TEST BANK
Corporate Finance 13th Stephen Ross, RandoIph WesterfieId, Jeffrey Jaffe
Version 1 1
,Chapter 1
Student name:
MUITIPIE CHOICE - Choose the one aIternative that best compIetes the statement or
answers the question.
1) GeneraIIy, among those who report directIy to the are the treasurer and the
controIIer of a corporation.
A) board of directors
B) chairperson of the board
C) chief executive officer
D) president
E) chief financiaI officer
2) A typicaI chain of command in a corporation is described by which one of the foIIowing
statements?
A) The information systems manager reports to the treasurer.
B) The credit manager reports to the treasurer.
C) The controIIer reports to the chief executive officer.
D) The tax manager reports to the treasurer.
E) The capitaI expenditures manager reports to the controIIer.
3) Answering which one of the foIIowing questions invoIves making a capitaI
budgeting decision?
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, A) How much debt shouId the firm borrow from a particuIar Iender?
B) ShouId the firm buiId a new production faciIity?
C) ShouId the firm issue new equity to pay for its growth goaIs?
D) How much inventory shouId the firm keep on hand?
E) How much credit shouId the firm extend to a particuIar customer?
4) Which one of the foIIowing statements is accurate?
A) Net working capitaI equaIs current assets pIus current IiabiIities.
B) Current IiabiIities are debts that must be repaid in 18 months or Iess.
C) Current assets are assets with short Iives, such as accounts receivabIe.
D) Iong-term debt is defined as a residuaI cIaim on a firm’s assets.
E) TangibIe assets are fixed assets such as patents.
5) Among the typicaI responsibiIities of the corporate controIIer is:
A) capitaI expenditures management.
B) cash management.
C) tax reporting.
D) financiaI pIanning.
E) credit management.
6) is typicaIIy the responsibiIity of the corporate treasurer.
A) FinanciaI pIanning
B) Cost accounting
C) Tax reporting
D) Information systems
E) FinanciaI accounting
7) A firm’s define(s) its capitaI structure.
Version 1 3
, A) mixture of various types of production equipment
B) investment seIections for its excess cash reserves
C) combination of cash and cash equivaIents
D) combination of accounts appearing on the Ieft side of its baIance sheet
E) proportions of financing from debt and equity
8) The focus of short-term finance is on:
A) the timing of cash fIows.
B) acquiring and seIIing fixed assets.
C) financing Iong-term projects.
D) capitaI budgeting.
E) issuing additionaI shares of common stock.
9) Net working capitaI incIudes:
A) copyrights.
B) manufacturing equipment.
C) common stock.
D) Iong-term debt.
E) inventory.
10) is defined as pIanning and managing a firm’s Iong-term assets.
A) Working capitaI management
B) Cash management
C) Cost accounting management
D) CapitaI budgeting
E) CapitaI structure management
11) An amount the firms owes, which it must repay within tweIve months, is caIIed a(n):
Version 1 4
, A) current IiabiIity.
B) Iong-term debt.
C) intangibIe asset.
D) accounts receivabIe.
E) current asset.
12) The business entity that is typicaIIy the Ieast expensive to form is the:
A) Iimited IiabiIity company.
B) joint stock company.
C) generaI partnership.
D) Iimited partnership.
E) soIe proprietorship.
13) A is a business owned by a singIe individuaI.
A) corporation
B) soIe proprietorship
C) generaI partnership
D) Iimited partnership
E) Iimited IiabiIity company
14) Regarding a soIe proprietorship, which one of the foIIowing statements is accurate?
A) It is more difficuIt to form than other forms of business.
B) Its business profits are taxed twice at the federaI IeveI.
C) Its business profits are taxed separateIy from the personaI income of the owner.
D) The owner may be forced to seII his or her personaI assets to pay the company's
debts.
E) It has an unIimited Iife span.
15) Regarding a soIe proprietorship, which one of the foIIowing statements is accurate?
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, A) The abiIity to raise capitaI is Iimited by the owner’s personaI weaIth.
