Test Bank For Foundations of Finance, 10TH Edition Keown/Martin/Petty | Complete All Chapters | 2024

Test Bank For Foundations of Finance, 10TH Edition Keown/Martin/Petty | Complete All Chapters | 2024. Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions. Answer: TRUE Diff: 1 Page Ref: 10 Keywords: Capital Structure Decisions Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 3) The chief financial officer (CFO) is responsible for overseeing financial planning, corporate strategic planning, and controlling the firm's cash flow. Answer: TRUE Diff: 1 Page Ref: 11 Keywords: Chief Financial Officer Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 4) The financial manager most directly responsible for producing the company's financial statements and directing its cost accounting functions is the A) chief financial officer. B) controller. C) treasurer. D) vice president-financier. Answer: B Diff: 1 Page Ref: 11, 12 Keywords: Controller, Financial Managers Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 5) A corporate treasurer is typically responsible for each of the following duties EXCEPT A) cash management. B) credit management. C) capital expenditures. D) cost accounting. Answer: D Diff: 1 Page Ref: 11, 12 Keywords: Treasurer, Financial Managers Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 6) The three basic types of issues addressed by the study of finance are A) capital budgeting, capital structure decisions, and working capital management. B) capital budgeting, working capital management, and investment analysis. C) capital structure decisions, working capital management, and sustained profitability. D) capital budgeting, investment analysis, and cash management. Answer: A Diff: 1 Page Ref: 10 Keywords: Capital Budgeting, Capital Structure, Working Capital Management Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 7) Cash and credit management are typically the responsibility of the A) controller. B) vice president of production and operations. C) chief executive officer, or CEO. D) treasurer. Answer: D Diff: 1 Page Ref: 12 Keywords: Treasurer Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 8) Working capital management is concerned with A) how a firm can best manage its cash flows as they arise in its day-to-day operations. B) how a firm should raise money to fund its investments. C) what long-term investments a firm should undertake. D) managing a firm's capital stock. Answer: A Diff: 1 Page Ref: 10 Keywords: Working Capital Management Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 9) Capital budgeting is concerned with A) whether a company's assets should be financed with debt or equity. B) managing a firm's cash budgeting procedures. C) what long-term investments a firm should undertake. D) planning sales of a corporation's equity capital. Answer: C Diff: 1 Page Ref: 10 Keywords: Capital Budgeting Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 10) Determining the best way to raise money to fund a firm's long-term investments is called A) the capital budgeting decision. B) the portfolio decision. C) the money flow processing decision. D) the capital structure decision. Answer: D Diff: 1 Page Ref: 10 Keywords: Capital Structure Decisions Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking 11) What are the duties of a treasurer? Of a controller? Answer: The treasurer generally handles the firm's financial activities, including cash and credit management, making capital expenditure decisions, raising funds, financial planning, and managing any foreign currency received by the firm. The controller is responsible for managing the firm's accounting duties, including producing financial statements, cost accounting, paying taxes, and gathering and monitoring the data necessary to oversee the firm's financial well-being. In this textbook, we focus on the duties generally associated with the treasurer and on how investment decisions are made. Diff: 2 Page Ref: 14 Keywords: Treasurer, Financial Managers Learning Obj.: L.O. 1.3 AACSB: Reflective Thinking Learning Objective 1.4 1) The sole proprietorship is for all practical purposes the absence of any formal legal business structure. Answer: TRUE Diff: 1 Page Ref: 13 Keywords: Sole Proprietorship, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 2) A general partnership, unlike a limited partnership, is an entity that legally functions separate and apart from its owners. Answer: FALSE Diff: 2 Page Ref: 13 Keywords: General Partnership, Limited Partnership, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 3) The best form of business entity to attract new capital is the sole proprietorship because investors only need to deal with one owner. Answer: FALSE Diff: 1 Page Ref: 15 Keywords: Legal Forms of Business, Sole Proprietorship Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 4) S-type corporations and limited liability companies are taxed like partnerships, but have the advantage of limited liability for their owners. Answer: TRUE Diff: 1 Page Ref: 14 Keywords: Legal Forms of Business, S-Corporation, Limited Liability Company Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 5) Limited liability companies are more flexible than S-type Corporations because limited liability companies operate under state laws. Answer: FALSE Diff: 2 Page Ref: 14 Keywords: Legal Forms of Business, S-Corporation, Limited Liability Company Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 6) A limited liability company (LLC) is taxed like a partnership but provides limited liability for its owners, similar to