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Test Bank for Fundamentals of Corporate Finance 7th Canadian Edition Ross.
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1Test Bank for Fundamentals of Corporate Finance 7th Canadian
Edition Ross
Student:
1. When evaluating a project in which a firm might invest, the size but not the timing of the cash flows is
important.
True False
2. In capital budgeting, the financial manager tries to identify investment opportunities that are worth more
to the firm than they cost to acquire.
True False
3. Maximization of the current earnings of the firm is the main goal of the financial manager.
True False
4. The primary goal of a financial manager should be to maximize the value of shares issued to new
investors in the corporation.
True False
5. The primary goal of financial management is to minimize the corporate tax liability.
True False
6. When owners are managers (such as in a sole proprietorship), a firm will have agency costs.
True False
7. 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
8. 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
9. The corporate officer generally responsible for tasks related to tax management, cost accounting,
financial accounting, and data processing is the:
A. Corporate Controller.
B. Vice President of Operations.
C. Director.
D. Corporate Treasurer.
E. Chairman of the Board.
10. The corporate officer generally responsible for tasks related to cash and credit management, financial
planning, and capital expenditures is the:
A. Chairman of the Board.
B. Vice President of Operations.
C. Corporate Controller.
, D. Corporate Treasurer.
E. Director.
11. The process of planning and managing a firm's long-term investments is called:
A. Capital structure.
B. Working capital management.
C. Agency cost analysis.
D. Capital budgeting.
E. Financial depreciation.
,12. The mixture of debt and equity used by the firm to finance its operations is called:
A. capital structure.
B. financial depreciation.
C. working capital management.
D. capital budgeting.
E. agency cost analysis.
13. The management of the firm's short-term assets and liabilities is called:
A. Financial depreciation.
B. Capital structure.
C. Capital budgeting.
D. Working capital management.
E. Agency cost analysis.
14. A business owned by a single individual is called a(n):
A. Partnership.
B. Closed receivership.
C. Sole proprietorship.
D. Corporation.
E. Open structure.
15. A business formed by two or more individuals or entities is called a(n):
A. Open structure.
B. Sole proprietorship.
C. Corporation.
D. Partnership.
E. Closed receivership.
16. The division of profits and losses between the members of a partnership is formalized in the:
A. Indenture contract.
B. Indemnity clause.
C. Partnership agreement.
D. Statement of purpose.
E. Group charter.
17. A business created as a distinct legal entity composed of one or more individuals or entities is called
a(n):
A. Sole proprietorship.
B. Partnership.
C. Closed receivership.
D. Corporation.
E. Open structure.
18. The document that legally establishes domicile for a corporation is called the:
A. Bylaws.
B. Partnership agreement.
C. Articles of incorporation.
D. Indenture contract.
E. Amended homestead filing.
19. The rules by which corporations govern themselves are called:
A. Indenture provisions.
B. Partnership agreements.
C. Indemnity provisions.
D. Bylaws.
E. Articles of incorporation.
, 20. The primary goal of financial management is to:
A. Maintain steady earnings growth.
B. Maximize current sales.
C. Minimize operational costs.
D. Maximize the current value per share of the existing stock.
E. Avoid financial distress.
21. The possibility of conflict of interest between the stockholders and management of the firm is called:
A. The shareholders' conundrum.
B. The agency problem.
C. Corporate breakdown.
D. Legal liability.
E. Corporate activism.
22. Agency costs are:
A. The costs that result from default and bankruptcy of the firm.
B. The total interest paid to creditors over the lifetime of the firm.
C. The total dividends paid to shareholders over the lifetime of the firm.
D. The costs of the conflict of interest between stockholders and management.
E. Corporate income subject to double taxation.
23. A stakeholder is:
A. A proxy vote made at a shareholders' meeting.
B. Given to each stockholder when they first purchase their stock.
C. A founding stockholder of the firm.
D. An original creditor of the firm.
E. A person or entity including a stockholder or creditor, who potentially has a claim on the cash flows of
the firm.
24. The original sale of securities by governments and corporations occurs in the:
A. Dealer market.
B. Liquidation market.
C. Primary market.
D. Auction market.
E. Secondary market.
25. The purchase and sale of securities after the original issuance occurs in the:
A. Secondary market.
B. Liquidation market.
C. Dealer market.
D. Primary market.
E. Auction market.
26. A market where dealers buy and sell securities for themselves, at their own risk, is called a(n):
A. Dealer market.
B. Auction market.
C. Primary market.
D. Secondary market.
E. Liquidation market.
27. A market where trading takes place between buyers and sellers directly is called a(n):
A. Liquidation market.
B. Auction market.
C. Secondary market.
D. Dealer market.
E. Primary market.
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