Solution Manual for Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, J. Ari Pandes, Thomas Holloway

Test Bank for
Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W. Westerfield, Bradford
D. Jordan, J. Ari Pandes, Thomas Holloway
Chapter 1-26 Answers are at the Eand of Each Chapter
M

Chapter 1
ED

Student name:__________
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) The size, timing and risk of cash flows are important when evaluating a capital budgeting
decision.
C
⊚ true
⊚ false
O
2) A capital expenditure project becomes desirable when the project is worth more to the firm
than the cost to acquire it.
N
⊚ true
⊚ false
N
3) A capital expenditure project becomes desirable when the present value of the cash flow
generated by the project exceeds the project's present value of cost.
⊚ true
O
⊚ false
IS
4) Optimal capital structure determines the least expensive sources of funds for the firm to
borrow.
⊚ true
⊚ false
SE

5) Optimal capital structure determines how much debt the firm should have in relation to its
level of equity.
⊚ true
⊚ false
U

6) Capital structure determines the level of current assets that is required to maintain the firm's
R
operations.
⊚ true
⊚ false

, 7) Capital structure determines how much risk is associated with the future cash flows of a
project.
⊚ true
⊚ false
M
8) Determining when a supplier should be paid is a capital structure decision.
⊚ true
⊚ false
ED

9) Establishing the accounts receivable policies is a capital structure decision.
⊚ true
⊚ false
C
10) Determining the amount of money to borrow to finance a 10-year project is a capital
structure decision.
O
⊚ true
⊚ false
N
11) Deciding if a new project should be accepted is a working capital decision.
⊚ true
⊚ false
N

12) When evaluating a project in which a firm might invest, the size but not the timing of the
O
cash flows is important.
⊚ true
⊚ false
IS

13) Working capital management addresses the firm's appropriate level of inventory.
⊚ true
⊚ false
SE

14) Common stockholders or limited partners can lose, at most, what they have invested in a
firm.
⊚ true
U
⊚ false

15) Partnership income is treated as personal income of the partners.
R
⊚ true
⊚ false

, 16) A limited partner can lose his or her investment in the partnership.
⊚ true
⊚ false

17) Maximization of the current earnings of the firm is the main goal of the financial manager.
M
⊚ true
⊚ false
ED
18) The primary goal of a financial manager should be to maximize the value of shares issued to
new investors in the corporation.
⊚ true
⊚ false
C
19) The primary goal of financial management is to minimize the corporate tax liability.
⊚ true
O
⊚ false

20) Control of the firm ultimately rests with board of directors. They elect the management, who,
N
in turn, lead the company.
⊚ true
⊚ false
N

21) The goal of financial managers does not imply that illegal or unethical actions should be
O
taken in the hope of increasing the value of the firm.
⊚ true
⊚ false
IS

22) Unethical behaviour does not impact volatility of the stock markets.
⊚ true
⊚ false
SE

23) The board of directors has the power to act on behalf of the shareholders to hire and fire the
operating management of the firm. In a legal sense, the directors are "principals" and the
shareholders are "agents".
U
⊚ true
⊚ false
R
24) When owners are managers (such as in a sole proprietorship), a firm will have agency costs.
⊚ true
⊚ false

, 25) IBEC Inc. of Toronto spends approximately $2 million annually to hire auditors to go over
the firm's financial statements. This is an example of an indirect agency cost.
⊚ true
⊚ false
M
26) Control of the firm ultimately rests with shareholders. They elect the board of directors, who
then hire and fire management.
⊚ true
ED
⊚ false

27) Stakeholder theory suggests that employees, customers, suppliers, and various levels of
government all have financial interests in the firm.
⊚ true
C
⊚ false
O
28) Corporate social responsibility (CSR) is also referred to as corporate sustainability.
⊚ true
⊚ false
N
29) Corporate social responsibility (CSR) is also referred to as the triple bottom line.
⊚ true
N
⊚ false
O
30) The triple bottom line is defined as a company's commitment to operate in an economically,
socially and environmentally sustainable manner.
⊚ true
IS
⊚ false

31) There is a significant relationship between CSR activity and corporate performance.
⊚ true
SE
⊚ false

32) Research results on CSR activity and corporate performance has been mixed.
⊚ true
U
⊚ false
R