Test Bank in Conjunction with Fundamentals of Financial Management,Brigham,13e

AN OVERVIEW OF FINANCIAL MANAGEMENT
CHAPTER 1

(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)




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. See the preface for information on the AACSB
letter indicators (F, M, etc.) on the subject lines.



Multiple Choice: True/False


(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: b 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



(1-3) Forms of organization FM Answer: b EASY

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