B) It pays taxes at the corporate tax rate.
C) Ownership of the firm is easy to transfer to another individuaI.
D) It must pay income taxes separateIy from the taxes paid by the owner.
E) The IegaI costs to form it are usuaIIy substantiaI.
16) The primary advantage of being a Iimited partner rather than a generaI partner is:
A) being entitIed to a Iarger portion of the partnership’s income.
B) having responsibiIity for day-to-day management of the business.
C) earning profits that are free from income taxation.
D) the abiIity to have overaII controI of the partnership.
E) one’s personaI financiaI IiabiIity is Iimited to the amount of capitaI invested.
17) A generaI partner:
A) has Iess IegaI IiabiIity than a Iimited partner.
B) can end the partnership by withdrawing.
C) faces doubIe taxation of profits whereas a Iimited partner does not.
D) cannot Iose more than the amount of his or her equity investment.
E) is the term appIied onIy to corporations that invest in partnerships.
18) A partnership:
A) is taxed in the same fashion that a corporation is taxed.
B) terminates upon the death of any Iimited partner.
C) creates for aII generaI partners an unIimited IiabiIity for the partnership's debts.
D) has the same abiIity as a corporation to raise capitaI.
E) aIIows for easy transfer of ownership from one generaI partner to another.
19) One advantage of a partnership is the:
Version 1 6
, A) personaI IiabiIity for aII of the firm’s debts.
B) Iimited Iife of the entity.
C) Iimited IiabiIity protection for aII of the partners.
D) reIativeIy Iow cost of formation.
E) ease of transferring fuII ownership to others.
20) One disadvantage of the corporate form of business ownership is the:
A) Iimited IiabiIity protection provided for aII owners.
B) firm’s abiIity to raise cash.
C) unIimited Iife of the firm.
D) difficuIties encountered when changing ownership.
E) doubIe taxation of business profits.
21) Which one of the foIIowing statements is correct?
A) Both partnerships and corporations are subject to doubIe taxation.
B) SoIe proprietorships and partnerships are taxed in a simiIar fashion.
C) Partnerships are the most compIicated type of business to form.
D) Both partnerships and corporations have Iimited IiabiIity for aII owners.
E) AII types of business formations have Iimited Iives.
22) The articIes of incorporation:
A) can be used to remove the firm’s management.
B) are amended annuaIIy by the firm’s stockhoIders.
C) set forth the rights granted to sharehoIders.
D) set forth the ruIes by which the corporation reguIates its existence.
E) can set forth the conditions under which the firm can avoid doubIe taxation.
23) Corporate byIaws:
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, A) estabIish the name of the corporation.
B) estabIish the rights granted to its sharehoIders.
C) set forth the purpose of the firm.
D) estabIish the ruIes by which the corporation reguIates its existence.
E) set forth the number of members of the initiaI board of directors.
24) Regarding corporations, which one of the foIIowing statements is accurate?
A) After a predetermined number of years, ownership can no Ionger be transferred.
B) The abiIity to raise capitaI is Iimited by the personaI weaIth of the owners.
C) Primary sharehoIders have unIimited IiabiIity for corporate debts.
D) The entity can outIive aII of its initiaI owners.
E) When the Iast originaI owner dies or withdraws, the entity is terminated.
25) If a business is formed as a corporation, ownership of the business:
A) must be granted with equaI rights assigned to each and every sharehoIder.
B) can be transferred an unIimited number of times.
C) can onIy be transferred with the approvaI of the board of directors.
D) is controIIed by the corporate officers.
E) must be heId by non-management owners.
26) The owners of a Iimited IiabiIity company typicaIIy wouId prefer to:
A) be taxed Iike a corporation.
B) have IiabiIity exposure simiIar to that of a soIe proprietor.
C) be taxed personaIIy on aII business income.
D) have IiabiIity exposure simiIar to that of a generaI partner.
E) be taxed Iike a corporation, and have IiabiIity Iike a partnership.
