Test Bank – Chapter 01: Introduction to Corporate Finance (2026)

2027//Chapter 01 introduction to corporate finance test10/01/2026
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Chapter 01 - Introduction to Corporate Finance



Chapter 01
Introduction to Corporate Finance


Chapter 01 Introduction to Corporate Finance Answer Key



Multiple Choice Questions



1. Which one of the following terms is defined as the management of a firm's long-term
investments?
A. working capital management
B. financial allocation
C. agency cost analysis
D. capital budgeting
E. capital structure

Refer to section 1.1


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital budgeting



2. Which one of the following terms is defined as the mixture of a firm's debt and equity
financing?
A. working capital management
B. cash management
C. cost analysis
D. capital budgeting
E. capital structure

Refer to section 1.1


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Capital structure




1-1

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Chapter 01 - Introduction to Corporate Finance


3. Which one of the following is defined as a firm's short-term assets and its short-term
liabilities?
A. working capital
B. debt
C. investment capital
D. net capital
E. capital structure

Refer to section 1.1


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-1
Section: 1.1
Topic: Working capital



4. A business owned by a solitary individual who has unlimited liability for its debt is called
a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.

Refer to section 1.2


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Sole proprietorship




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Chapter 01 - Introduction to Corporate Finance


5. A business formed by two or more individuals who each have unlimited liability for all of
the firm's business debts is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.

Refer to section 1.2


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: General partnership



6. A business partner whose potential financial loss in the partnership will not exceed his or
her investment in that partnership is called a:
A. generally partner.
B. sole proprietor.
C. limited partner.
D. corporate shareholder.
E. zero partner.

Refer to section 1.2


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Limited partner




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Chapter 01 - Introduction to Corporate Finance


7. A business created as a distinct legal entity and treated as a legal "person" isalled
c a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. unlimited liability company.

Refer to section 1.2


AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Corporation



8. Which one of the following terms is defined as a conflict of interest between the corporate
shareholders and the corporate managers?
A. articles of incorporation
B. corporate breakdown
C. agency problem
D. bylaws
E. legal liability

Refer to section 1.4


AACSB: Ethics
Difficulty: Basic
Learning Objective: 1-4
Section: 1.4
Topic: Agency problem




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