a corporation. Answer: TRUE Diff: 1 Page Ref: 14 Keywords: Limited Liability Company, Partnership, Corporation, Limited Liability Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 7) Its ability to raise capital by selling stock makes the corporation the best form of organization in terms of raising capital. Answer: TRUE Diff: 1 Page Ref: 16 Keywords: Corporation, Advantages of Corporate Form Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 8) There is no legal distinction made between the assets of the business and the personal assets of any of the owners in the limited partnership. Answer: FALSE Diff: 2 Page Ref: 13 Keywords: Limited Partnership Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 9) The owners of a corporation enjoy limited liability. Answer: TRUE Diff: 1 Page Ref: 13 Keywords: Corporation, Limited Liability Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 10) The corporation is a legal entity separate from its owners; thus it is possible for the corporation to continue even upon the death of one or more shareholders. Answer: TRUE Diff: 2 Page Ref: 13, 14 Keywords: Corporation, Unlimited Life Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 11) In a sole proprietorship, the owner is personally responsible without limitation for the liabilities incurred. Answer: TRUE Diff: 1 Page Ref: 12 Keywords: Sole Proprietorship, Unlimited Liability Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 12) The procedure by which significant changes may be made to a partnership, such as admission of a new partner or termination of the partnership, are governed by each state so no partnership agreement is needed. Answer: FALSE Diff: 1 Page Ref: 13 Keywords: Partnership, Partnership Agreement Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 13) In a limited partnership at least one general partner must exist; that general partner has unlimited liability. Answer: TRUE Diff: 2 Page Ref: 13 Keywords: Limited Partnership, General Partner, Unlimited Liability Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 14) A limited partnership provides limited liability to A) all general partners. B) only limited partners responsible for day to day management of the firm. C) only to limited partners who do not participate in the management of the business. D) all partners. Answer: C Diff: 1 Page Ref: 13 Keywords: Limited Partnership, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 15) The sole proprietorship has no legal business structure separate from its owner. Answer: TRUE Diff: 1 Page Ref: 14 Keywords: Sole Proprietorship Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 16) Joe is deciding whether or not to invest $10,000 in a business that has pending lawsuits against it. If Joe invests and the business loses the lawsuits, the most Joe can lose is A) $10,000 if Joe is a general partner. B) $10,000 if Joe is a sole proprietor. C) $10,000 if Joe is a limited partner. D) $10,000 plus his share of the lawsuits if Joe is a limited partner. Answer: C Diff: 2 Page Ref: 13 Keywords: Limited Partnership, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Analytical Thinking 17) S-type corporations have all of the following advantages EXCEPT A) they are taxed as partnerships. B) the owners have limited liability. C) distributions are taxed twice, similar to corporate dividend payments. D) all owners must be people, no corporations. Answer: C Diff: 2 Page Ref: 14 Keywords: S-type Corporations, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 18) All of the following business organizations provide limited liability to their owners EXCEPT A) general partnership. B) S-type corporation. C) corporation. D) limited liability company. Answer: A Diff: 2 Page Ref: 13 Keywords: General Partnership, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 19) Bill, a local inventor, developed a diet pill that he believes will solve the obesity problem in the United States. Bill wants to create a new company, 50% owned by Bill and 50% owned by a major drug company. Although he believes the pills are safe, Bill is concerned about liability if someone becomes sick or dies. The best form of business organization for the new company is A) sole proprietorship with Bill as owner and the drug company as creditor. B) general partnership with Bill and the drug company as equal partners. C) S-type corporation with Bill and the drug company owning equal shares. D) limited liability company with Bill and the drug company owning equal shares. Answer: D Diff: 2 Page Ref: 14, 15 Keywords: Limited Liability Company, Legal Forms of Business Learning Obj.: L.O. 1.4 AACSB: Analytical Thinking 20) Which of the following statements about the corporate form of business organization is true? A) The corporate form has the disadvantage of double taxation relative to a sole proprietorship. B) The corporate form is preferred over the sole proprietorship because a corporation is easier to form and faces less regulation. C) Sole proprietorships are the most common form of business organization because liability is limited to the amount invested in the business by the sole proprietor. D) The corporate form has the advantage of unlimited liability. Answer: A Diff: 2 Page Ref: 12, 13 Keywords: Corporation, Sole Proprietorship Learning Obj.: L.O. 1.4 AACSB: Reflective Thinking 21) Limited partnerships are not as prevalent as corporations because A) limited partners can lose up to three times the amount they invested in the partnership if the business goes bankrupt. B) limited partnerships have the disadvantage of double taxation.