TEST BANK
FUNDAMENTALS OF CORPORATE FINANCE
7TH CANADIAN EDITION
CHAPTER NO. 01: GOALS AND GOVERNANCE OF THE FIRM
TRUE / FALSE QUESTIONS & ANSWERS
1. To obtain the necessary money a company sells financial assets or securities.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-02 Distinguish between real and financial assets.
Topic: 01-03 The Financing Decision
2. The liability of sole proprietors is limited to the amount of their investment in the
company.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-06 Sole Proprietorships
3. General partners have limited personal liability for business debts in a limited partnership.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-07 Partnerships
,4. The corporate form of business organization is often accompanied by separation of
ownership and management.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-04 What Is a Corporation?
5. A major disadvantage of partnerships is that they have "double taxation" of profits.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-07 Partnerships
6. Capital budgeting decisions are used to determine how to raise the cash necessary for
investments.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-01 Give examples of the investment and financing decisions that financial managers make.
Learning Objective: 01-02 Distinguish between real and financial assets.
Topic: 01-02 The Investment (Capital Budgeting) Decision
7. As your firm grows, you may decide to form a corporation. You may incorporate your firm
federally, under the Canadian Business Corporation Act, or provincially, under the relevant
provincial laws.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-04 What Is a Corporation?
,8. The duties of a corporate controller typically include the preparation of financial
statements.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-04 Describe the responsibilities of the CFO, the treasurer, and the controller.
Topic: 01-09 Who Is the Financial Manager?
9. A successful investment is one that increases the value of the firm.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-10 Goals of the Corporation
10. The primary goal of any company should be to maximize current period profit.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-10 Goals of the Corporation
11. Maximizing profits is the same as maximizing the value of the firm.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-10 Goals of the Corporation
, 12. Ethical decision making in business can be viewed as a long-term investment in
reputation.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-14 Ethical Disputes
13. Agency problems act as a hindrance to the goal of maximizing firm value.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-12 Agency Problems, Executive Compensation, and Corporate Governance
14. Managers are spurred on by incentive schemes that provide big returns if shareholders
gain but are valueless if they do not.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-12 Agency Problems, Executive Compensation, and Corporate Governance
FUNDAMENTALS OF CORPORATE FINANCE
7TH CANADIAN EDITION
CHAPTER NO. 01: GOALS AND GOVERNANCE OF THE FIRM
TRUE / FALSE QUESTIONS & ANSWERS
1. To obtain the necessary money a company sells financial assets or securities.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-02 Distinguish between real and financial assets.
Topic: 01-03 The Financing Decision
2. The liability of sole proprietors is limited to the amount of their investment in the
company.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-06 Sole Proprietorships
3. General partners have limited personal liability for business debts in a limited partnership.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-07 Partnerships
,4. The corporate form of business organization is often accompanied by separation of
ownership and management.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-04 What Is a Corporation?
5. A major disadvantage of partnerships is that they have "double taxation" of profits.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-07 Partnerships
6. Capital budgeting decisions are used to determine how to raise the cash necessary for
investments.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-01 Give examples of the investment and financing decisions that financial managers make.
Learning Objective: 01-02 Distinguish between real and financial assets.
Topic: 01-02 The Investment (Capital Budgeting) Decision
7. As your firm grows, you may decide to form a corporation. You may incorporate your firm
federally, under the Canadian Business Corporation Act, or provincially, under the relevant
provincial laws.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Topic: 01-04 What Is a Corporation?
,8. The duties of a corporate controller typically include the preparation of financial
statements.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-04 Describe the responsibilities of the CFO, the treasurer, and the controller.
Topic: 01-09 Who Is the Financial Manager?
9. A successful investment is one that increases the value of the firm.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-10 Goals of the Corporation
10. The primary goal of any company should be to maximize current period profit.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-10 Goals of the Corporation
11. Maximizing profits is the same as maximizing the value of the firm.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-10 Goals of the Corporation
, 12. Ethical decision making in business can be viewed as a long-term investment in
reputation.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-14 Ethical Disputes
13. Agency problems act as a hindrance to the goal of maximizing firm value.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-12 Agency Problems, Executive Compensation, and Corporate Governance
14. Managers are spurred on by incentive schemes that provide big returns if shareholders
gain but are valueless if they do not.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 01-05 Explain why maximizing market value is the logical financial goal of the corporation.
Learning Objective: 01-06 Explain why value maximization is usually consistent with ethical behaviour.
Learning Objective: 01-07 Explain how corporations mitigate conflicts and encourage cooperative behaviour.
Topic: 01-12 Agency Problems, Executive Compensation, and Corporate Governance
