Test Bank Fundamentals of Financial Management, Concise Edition
(MindTap Course List) 10th Edition by Eugene F. Brigham
Chapter 1-17
Cengage Learning Testing, Powered by Cognero Page 1
,Chapter 01: An Overview of Financial Management
True / False
Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F statements are used in
multiple-choice questions.
Multiple Choice: True/False
1. In most corporations, the CFO ranks under the CEO.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-1 What Is Finance?
QUESTION TYPE: True / False
PREFACE NAME: T/F
LEARNING OBJECTIVES: FOFM.BRIG.17.01.01 - What Is Finance?
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Role of finance
KEYWORDS: Bloom's Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
2. The Chairman of the Board must also be the CEO.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-1 What Is Finance?
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.01 - What Is Finance?
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Role of finance
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
3. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking
individual. The CEO generally works under the board and its chairman, and the board generally has the authority to
remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to
have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously
serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in
the same person.
a. True
Cengage Learning Testing, Powered by Cognero Page 2
, b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-1 What Is Finance?
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.01 - What Is Finance?
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Role of finance
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 8/5/2015 1:34 PM
4. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
5. A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal
liabilities in the event of bankruptcy than are investors in a typical partnership.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
6. An advantage of the corporate form of organization is that corporations are generally less highly regulated than
proprietorships and partnerships.
Cengage Learning Testing, Powered by Cognero Page 3
, a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
7. Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
8. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
9. It is generally harder to transfer one's ownership interest in a partnership than in a corporation.
Cengage Learning Testing, Powered by Cognero Page 4
, a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
10. One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt.
This problem would be avoided if you formed a corporation to operate the business.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
11. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax. However, its stockholders
will have to pay personal taxes on the firm's net income.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
Cengage Learning Testing, Powered by Cognero Page 5
,12. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes.
This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
13. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive
legal documents are required.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
14. The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
Cengage Learning Testing, Powered by Cognero Page 6
,15. One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's
investors to transfer their ownership interests.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
16. Organizing as a corporation makes it easier for the firm to raise capital. This is because corporations' stockholders are
not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than
partnership interests.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
17. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the
long run, or the stock's "intrinsic value."
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
Cengage Learning Testing, Powered by Cognero Page 7
,TOPICS: Intrinsic values
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
18. If management operates in a manner designed to maximize the firm's expected profits for the current year, this will
also maximize the stockholders' wealth as of the current year.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
19. In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-7 Balancing Shareholder Interests and the Interests of Society
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.07 - Balancing Shareholder Interest and the Interests of Society
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Shareholder interests
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
20. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a
specific target date.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-7 Balancing Shareholder Interests and the Interests of Society
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.07 - Balancing Shareholder Interest and the Interests of Society
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
Cengage Learning Testing, Powered by Cognero Page 8
,STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Shareholder interests
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
21. As a result of financial scandals occurring during the past decade, there has been a strong push to improve business
ethics.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-8 Business Ethics
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.08 - Business Ethics
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.02 - Ethics
United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Business ethics
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
22. There are many types of unethical business behavior. One example is where executives provide information that they
know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to
provide it to stockholders because they are the owners of the firm, not outsiders.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-8 Business Ethics
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.08 - Business Ethics
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.02 - Ethics
United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Business ethics
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
23. A stock's market price would equal its intrinsic value if all investors had all the information that is available about the
stock. In this case the stock's market price would equal its intrinsic value.
a. True
b. False
ANSWER: True
DIFFICULTY: MODERATE
Cengage Learning Testing, Powered by Cognero Page 9
, REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
24. If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it
would be a good buy.
a. True
b. False
ANSWER: False
DIFFICULTY: MODERATE
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
25. If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.
a. True
b. False
ANSWER: False
DIFFICULTY: MODERATE
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
26. For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.
a. True
b. False
ANSWER: False
DIFFICULTY: MODERATE
Cengage Learning Testing, Powered by Cognero Page 10
(MindTap Course List) 10th Edition by Eugene F. Brigham
Chapter 1-17
Cengage Learning Testing, Powered by Cognero Page 1
,Chapter 01: An Overview of Financial Management
True / False
Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F statements are used in
multiple-choice questions.
Multiple Choice: True/False
1. In most corporations, the CFO ranks under the CEO.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-1 What Is Finance?
