AN OVERVIEW OF FINANCIAL MANAGEMENT
CHAPTER 1
(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)
Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject
lines.
Multiple Choice: True/False
Please note that some of the T/F questions overlap with some of the multiple choice items. We don't
think this creates a problem, but please take this into account when making your assignments.
(1-1) Role of finance FM Answer: a EASY
1. In most corporations, the CFO ranks under the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: b EASY
2. The Chairman of the Board must also be the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: a EASY
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
(1-3) Forms of organization FM Answer: a EASY
4. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
,(1-3) Forms of organization FM Answer: b EASY
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
(1-3) Forms of organization FM Answer: b EASY
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
(1-3) Forms of organization FM Answer: a EASY
7. Some partners in a partnership may have different rights, privileges, and responsibilities than
other partners.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
8. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
, (1-3) Forms of organization FM Answer: a EASY
9. It is generally harder to transfer one’s ownership interest in a partnership than in a
corporation.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
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
(1-3) Forms of organization FM Answer: a EASY
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
CHAPTER 1
(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)
Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject
lines.
Multiple Choice: True/False
Please note that some of the T/F questions overlap with some of the multiple choice items. We don't
think this creates a problem, but please take this into account when making your assignments.
(1-1) Role of finance FM Answer: a EASY
1. In most corporations, the CFO ranks under the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: b EASY
2. The Chairman of the Board must also be the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: a EASY
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
(1-3) Forms of organization FM Answer: a EASY
4. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
,(1-3) Forms of organization FM Answer: b EASY
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
(1-3) Forms of organization FM Answer: b EASY
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
(1-3) Forms of organization FM Answer: a EASY
7. Some partners in a partnership may have different rights, privileges, and responsibilities than
other partners.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
8. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
, (1-3) Forms of organization FM Answer: a EASY
9. It is generally harder to transfer one’s ownership interest in a partnership than in a
corporation.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
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
(1-3) Forms of organization FM Answer: a EASY
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
