Fundamentals of Financial Management
Final Exam Part 1 Questions and
Answers Graded A+
In most corporations, the CFO ranks under the CEO.
a. True
b. False - Correct answer-ANSWER: True
One advantage of the corporate form of organization is that it avoids double
taxation.
a. True
b. False - Correct answer-ANSWER: False
For a stock to be in equilibrium as the book defines it, its market price should
exceed its intrinsic value.
a. True
b. False - Correct answer-ANSWER: False
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,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 - Correct answer-ANSWER: True
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 - Correct answer-ANSWER: True
Which of the following statements is CORRECT?
a. One advantage of forming a corporation is that equity investors are usually
exposed to less liability than they would be in a partnership.
b. Corporations face fewer regulations than proprietorships.
c. One disadvantage of operating a business as a proprietor is that the firm is
subject to double taxation, because taxes are levied at both the firm level and the
owner level.
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, d. It is generally less expensive to form a corporation than a proprietorship
because, with a proprietorship, extensive legal documents are required.
e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to
the amount of his or her investment in the business. - Correct answer-a. One
advantage of forming a corporation is that equity investors are usually exposed to
less liability than they would be in a partnership.
Which of the following statements is CORRECT?
a. In most corporations, the CFO ranks above the CEO.
b. By law in most states, the chairman of the board must also be the CEO.
c. 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.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
Final Exam Part 1 Questions and
Answers Graded A+
In most corporations, the CFO ranks under the CEO.
a. True
b. False - Correct answer-ANSWER: True
One advantage of the corporate form of organization is that it avoids double
taxation.
a. True
b. False - Correct answer-ANSWER: False
For a stock to be in equilibrium as the book defines it, its market price should
exceed its intrinsic value.
a. True
b. False - Correct answer-ANSWER: False
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,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 - Correct answer-ANSWER: True
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 - Correct answer-ANSWER: True
Which of the following statements is CORRECT?
a. One advantage of forming a corporation is that equity investors are usually
exposed to less liability than they would be in a partnership.
b. Corporations face fewer regulations than proprietorships.
c. One disadvantage of operating a business as a proprietor is that the firm is
subject to double taxation, because taxes are levied at both the firm level and the
owner level.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, d. It is generally less expensive to form a corporation than a proprietorship
because, with a proprietorship, extensive legal documents are required.
e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to
the amount of his or her investment in the business. - Correct answer-a. One
advantage of forming a corporation is that equity investors are usually exposed to
less liability than they would be in a partnership.
Which of the following statements is CORRECT?
a. In most corporations, the CFO ranks above the CEO.
b. By law in most states, the chairman of the board must also be the CEO.
c. 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.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