QUESTION TYPE: True / False
PREFACE NAME: T/F
LEARNING OBJECTIVES: FOFM.BRIG.17.01.01 - What Is Finance?
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Role of finance
KEYWORDS: Bloom's Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
2. The Chairman of the Board must also be the CEO.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-1 What Is Finance?
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.01 - What Is Finance?
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Role of finance
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
3. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking
individual. The CEO generally works under the board and its chairman, and the board generally has the authority to
remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to
have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously
serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in
the same person.
a. True
Cengage Learning Testing, Powered by Cognero Page 2
, b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-1 What Is Finance?
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.01 - What Is Finance?
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Role of finance
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 8/5/2015 1:34 PM
4. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
5. A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal
liabilities in the event of bankruptcy than are investors in a typical partnership.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
6. An advantage of the corporate form of organization is that corporations are generally less highly regulated than
proprietorships and partnerships.
Cengage Learning Testing, Powered by Cognero Page 3
, a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
7. Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
8. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
9. It is generally harder to transfer one's ownership interest in a partnership than in a corporation.
Cengage Learning Testing, Powered by Cognero Page 4
, a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
10. One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt.
This problem would be avoided if you formed a corporation to operate the business.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
11. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax. However, its stockholders
will have to pay personal taxes on the firm's net income.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
Cengage Learning Testing, Powered by Cognero Page 5
,12. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes.
This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
13. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive
legal documents are required.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
14. The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
Cengage Learning Testing, Powered by Cognero Page 6
,15. One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's
investors to transfer their ownership interests.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
16. Organizing as a corporation makes it easier for the firm to raise capital. This is because corporations' stockholders are
not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than
partnership interests.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-3 Forms of Business Organization
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.03 - Forms of Business Organization
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Forms of organization
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
17. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the
long run, or the stock's "intrinsic value."
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
Cengage Learning Testing, Powered by Cognero Page 7
,TOPICS: Intrinsic values
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
18. If management operates in a manner designed to maximize the firm's expected profits for the current year, this will
also maximize the stockholders' wealth as of the current year.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
19. In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-7 Balancing Shareholder Interests and the Interests of Society
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.07 - Balancing Shareholder Interest and the Interests of Society
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Shareholder interests
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
20. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a
specific target date.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-7 Balancing Shareholder Interests and the Interests of Society
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.07 - Balancing Shareholder Interest and the Interests of Society
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
Cengage Learning Testing, Powered by Cognero Page 8
,STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Shareholder interests
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
21. As a result of financial scandals occurring during the past decade, there has been a strong push to improve business
ethics.
a. True
b. False
ANSWER: True
DIFFICULTY: EASY
REFERENCES: 1-8 Business Ethics
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.08 - Business Ethics
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.02 - Ethics
United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Business ethics
KEYWORDS: Bloom's: Knowledge
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
22. There are many types of unethical business behavior. One example is where executives provide information that they
know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to
provide it to stockholders because they are the owners of the firm, not outsiders.
a. True
b. False
ANSWER: False
DIFFICULTY: EASY
REFERENCES: 1-8 Business Ethics
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.08 - Business Ethics
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.02 - Ethics
United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.06 - Finance function
TOPICS: Business ethics
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
23. A stock's market price would equal its intrinsic value if all investors had all the information that is available about the
stock. In this case the stock's market price would equal its intrinsic value.
a. True
b. False
ANSWER: True
DIFFICULTY: MODERATE
Cengage Learning Testing, Powered by Cognero Page 9
, REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
24. If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it
would be a good buy.
a. True
b. False
ANSWER: False
DIFFICULTY: MODERATE
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
25. If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.
a. True
b. False
ANSWER: False
DIFFICULTY: MODERATE
REFERENCES: 1-4 The Main Financial Goal: Creating Value for Investors
QUESTION TYPE: True / False
LEARNING OBJECTIVES: FOFM.BRIG.17.01.04 - The Main Financial Goal: Creating Value for Investors
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.17.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.17.01 - Stocks and bonds
TOPICS: Intrinsic values
KEYWORDS: Bloom's: Comprehension
DATE CREATED: 6/23/2015 3:23 PM
DATE MODIFIED: 6/23/2015 3:23 PM
26. For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.
a. True
b. False
ANSWER: False
DIFFICULTY: MODERATE
Cengage Learning Testing, Powered by Cognero Page 10
