Fundamentals of Financial Management 16th Ed. Test Bank | Brigham & Houston

TEST BANK FOR Fundamentals of Financial Management
16th Edition by Eugene F. Brigham and Joel F.
Houston

,1. An Overview of Financial Management.
True / False

Note that there is an overlap between the T/F and multiple - choice questions, as some of the T/F
statements are used in multiple - choice questions.

Multiple Choice: True/False


1. In most corporations, the CFO ranks under the CEO.
a. True
b. False
ANSWER: True

2. The Chairman of the Board must also be the CEO.
a. True
b. False
ANSWER: False

3. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the
highest ranking individual. The CEO generally works under the board and its chairman, and the board
generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove
the board, but he or she can endeavor to have the board voted out and a new board voted in should a
conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though
many corporate control experts believe it is bad to vest both offices in the same person.
a. True
b. False
ANSWER: True

4. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
ANSWER: True

5. A disadvantage of the corporate form of organization is that corporate stockholders are more
exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.
a. True
b. False
ANSWER: False

6. An advantage of the corporate form of organization is that corporations are generally less
highly regulated than proprietorships and partnerships.
a. True
b. False
ANSWER: False

,7. Some partners in a partnership may have different rights, privileges, and responsibilities than other
partners.
a. True

b. False
ANSWER: True

8. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
ANSWER: False

9. It is generally harder to transfer one's ownership interest in a partnership than in a corporation.
a. True
b. False
ANSWER: True

10. One danger of starting a proprietorship is that you may be exposed to personal liability if the business
goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.
a. True
b. False
ANSWER: True

11. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax.
However, its stockholders will have to pay personal taxes on the firm's net income.
a. True
b. False
ANSWER: True

12. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all
Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of
small businesses.
a. True
b. False
ANSWER: False

13. It is generally less expensive to form a corporation than a proprietorship because, with a
proprietorship, extensive legal documents are required.
a. True
b. False
ANSWER: False

14. The more capital a firm is likely to require, the greater the probability that it will be organized as a
corporation.
a. True
b. False
ANSWER: True

, 15. One disadvantage of forming a corporation rather than a partnership is that this makes it more
difficult for the firm's investors to transfer their ownership interests.
a. True