Test Bank - Fundamentals of Corporate Finance 5th Edition by Robert Parrino, Thomas W. Bates Chapter 1-21

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S0
LU
AP

,Test Bank for
Fundamentals of Corporate Finance, 5th Edition by Robert Parrino, David Kidwell, Bates &
Gillan. ISBN 9781119795438
Chapter 1-21

Chapter 1 The Financial Manager and the Firm

1) The financial manager is responsible for making decisions that are in the best interests of the
firm's owners.
Answer: TRUE
Diff: 1
Learning Objective: LO 1
AP
Bloomcode: Knowledge
AACSB: Analytic
IMA: FSA
AICPA: Process and Resource Management Perspectives

2) A patent is a productive asset for a technology-based firm.
Answer: TRUE
LU
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
S0
3) Intangible assets generate most of a manufacturing firm's cash flows.
Answer: FALSE
Diff: 2
Learning Objective: LO 1
Bloomcode: Application
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AACSB: Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives

4) The most fundamental way a business can grow in size is by reinvesting cash flows or earnings.
Answer: TRUE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge
AACSB: Analytic
IMA: FSA
AICPA: Process and Resource Management Perspectives




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,5) A firm that goes bankrupt will always be liquidated.
Answer: FALSE
Diff: 2
Learning Objective: LO 1
Bloomcode: Application
AACSB: Analytic
IMA: Corporate Finance
AICPA: Resource Management

6) Capital assets are generally short term in nature.
Answer: FALSE
Diff: 1
Learning Objective: LO 1
AP
Bloomcode: Knowledge
AACSB: Analytic
IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives

7) A good capital budgeting or investment decision is one in which the benefits are worth more to
the firm than the cost of the project.
LU
Answer: TRUE
Explanation: Regardless of the project, a good investment is one in which the benefits are worth
more to the firm than the costs of the asset.
Diff: 2
Learning Objective: LO 1
Bloomcode: Analysis
S0
AACSB: Analytic
IMA: Budget Preparation
AICPA: Resource Management

8) Investment decisions determine how firms raise capital to pay for their investments.
Answer: FALSE
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Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge
AACSB: Analytic
IMA: Investment Decisions
AICPA: Strategic/Critical Thinking

9) Net working capital is the dollar difference between a firm's total current assets and total
liabilities.
Answer: FALSE
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge
AACSB: Analytic
IMA: Budget Preparation
AICPA: Process and Resource Management Perspectives
2

, 10) A sole proprietorship is a business where ownership interest can be transferred to someone
else.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Knowledge
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives

11) One of the disadvantages of a general partnership is the double taxation of profits.
Answer: FALSE
AP
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
LU
12) Unlimited liability means that the owner of a firm is responsible for paying all the bills of the
firm in the event of a bankruptcy.
Answer: TRUE
Diff: 2
Learning Objective: LO 2
Bloomcode: Application
S0
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives

13) The process of transferring ownership of a sole proprietorship is relatively easy compared to a
public corporation.
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Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives

14) General partners in a business have limited liability with regard to money owed to creditors.
Answer: FALSE
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives
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