TEST BANK
FOUNDATIONS OF FINANCIAL MANAGEMENT
Page | 1
, 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.
Correct 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.
Correct 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.
Correct 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.
Correct Answer: True Difficulty: 1 Easy
Topic: Introduction To Corporate Finance
Page | 2
,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
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.
Correct 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.
Correct 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.
Correct 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
Page | 3
,Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
Page | 4
,8) The First Nobel Prizes Given To Finance Professors Were For Their Contributions To Capital
Structure Theory And Portfolio Theories Of Risk And Return.
Correct 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
9) How Investors Handle Risk Is An Important Topic That Usually Only Economists Observe.
Correct 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).
Correct 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
Page | 5
,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.
Correct 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.
Correct 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.
Correct 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
Page | 6
,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.
Correct 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.
Correct 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.
Correct 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.
Correct Answer: True Difficulty: 1 Easy
Page | 7
,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.
Correct 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.
Correct 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.
Correct 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
Page | 8
,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.
Correct 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.
Correct 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.
Correct 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
24) A Limited Partnership Limits The Profits Partners May Receive.
Correct Answer: False Difficulty: 1 Easy
Topic: Forms Of Business Organization
Learning Objective: 01-01 The Field Of Finance Integrates Concepts From Economics, Accounting,
And A Number Of Other Areas.
Page | 9
, Bloom's: Remember Aacsb: Reflective Thinking
Accessibility: Keyboard Navigation
25) In Terms Of Revenues And Profits, The Corporation Is By Far The Most Important Form Of
Business Organization In The United States.
Correct 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: Understand
Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
26) As Noted In Finance In Action, Initial Public Offerings Have Now Increased Because Long-Term
Results Are Favored By Shareholders And Institutional Investors.
Correct Answer: False Difficulty: 2 Medium
Topic: Initial Public Offerings
Learning Objective: 01-02 A Firm Can Have Many Different Forms Of Organization.
Bloom's: Understand
Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
27) Dividends Paid To Corporate Stockholders Have Already Been Taxed Once As Corporate Income.
Correct 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: Understand
Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
Page | 10
FOUNDATIONS OF FINANCIAL MANAGEMENT
Page | 1
, 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.
Correct 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.
Correct 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.
Correct 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.
Correct Answer: True Difficulty: 1 Easy
Topic: Introduction To Corporate Finance
Page | 2
,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
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.
Correct 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.
Correct 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.
Correct 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
Page | 3
,Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
Page | 4
,8) The First Nobel Prizes Given To Finance Professors Were For Their Contributions To Capital
Structure Theory And Portfolio Theories Of Risk And Return.
Correct 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
9) How Investors Handle Risk Is An Important Topic That Usually Only Economists Observe.
Correct 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).
Correct 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
Page | 5
,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.
Correct 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.
Correct 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.
Correct 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
Page | 6
,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.
Correct 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.
Correct 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.
Correct 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.
Correct Answer: True Difficulty: 1 Easy
Page | 7
,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.
Correct 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.
Correct 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.
Correct 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
Page | 8
,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.
Correct 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.
Correct 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.
Correct 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
24) A Limited Partnership Limits The Profits Partners May Receive.
Correct Answer: False Difficulty: 1 Easy
Topic: Forms Of Business Organization
Learning Objective: 01-01 The Field Of Finance Integrates Concepts From Economics, Accounting,
And A Number Of Other Areas.
Page | 9
, Bloom's: Remember Aacsb: Reflective Thinking
Accessibility: Keyboard Navigation
25) In Terms Of Revenues And Profits, The Corporation Is By Far The Most Important Form Of
Business Organization In The United States.
Correct 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: Understand
Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
26) As Noted In Finance In Action, Initial Public Offerings Have Now Increased Because Long-Term
Results Are Favored By Shareholders And Institutional Investors.
Correct Answer: False Difficulty: 2 Medium
Topic: Initial Public Offerings
Learning Objective: 01-02 A Firm Can Have Many Different Forms Of Organization.
Bloom's: Understand
Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
27) Dividends Paid To Corporate Stockholders Have Already Been Taxed Once As Corporate Income.
Correct 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: Understand
Aacsb: Analytical Thinking Accessibility: Keyboard Navigation
Page | 10
