Test Bank: Fundamentals of Corporate Finance, 11th
Edition by Brealey, Myers & Marcus
Part 1: Introduction to Corporate Finance
1. The primary goal of corporate financial management is to:
a) Maximize market share
b) Maximize the current value of the company's stock
c) Minimize the cost of capital
d) Maximize executive compensation
2. Which of the following is considered a capital budgeting decision?
a) Deciding whether to pay a dividend
b) Determining the optimal level of inventory
c) Deciding to expand into a new geographic market
d) Establishing the terms of sale for customers
3. A conflict of interest between a company's owners and its managers is
referred to as:
a) Corporate governance
b) The agency problem
,c) Stakeholder theory
d) A fiduciary duty
4. The term "capital structure" refers to:
a) The mix of long-term debt and equity used to finance the firm
b) The management of a firm's short-term assets and liabilities
c) The decision to invest in new equipment
d) The mix of a firm's current assets
5. Which of the following is a real asset?
a) A corporate bond
b) A share of common stock
c) A manufacturing plant
d) A bank loan
Part 2: Financial Statements and Cash Flow
6. Which financial statement shows a firm's financial position at a specific
point in time?
a) Income Statement
b) Balance Sheet
,c) Statement of Cash Flows
d) Statement of Retained Earnings
7. Net Working Capital is defined as:
a) Total Assets minus Total Liabilities
b) Current Assets minus Current Liabilities
c) Cash and Marketable Securities minus Current Liabilities
d) Fixed Assets minus Long-Term Debt
8. The non-cash expense that reduces the book value of fixed assets over time
is:
a) Amortization
b) Depreciation
c) Depletion
d) Capital Expenditure
9. A firm's operating cash flow (OCF) is calculated as:
a) EBIT + Depreciation - Taxes
b) Net Income + Depreciation + Taxes
c) EBIT - Taxes
d) Revenue - Operating Expenses
, 10. An increase in accounts receivable represents:
a) A source of cash
b) A use of cash
c) Neither a source nor a use of cash
d) An increase in net income
11. Free Cash Flow is the cash flow available to:
a) The firm's shareholders after all expenses
b) The firm's investors (both debt and equity holders) after accounting for
necessary investments in fixed assets and working capital
c) Pay dividends
d) Repay long-term debt
12. If a company has a positive net income but negative operating cash flow,
this is often a warning sign that:
a) The company is very profitable
b) The company's accruals are increasing, perhaps due to a build-up of inventory or
receivables
c) The company is paying too much in taxes
d) The company has high depreciation expenses
Edition by Brealey, Myers & Marcus
Part 1: Introduction to Corporate Finance
1. The primary goal of corporate financial management is to:
a) Maximize market share
b) Maximize the current value of the company's stock
c) Minimize the cost of capital
d) Maximize executive compensation
2. Which of the following is considered a capital budgeting decision?
a) Deciding whether to pay a dividend
b) Determining the optimal level of inventory
c) Deciding to expand into a new geographic market
d) Establishing the terms of sale for customers
3. A conflict of interest between a company's owners and its managers is
referred to as:
a) Corporate governance
b) The agency problem
,c) Stakeholder theory
d) A fiduciary duty
4. The term "capital structure" refers to:
a) The mix of long-term debt and equity used to finance the firm
b) The management of a firm's short-term assets and liabilities
c) The decision to invest in new equipment
d) The mix of a firm's current assets
5. Which of the following is a real asset?
a) A corporate bond
b) A share of common stock
c) A manufacturing plant
d) A bank loan
Part 2: Financial Statements and Cash Flow
6. Which financial statement shows a firm's financial position at a specific
point in time?
a) Income Statement
b) Balance Sheet
,c) Statement of Cash Flows
d) Statement of Retained Earnings
7. Net Working Capital is defined as:
a) Total Assets minus Total Liabilities
b) Current Assets minus Current Liabilities
c) Cash and Marketable Securities minus Current Liabilities
d) Fixed Assets minus Long-Term Debt
8. The non-cash expense that reduces the book value of fixed assets over time
is:
a) Amortization
b) Depreciation
c) Depletion
d) Capital Expenditure
9. A firm's operating cash flow (OCF) is calculated as:
a) EBIT + Depreciation - Taxes
b) Net Income + Depreciation + Taxes
c) EBIT - Taxes
d) Revenue - Operating Expenses
, 10. An increase in accounts receivable represents:
a) A source of cash
b) A use of cash
c) Neither a source nor a use of cash
d) An increase in net income
11. Free Cash Flow is the cash flow available to:
a) The firm's shareholders after all expenses
b) The firm's investors (both debt and equity holders) after accounting for
necessary investments in fixed assets and working capital
c) Pay dividends
d) Repay long-term debt
12. If a company has a positive net income but negative operating cash flow,
this is often a warning sign that:
a) The company is very profitable
b) The company's accruals are increasing, perhaps due to a build-up of inventory or
receivables
c) The company is paying too much in taxes
d) The company has high depreciation expenses
