TEST BANK For Foundations of Financial Management,
18th Edition, Stanley Block, Geoffrey Hirt, Bartley Danielsen
Verified Chapter's 1 - 21
1
,TABLE OF CONTENTS
PART 1 INTRODUCTION
1 The Goals and Activities of Financial
Management PART 2 FINANCIAL ANALYSIS
AND PLANNING
2 Review of Accounting
3 Financial Analysis
4 Financial Forecasting
5 Operating and Financial Leverage
PART 3 WORKING CAPITAL MANAGEMENT
6 Working Capital and the Financing Decision
7 Current Asset Management
8 Sources of Short-Term Financing
PART 4 THE CAPITAL BUDGETING PROCESS
9 The Time Value of Money
10 Valuation and Rates of Return
11 Cost of Capital
12 The Capital Budgeting Decision
13 Risk and Capital Budgeting
PART 5 LONG-TERM FINANCING
14 Capital Markets
15 Investment Banking
16 Long-Term Debt and Lease Financing
17 Common and Preferred Stock Financing
18 Dividend Policy and Retained Earnings
19 Convertibles, Warrants, and Derivatives
PART 6 EXPANDING THE PERSPECTIVE OF CORPORATE FINANCE
20 External Growth through Mergers
21 International Financial Management
,Foundations of Financial Management, 18e (Block)
Chapter 1 The Goals and Activities of Financial Management
1) As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
2) Inflation is assumed to be a temporary problem that does not affect financial decisions.
Answer: FALSE
Difficulty: 1 Easy
Topic: Financial management decisions
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
3) Financial capital is composed of long-term plant and equipment, as well as other
tangible investments.
Answer: FALSE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
4) Real capital is composed of long-term plant and equipment.
3
,Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics,
accounting,and a number of other areas.
Bloom's: Remember
4
,AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) During the 1930s, financial practice revolved around such topics as the preservation of
capital, maintenance of liquidity, the reorganization of financially troubled corporations, and
bankruptcy.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
6) In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
7) Recently, the emphasis of financial management has been on the relationship between risk
and return.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.; 01-03 The relationship of risk to return is a central focus of
finance. Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) The first Nobel Prizes given to finance professors were for their contributions to
capital structure theory and portfolio theories of risk and return.
5
,AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) How investors handle risk is an important topic that usually only economists observe.
Answer: FALSE
Explanation: Behavioral finance is something that the finance industry puts heavy emphasis on.
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
10) Mortgage-backed securities were devalued by accounting standards because of the high
credit ratings (AAA).
Answer: FALSE
Explanation: These securities were devalued because borrowers defaulted on their loans and
didn't have the financial means to back up their loans in other ways.
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
11) "Credit default swaps" are one of several tools that Congress and the President of the
United States have jointly developed to ease the financial crisis that began in 2008.
Answer: FALSE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Understand AACSB:
Analytical Thinking
Accessibility: Keyboard Navigation
,12) The Dodd-Frank Act was created by Congress along with its goals and regulatory
responsibility, but it is facilitated by various agencies.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember AACSB:
Reflective Thinking
Accessibility: Keyboard Navigation
13) The Dodd-Frank Act contains the Volcker Rule, which encourages financial institutions to
allow for more speculative investments for average investors.
Answer: FALSE
Difficulty: 2 Medium
Topic: Ethics, governance, and regulation
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Understand AACSB:
Analytical Thinking
Accessibility: Keyboard Navigation
14) The Dodd-Frank Act's oversight allowing regulation of banking fees and available products
has been considered as not being in the best interests of a free market.
Answer: TRUE
Difficulty: 2 Medium
Topic: Ethics, governance, and regulation
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Understand AACSB:
Analytical Thinking
Accessibility: Keyboard Navigation
15) The Internet impacts e-commerce by creating a mechanism for improved
communications between a business, its customers, and its suppliers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Understand AACSB:
Analytical Thinking
Accessibility: Keyboard Navigation
,16) The Internet is responsible for many new business models.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Understand AACSB:
Analytical Thinking
Accessibility: Keyboard Navigation
17) Businesses will increasingly rely on B2B Internet applications to speed up the cash flows
through their firms.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Understand AACSB:
Analytical Thinking
Accessibility: Keyboard Navigation
18) Sole proprietorship means single-person ownership and offers the advantages of simplicity
of decision making and low organizational and operating costs.
Answer: TRUE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-02 A firm can have many different forms of organization.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
19) Under the 2017 Tax Cuts and Jobs Act, the most significant change is that the corporate tax
rate goes from 35 percent to 21 percent, which puts U.S. Companies on competitive footing
with many other countries.
Answer: TRUE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-02 A firm can have many different forms of organization.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
, 20) Profits of sole proprietorships are taxed at corporate tax rates.
Answer: FALSE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-02 A firm can have many different forms of organization.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
21) Sole Proprietorships, partnerships and limited liability partnerships are considered pass
through forms of organizations because the income passes through to the owners and is taxed at
the owner's individual tax rate.
Answer: TRUE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-02 A firm can have many different forms of organization.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
22) To reduce the burden on small firms, the government established a 25 percent deduction
of qualified business income from pass through businesses.
Answer: FALSE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-02 A firm can have many different forms of organization.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) There is unlimited liability in a general partnership.
Answer: TRUE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-02 A firm can have many different forms of organization.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
