference between a firm's total current assets and total
liabilities.
Answer: FALSE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Budget Preparation
AICPA: Process and Resource Management Perspectives
4
,10) A sole proprietorship is a business where ownership interest can be transferred to someone
else.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
11) One of the disadvantages of a general partnership is the double taxation of profits.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
12) Unlimited liability means that the owner of a firm is responsible for paying all the bills of the
firm in the event of a bankruptcy.
Answer: TRUE
Diff: 2
Learning Objective: LO 2
Bloomcode: Application AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
13) The process of transferring ownership of a sole proprietorship is relatively easy compared to a
public corporation.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
14) General partners in a business have limited liability with regard to money owed to creditors.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
5
,15) The owners of C-corporations are not subject to double taxation.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
16) Privately held corporations are allowed to have stockholders.
Answer: TRUE
Diff: 1
Learning Objective: LO 2
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
17) The treasurer of a corporation usually reports to the CFO of the firm.
Answer: TRUE
Diff: 1
Learning Objective: LO 3
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
18) The external auditors of the firm provide an independent annual audit of the firm's financial
statements and report their findings directly to the CFO of the firm.
Answer: FALSE
Diff: 1
Learning Objective: LO 3
Bloomcode: Knowledge AACSB:
Analytic
IMA: Reporting
AICPA: Reporting
19) Maximizing revenue should be the goal of the firm.
Answer: FALSE
Diff: 1
Learning Objective: LO 4
Bloomcode: Knowledge AACSB:
Analytic
IMA: Performance Measurement
AICPA: Strategic/Critical Thinking
6
,20) An agency conflict can arise when the agent of the firm does not act in the best interest of the
owners.
Answer: TRUE
Diff: 2
Learning Objective: LO 5
Bloomcode: Application AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
21) The owners of a firm are unaffected by agency costs.
Answer: FALSE
Diff: 2
Learning Objective: LO 5
Bloomcode: Application AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
22) Fraudulent business practices do not affect the growth of the financial markets.
Answer: FALSE
Diff: 1
Learning Objective: LO 6
Bloomcode: Knowledge AACSB:
Ethics
IMA: Business Applications
AICPA: Professional Demeanor
23) To start a business, the owners need:
A) wealth.
B) a clear vision of what products or services they want to produce.
C) employees.
D) productive assets such as buildings, technology, or patents.
Answer: B
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
7
,24) A stakeholder is:
A) someone geographically close to the firm's headquarters.
B) someone who has a claim on the cash flows of the firm.
C) a business organization.
D) someone working for the competitor of the firm.
Answer: B
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
25) If you have provided capital to a firm, then you are:
A) a manager.
B) a stakeholder.
C) a partner.
D) an employee.
Answer: B Diff:
1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
26) Which of the following is NOT a stakeholder?
A) An employee
B) A lender
C) The IRS
D) The owner
Answer: D
Diff: 2
Learning Objective: LO 1
Bloomcode: Application AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
27) A trademark is an example of:
A) a liquid asset.
B) an intangible asset.
C) a contingent asset.
D) a physical asset.
Answer: B
Diff: 1
Learning Objective: LO 1
8
,Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
28) Which of the following is NOT a characteristic of a shareholder?
A) Expects to receive dividends
B) Expects to receive a capital gain on an investment
C) Expects to receive interest
D) Expects to have rights as defined in the corporation's charter and bylaws
Answer: D
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
29) Which of the following is a basic source of funds for a firm?
A) Debt
B) Equity
C) Asset liquidations
D) Both A and B
Answer: D Diff:
1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
30) The cash remaining with the firm after paying its operating expenses, making payments to
creditors, and taxes is called:
A) earnings per share.
B) capital contributed in excess of par.
C) residual cash flows.
D) assets.
Answer: C
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
31) Cash dividends are paid out of:
A) residual cash flows.
B) liquidated assets.
9
, C) long-term debt.
D) payroll fund.
Answer: A
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
32) Current liabilities are liabilities that:
A) will be converted to cash within a year.
B) must be paid within a year.
C) will be converted to equity within a year.
D) are contingent depending upon a future outcome.
Answer: B
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives
33) Current assets are assets that:
A) will be converted to cash within a year.
B) must be paid within a year.
C) will be converted to equity within a year.
D) must be depreciated.
Answer: A
Diff: 1
Learning Objective: LO 1
Bloomcode: Comprehension
AACSB: Analytic
IMA: Budget Preparation
AICPA: Process and Resource Management Perspectives
34) The capital budgeting decision process can be described as:
A) how a firm's day-to-day financial matters should be managed.
B) how a firm's assets should be financed.
C) determining which productive assets should be purchased.
D) involving purchase of short-term assets.
Answer: C
Diff: 2
Learning Objective: LO 1
Bloomcode: Application AACSB:
Analytic
IMA: Budget Preparation
10
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