TEST BANK CORPORATE FINANCE 4TH EDITION
BERK (CHAPTER 1-31) QUESTIONS AND CORRECT
ANSWERS (VERIFIED ANSWERS Q&A 2026
|INSTANT DOWNLOAD PDF
1. What is the primary goal of financial management in a
corporation?
A. Maximizing sales revenue
B. Minimizing operational costs
C. Maximizing shareholder wealth
D. Increasing employee salaries
Correct Answer: C. Maximizing shareholder wealth
Rationale: Corporate finance focuses on increasing the market
value of shareholders’ investments.
2. Which financial statement reports a company’s revenues
and expenses over a period of time?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of retained earnings
Correct Answer: C. Income statement
,Rationale: The income statement summarizes profitability
during a specific accounting period.
3. Assets are best defined as:
A. Amounts owed to creditors
B. Resources owned by the company
C. Owner contributions only
D. Corporate tax obligations
Correct Answer: B. Resources owned by the company
Rationale: Assets include cash, inventory, property, and other
economic resources.
4. Which of the following is considered a liability?
A. Equipment
B. Inventory
C. Accounts payable
D. Retained earnings
Correct Answer: C. Accounts payable
Rationale: Liabilities represent obligations owed to outside
parties.
5. The accounting equation is:
A. Assets = Liabilities − Equity
B. Assets = Liabilities + Equity
,C. Equity = Assets + Revenue
D. Revenue = Expenses + Equity
Correct Answer: B. Assets = Liabilities + Equity
Rationale: This equation forms the foundation of balance sheet
accounting.
6. What does net present value (NPV) measure?
A. Total accounting profit
B. Future value of cash flows
C. Difference between present value of inflows and outflows
D. Average yearly revenue
Correct Answer: C. Difference between present value of inflows
and outflows
Rationale: NPV evaluates project profitability after discounting
cash flows.
7. A positive NPV project should generally be:
A. Rejected
B. Delayed indefinitely
C. Accepted
D. Ignored
Correct Answer: C. Accepted
Rationale: Positive NPV indicates value creation for
shareholders.
, 8. Which term refers to the risk specific to a single company?
A. Market risk
B. Systematic risk
C. Diversifiable risk
D. Inflation risk
Correct Answer: C. Diversifiable risk
Rationale: Company-specific risk can be reduced through
diversification.
9. The opportunity cost of capital is:
A. Historical borrowing rate
B. Rate earned on retained earnings
C. Best alternative return available
D. Government tax rate
Correct Answer: C. Best alternative return available
Rationale: Investors compare projects against alternative
investments of similar risk.
10. Common stockholders are considered:
A. Creditors
B. Owners of the corporation
C. Suppliers
D. Bondholders
BERK (CHAPTER 1-31) QUESTIONS AND CORRECT
ANSWERS (VERIFIED ANSWERS Q&A 2026
|INSTANT DOWNLOAD PDF
1. What is the primary goal of financial management in a
corporation?
A. Maximizing sales revenue
B. Minimizing operational costs
C. Maximizing shareholder wealth
D. Increasing employee salaries
Correct Answer: C. Maximizing shareholder wealth
Rationale: Corporate finance focuses on increasing the market
value of shareholders’ investments.
2. Which financial statement reports a company’s revenues
and expenses over a period of time?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of retained earnings
Correct Answer: C. Income statement
,Rationale: The income statement summarizes profitability
during a specific accounting period.
3. Assets are best defined as:
A. Amounts owed to creditors
B. Resources owned by the company
C. Owner contributions only
D. Corporate tax obligations
Correct Answer: B. Resources owned by the company
Rationale: Assets include cash, inventory, property, and other
economic resources.
4. Which of the following is considered a liability?
A. Equipment
B. Inventory
C. Accounts payable
D. Retained earnings
Correct Answer: C. Accounts payable
Rationale: Liabilities represent obligations owed to outside
parties.
5. The accounting equation is:
A. Assets = Liabilities − Equity
B. Assets = Liabilities + Equity
,C. Equity = Assets + Revenue
D. Revenue = Expenses + Equity
Correct Answer: B. Assets = Liabilities + Equity
Rationale: This equation forms the foundation of balance sheet
accounting.
6. What does net present value (NPV) measure?
A. Total accounting profit
B. Future value of cash flows
C. Difference between present value of inflows and outflows
D. Average yearly revenue
Correct Answer: C. Difference between present value of inflows
and outflows
Rationale: NPV evaluates project profitability after discounting
cash flows.
7. A positive NPV project should generally be:
A. Rejected
B. Delayed indefinitely
C. Accepted
D. Ignored
Correct Answer: C. Accepted
Rationale: Positive NPV indicates value creation for
shareholders.
, 8. Which term refers to the risk specific to a single company?
A. Market risk
B. Systematic risk
C. Diversifiable risk
D. Inflation risk
Correct Answer: C. Diversifiable risk
Rationale: Company-specific risk can be reduced through
diversification.
9. The opportunity cost of capital is:
A. Historical borrowing rate
B. Rate earned on retained earnings
C. Best alternative return available
D. Government tax rate
Correct Answer: C. Best alternative return available
Rationale: Investors compare projects against alternative
investments of similar risk.
10. Common stockholders are considered:
A. Creditors
B. Owners of the corporation
C. Suppliers
D. Bondholders