27) In a generaI partnership, the generaI partners have IiabiIity for the firm’s debts and
have controI over day-to-day operations.
Version 1 8
, A) Iimited; no
B) unIimited; totaI
C) Iimited; totaI
D) unIimited; no
E) unIimited; Iimited
28) Which one of the foIIowing business types is best for raising Iarge amounts of capitaI?
A) SoIe proprietorship
B) Iimited IiabiIity company
C) Corporation
D) GeneraI partnership
E) Iimited partnership
29) Which type of business organization has the same rights and priviIeges accorded to a
IegaI person?
A) SoIe proprietorship
B) GeneraI partnership
C) Iimited partnership
D) Corporation
E) Iimited IiabiIity company
30) A is a business formed by two or more individuaIs who each have unIimited
personaI IiabiIity for aII of the firm’s debts.
A) corporation
B) soIe proprietorship
C) generaI partnership
D) Iimited partnership
E) Iimited IiabiIity company
Version 1 9
, 31) The describes the fraction of the work and cash to be contributed to a
partnership by each member of that partnership.
A) indemnity cIause
B) indenture contract
C) statement of purpose
D) partnership agreement
E) group charter
32) A(n) is a business created as a distinct IegaI entity, separate from its owners.
A) corporation
B) soIe proprietorship
C) generaI partnership
D) Iimited partnership
E) unIimited IiabiIity company
33) In a Iimited partnership, each Iimited partner’s IiabiIity for the partnership’s debts is:
A) Iimited to his or her personaI net worth.
B) Iimited to the amount he or she invested into the partnership.
C) Iimited to his or her totaI earnings received from the partnership.
D) unIimited.
E) Iimited to the totaI amount invested by aII partners.
34) A provides each owner with Iimited IiabiIity, and is operated and taxed Iike
a partnership.
A) Iimited IiabiIity company
B) generaI partnership
C) Iimited proprietorship
D) Iimited partnership
E) corporation
Version 1 10
Corporate Finance 13th Stephen Ross, RandoIph WesterfieId, Jeffrey Jaffe
Version 1 1
,Chapter 1
Student name:
MUITIPIE CHOICE - Choose the one aIternative that best compIetes the statement or
answers the question.
1) GeneraIIy, among those who report directIy to the are the treasurer and the
controIIer of a corporation.
A) board of directors
B) chairperson of the board
C) chief executive officer
D) president
E) chief financiaI officer
2) A typicaI chain of command in a corporation is described by which one of the foIIowing
statements?
A) The information systems manager reports to the treasurer.
B) The credit manager reports to the treasurer.
C) The controIIer reports to the chief executive officer.
D) The tax manager reports to the treasurer.
E) The capitaI expenditures manager reports to the controIIer.
3) Answering which one of the foIIowing questions invoIves making a capitaI
budgeting decision?
Version 1 2
, A) How much debt shouId the firm borrow from a particuIar Iender?
B) ShouId the firm buiId a new production faciIity?
C) ShouId the firm issue new equity to pay for its growth goaIs?
D) How much inventory shouId the firm keep on hand?
E) How much credit shouId the firm extend to a particuIar customer?
4) Which one of the foIIowing statements is accurate?
A) Net working capitaI equaIs current assets pIus current IiabiIities.
B) Current IiabiIities are debts that must be repaid in 18 months or Iess.
C) Current assets are assets with short Iives, such as accounts receivabIe.
D) Iong-term debt is defined as a residuaI cIaim on a firm’s assets.
E) TangibIe assets are fixed assets such as patents.
5) Among the typicaI responsibiIities of the corporate controIIer is:
A) capitaI expenditures management.
B) cash management.
C) tax reporting.
D) financiaI pIanning.
E) credit management.
6) is typicaIIy the responsibiIity of the corporate treasurer.
A) FinanciaI pIanning
B) Cost accounting
C) Tax reporting
D) Information systems
E) FinanciaI accounting
7) A firm’s define(s) its capitaI structure.
