Fundamentals of Corporate Finance Test Bank 5th Edition | Parrino et al.

TEST BANK
Fundamentals of Corporate Finance
ROBERT PARRINO, THOMAS W. BATES, STUART L. GILLAN, DAVID S. KIDWELL
5th Edition

,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
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
Diff: 1
Learning Objective: LO 1
Bloomcode: Knowledge AACSB:
Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives

3) Intangible assets generate most of a manufacturing firm's cash
flows. Answer: FALSE
Diff: 2
Learning Objective: LO 1
Bloomcode: Application 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




1

,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
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.
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 AACSB:
Analytic
IMA: Budget Preparation AICPA:
Resource Management

8) Investment decisions determine how firms raise capital to pay for their
investments. Answer: FALSE
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
Diff: 1
Learning Objective: LO 2
Bloomcode: Comprehension
AACSB: Analytic
IMA: Business Economics
AICPA: Global and Industry Perspectives

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 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.
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




3