Intermediate Financial Management
15th Edition
by
Eugene F. Brigham, Phillip R. Daves
TEST BANK
Includes All Chapters (1 to 32)
|| Answers Included ||
Intermediate Financial Management 15th Edition by Eugene F. Brigham, Phillip R. Daves | Complete Test Bank
,Name: Class: Date:
Chap 01 15 - Brigham
Indicate whether the statement is true or false.
1. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively
formed, are two key advantages to that form of business.
a. True
b. False
ANSWER: True
2. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the
organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to
attract large amounts of capital and thus to grow to a very large size.
a. True
b. False
ANSWER: True
3. The form of organization for a business is not an important issue, as this decision has very little effect on the
income and wealth of the firm's owners.
a. True
b. False
ANSWER: False
4. Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.
a. True
b. False
ANSWER: True
5. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common
stock and thus shareholders' wealth.
a. True
b. False
ANSWER: False
6. The major advantage of a regular partnership or a corporation as a form of business organization is the fact that
both offer their owners limited liability, whereas proprietorships do not.
a. True
b. False
ANSWER: False
Page 1
,Name: Class: Date:
Chap 01 15 - Brigham
7. Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's
unlimited personal liability for the business' debts.
a. True
b. False
ANSWER: True
8. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other
firms or individuals, Firm A is a financial intermediary.
a. True
b. False
ANSWER: True
9. The disadvantages associated with a proprietorship are similar to those under a partnership. One exception
relates to the more formal nature of the partnership agreement and the commitment of all partners' personal
assets. As a result, partnerships do not have difficulty raising large amounts of capital.
a. True
b. False
ANSWER: False
10. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21
per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.
This is a primary market transaction.
a. True
b. False
ANSWER: True
11. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
a. True
b. False
ANSWER: True
12.
If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market
transaction.
a. True
b. False
ANSWER: False
Page 2
, Name: Class: Date:
Chap 01 15 - Brigham
Indicate the answer choice that best completes the statement or answers the question.
13. Which of the following statements is CORRECT?
a. A good goal for a firm's management is maximization of expected EPS.
b. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from
their favorable tax treatment.
c. Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms'
actions to maximize their stock prices have little benefit to society.
d. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is
exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
e. The potential exists for agency conflicts between stockholders and managers.
ANSWER: e
14. Which of the following statements is CORRECT?
a. Most businesses (by number and total dollar sales) are organized as partnerships or proprietorships
because it is easier to set up and operate in one of these forms rather than as a corporation. However, if
the business gets very large, it becomes advantageous to convert to a corporation, mainly because
corporations have important tax advantages over proprietorships and partnerships.
b. Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses
(in terms of number of businesses) are organized as corporations.
c. Most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often
less favorable tax treatment, due to legal considerations related to ownership transfers and limited liability.
d. Large corporations are taxed more favorably than sole proprietorships.
e. Corporate stockholders are exposed to unlimited liability.
ANSWER: c
15. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
a. Maximize the stock price per share over the long run, which is the stock's intrinsic value.
b. Maximize the firm's expected EPS.
c. Minimize the chances of losses.
d. Maximize the firm's expected total income.
e. Maximize the stock price on a specific target date.
ANSWER: a
Page 3
15th Edition
by
Eugene F. Brigham, Phillip R. Daves
TEST BANK
Includes All Chapters (1 to 32)
|| Answers Included ||
Intermediate Financial Management 15th Edition by Eugene F. Brigham, Phillip R. Daves | Complete Test Bank
,Name: Class: Date:
Chap 01 15 - Brigham
Indicate whether the statement is true or false.
1. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively
formed, are two key advantages to that form of business.
a. True
b. False
ANSWER: True
2. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the
organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to
attract large amounts of capital and thus to grow to a very large size.
a. True
b. False
ANSWER: True
3. The form of organization for a business is not an important issue, as this decision has very little effect on the
income and wealth of the firm's owners.
a. True
b. False
ANSWER: False
4. Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.
a. True
b. False
ANSWER: True
5. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common
stock and thus shareholders' wealth.
a. True
b. False
ANSWER: False
6. The major advantage of a regular partnership or a corporation as a form of business organization is the fact that
both offer their owners limited liability, whereas proprietorships do not.
a. True
b. False
ANSWER: False
Page 1
,Name: Class: Date:
Chap 01 15 - Brigham
7. Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's
unlimited personal liability for the business' debts.
a. True
b. False
ANSWER: True
8. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other
firms or individuals, Firm A is a financial intermediary.
a. True
b. False
ANSWER: True
9. The disadvantages associated with a proprietorship are similar to those under a partnership. One exception
relates to the more formal nature of the partnership agreement and the commitment of all partners' personal
assets. As a result, partnerships do not have difficulty raising large amounts of capital.
a. True
b. False
ANSWER: False
10. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21
per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.
This is a primary market transaction.
a. True
b. False
ANSWER: True
11. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
a. True
b. False
ANSWER: True
12.
If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market
transaction.
a. True
b. False
ANSWER: False
Page 2
, Name: Class: Date:
Chap 01 15 - Brigham
Indicate the answer choice that best completes the statement or answers the question.
13. Which of the following statements is CORRECT?
a. A good goal for a firm's management is maximization of expected EPS.
b. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from
their favorable tax treatment.
c. Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms'
actions to maximize their stock prices have little benefit to society.
d. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is
exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
e. The potential exists for agency conflicts between stockholders and managers.
ANSWER: e
14. Which of the following statements is CORRECT?
a. Most businesses (by number and total dollar sales) are organized as partnerships or proprietorships
because it is easier to set up and operate in one of these forms rather than as a corporation. However, if
the business gets very large, it becomes advantageous to convert to a corporation, mainly because
corporations have important tax advantages over proprietorships and partnerships.
b. Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses
(in terms of number of businesses) are organized as corporations.
c. Most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often
less favorable tax treatment, due to legal considerations related to ownership transfers and limited liability.
d. Large corporations are taxed more favorably than sole proprietorships.
e. Corporate stockholders are exposed to unlimited liability.
ANSWER: c
15. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
a. Maximize the stock price per share over the long run, which is the stock's intrinsic value.
b. Maximize the firm's expected EPS.
c. Minimize the chances of losses.
d. Maximize the firm's expected total income.
e. Maximize the stock price on a specific target date.
ANSWER: a
Page 3