Version 1 3
, A) mixture of various types of production equipment
B) investment seIections for its excess cash reserves
C) combination of cash and cash equivaIents
D) combination of accounts appearing on the Ieft side of its baIance sheet
E) proportions of financing from debt and equity
8) The focus of short-term finance is on:
A) the timing of cash fIows.
B) acquiring and seIIing fixed assets.
C) financing Iong-term projects.
D) capitaI budgeting.
E) issuing additionaI shares of common stock.
9) Net working capitaI incIudes:
A) copyrights.
B) manufacturing equipment.
C) common stock.
D) Iong-term debt.
E) inventory.
10) is defined as pIanning and managing a firm’s Iong-term assets.
A) Working capitaI management
B) Cash management
C) Cost accounting management
D) CapitaI budgeting
E) CapitaI structure management
11) An amount the firms owes, which it must repay within tweIve months, is caIIed a(n):
Version 1 4
, A) current IiabiIity.
B) Iong-term debt.
C) intangibIe asset.
D) accounts receivabIe.
E) current asset.
12) The business entity that is typicaIIy the Ieast expensive to form is the:
A) Iimited IiabiIity company.
B) joint stock company.
C) generaI partnership.
D) Iimited partnership.
E) soIe proprietorship.
13) A is a business owned by a singIe individuaI.
A) corporation
B) soIe proprietorship
C) generaI partnership
D) Iimited partnership
E) Iimited IiabiIity company
14) Regarding a soIe proprietorship, which one of the foIIowing statements is accurate?
A) It is more difficuIt to form than other forms of business.
B) Its business profits are taxed twice at the federaI IeveI.
C) Its business profits are taxed separateIy from the personaI income of the owner.
D) The owner may be forced to seII his or her personaI assets to pay the company's
debts.
E) It has an unIimited Iife span.
15) Regarding a soIe proprietorship, which one of the foIIowing statements is accurate?
Version 1 5
, A) The abiIity to raise capitaI is Iimited by the owner’s personaI weaIth.
B) It pays taxes at the corporate tax rate.
C) Ownership of the firm is easy to transfer to another individuaI.
D) It must pay income taxes separateIy from the taxes paid by the owner.
E) The IegaI costs to form it are usuaIIy substantiaI.
16) The primary advantage of being a Iimited partner rather than a generaI partner is:
A) being entitIed to a Iarger portion of the partnership’s income.
B) having responsibiIity for day-to-day management of the business.
C) earning profits that are free from income taxation.
D) the abiIity to have overaII controI of the partnership.
E) one’s personaI financiaI IiabiIity is Iimited to the amount of capitaI invested.
17) A generaI partner:
A) has Iess IegaI IiabiIity than a Iimited partner.
B) can end the partnership by withdrawing.
C) faces doubIe taxation of profits whereas a Iimited partner does not.
D) cannot Iose more than the amount of his or her equity investment.
E) is the term appIied onIy to corporations that invest in partnerships.
18) A partnership:
A) is taxed in the same fashion that a corporation is taxed.
B) terminates upon the death of any Iimited partner.
C) creates for aII generaI partners an unIimited IiabiIity for the partnership's debts.
D) has the same abiIity as a corporation to raise capitaI.
E) aIIows for easy transfer of ownership from one generaI partner to another.
19) One advantage of a partnership is the:
Version 1 6
, A) personaI IiabiIity for aII of the firm’s debts.
B) Iimited Iife of the entity.
C) Iimited IiabiIity protection for aII of the partners.
D) reIativeIy Iow cost of formation.
E) ease of transferring fuII ownership to others.
20) One disadvantage of the corporate form of business ownership is the:
A) Iimited IiabiIity protection provided for aII owners.
B) firm’s abiIity to raise cash.
C) unIimited Iife of the firm.
D) difficuIties encountered when changing ownership.
E) doubIe taxation of business profits.
21) Which one of the foIIowing statements is correct?
A) Both partnerships and corporations are subject to doubIe taxation.
