Foundations of Financial Management, Block - Exam Preparation Test Bank (Downloadable Doc)

Chapter 01

The Goals and Functions of Financial Management



True / False Questions



1. As finance emerged as a new field, much emphasis was placed on mergers and
acquisitions.
True False




2. Inflation is assumed to be a temporary problem that does not affect financial decisions.
True False




3. Financial Capital is composed of long-term plant and equipment, as well as other tangible
investments.
True False




4. Real Capital is composed of long-term plant and equipment.
True False




5. During the 1930s, financial practice revolved around such topics as the preservation of
capital, maintenance of liquidity, reorganization of financially troubled corporations and
bankruptcy.
True False




6. In the mid 1950s, finance began to change to a more analytical, decision-oriented
approach.
True False

,7. Recently, the emphasis of financial management has been on the relationship between
risk and return.
True False




8. The first Nobel Prizes given to finance professors were for their contributions to capital
structure theory and portfolio theories of risk and return.
True False




9. The Internet impacts e-commerce by creating a mechanism for improved
communications between a business, its customers, and its suppliers.
True False




10. The Internet has accounted for an acceleration of productivity for "old economy" firms.
True False




11. The Internet is responsible for many new business models.
True False




12. Businesses will increasingly rely on B2B Internet applications to speed up the cash flows
through their firms.
True False




13. The sole proprietorship represents single-person ownership and offers the advantages
of simplicity of decision making and low organizational and operating costs.
True False




14. Profits of sole proprietorships are taxed at corporate tax rates.
True False

,15. There is unlimited liability in a general partnership.
True False




16. The most common partnership arrangement carries limited liability to the partners.
True False




17. A limited partnership limits the profits partners may receive.
True False




18. In terms of revenues and profits, the corporation is by far the most important form of
business organization in the United States.
True False




19. Dividends paid to corporate stockholders have already been taxed once as corporate
income.
True False




20. One advantage of the corporate form of organization is that income received by
stockholders is not taxable since the corporation already paid taxes on the income
distributed.
True False




21. A corporation must have more than 75 stockholders to qualify for Subchapter S
designation.
True False




22. Profits of a Subchapter S corporation are taxed at corporate tax rates.
True False

, 23. The formation of a Subchapter S corporation is a way to circumvent the double taxation
of a small corporation.
True False




24. Corporate governance issues have become less important to the financial community
during the first decade of the new millennium.
True False




25. The issues of corporate governance are really agency problems.
True False




26. Agency Theory examines the relationship between companies and their customers.
True False




27. Institutional investors have had increasing influence over corporations with their ability
to vote large blocks of stock and replace poor performing boards of directors.
True False




28. Agency theory assumes that corporate managers act to increase the wealth of corporate
shareholders.
True False




29. The Sarbanes Oxley Act reduced agency conflicts by giving corporate managers greater
flexibility to select their preferred candidates to the Board of Directors.
True False