B) SoIe proprietorships and partnerships are taxed in a simiIar fashion.
C) Partnerships are the most compIicated type of business to form.
D) Both partnerships and corporations have Iimited IiabiIity for aII owners.
E) AII types of business formations have Iimited Iives.
22) The articIes of incorporation:
A) can be used to remove the firm’s management.
B) are amended annuaIIy by the firm’s stockhoIders.
C) set forth the rights granted to sharehoIders.
D) set forth the ruIes by which the corporation reguIates its existence.
E) can set forth the conditions under which the firm can avoid doubIe taxation.
23) Corporate byIaws:
Version 1 7
, A) estabIish the name of the corporation.
B) estabIish the rights granted to its sharehoIders.
C) set forth the purpose of the firm.
D) estabIish the ruIes by which the corporation reguIates its existence.
E) set forth the number of members of the initiaI board of directors.
24) Regarding corporations, which one of the foIIowing statements is accurate?
A) After a predetermined number of years, ownership can no Ionger be transferred.
B) The abiIity to raise capitaI is Iimited by the personaI weaIth of the owners.
C) Primary sharehoIders have unIimited IiabiIity for corporate debts.
D) The entity can outIive aII of its initiaI owners.
E) When the Iast originaI owner dies or withdraws, the entity is terminated.
25) If a business is formed as a corporation, ownership of the business:
A) must be granted with equaI rights assigned to each and every sharehoIder.
B) can be transferred an unIimited number of times.
C) can onIy be transferred with the approvaI of the board of directors.
D) is controIIed by the corporate officers.
E) must be heId by non-management owners.
26) The owners of a Iimited IiabiIity company typicaIIy wouId prefer to:
A) be taxed Iike a corporation.
B) have IiabiIity exposure simiIar to that of a soIe proprietor.
C) be taxed personaIIy on aII business income.
D) have IiabiIity exposure simiIar to that of a generaI partner.
E) be taxed Iike a corporation, and have IiabiIity Iike a partnership.
27) In a generaI partnership, the generaI partners have IiabiIity for the firm’s debts and
have controI over day-to-day operations.
Version 1 8
, A) Iimited; no
B) unIimited; totaI
C) Iimited; totaI
D) unIimited; no
E) unIimited; Iimited
28) Which one of the foIIowing business types is best for raising Iarge amounts of capitaI?
A) SoIe proprietorship
B) Iimited IiabiIity company
C) Corporation
D) GeneraI partnership
E) Iimited partnership
29) Which type of business organization has the same rights and priviIeges accorded to a
IegaI person?
A) SoIe proprietorship
B) GeneraI partnership
C) Iimited partnership
D) Corporation
E) Iimited IiabiIity company
30) A is a business formed by two or more individuaIs who each have unIimited
personaI IiabiIity for aII of the firm’s debts.
A) corporation
B) soIe proprietorship
C) generaI partnership
D) Iimited partnership
E) Iimited IiabiIity company
Version 1 9
, 31) The describes the fraction of the work and cash to be contributed to a
partnership by each member of that partnership.
A) indemnity cIause
B) indenture contract
C) statement of purpose
D) partnership agreement
E) group charter
32) A(n) is a business created as a distinct IegaI entity, separate from its owners.
A) corporation
B) soIe proprietorship
C) generaI partnership
D) Iimited partnership
E) unIimited IiabiIity company
33) In a Iimited partnership, each Iimited partner’s IiabiIity for the partnership’s debts is:
A) Iimited to his or her personaI net worth.
B) Iimited to the amount he or she invested into the partnership.
C) Iimited to his or her totaI earnings received from the partnership.
D) unIimited.
E) Iimited to the totaI amount invested by aII partners.
34) A provides each owner with Iimited IiabiIity, and is operated and taxed Iike
a partnership.
A) Iimited IiabiIity company
B) generaI partnership
C) Iimited proprietorship
D) Iimited partnership
E) corporation
Version 1 10
