Essentials of Corporate Finance, 10e (Ross)
Chapter 1 Introduction to Financial Management
1) Jenna has been promoted and is now in charge of all external financing. In other words,
she is in charge of:
A) capital structure management.
B) asset allocation.
C) risk management.
D) capital budgeting.
E) working capital management.
Answer: A
Difficulty: 1 Easy
Section: 1.2 Business Finance and the Financial Manager
Topic: Financial management decisions
Learning Objective: 01-01 Discuss the basic types of financial management decisions and
the role of the financial manager.
Bloom's: Remember
AACSB: Analytical Thinking
2) Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of
debt and equity is referred to as the firm's:
A) capital structure.
B) capital budget.
C) asset allocation.
D) working capital.
E) risk structure.
Answer: A
Difficulty: 1 Easy
Section: 1.2 Business Finance and the Financial Manager
Topic: Financial management decisions
,Learning Objective: 01-01 Discuss the basic types of financial management decisions and
the role of the financial manager.
Bloom's: Remember
AACSB: Analytical Thinking
3) Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions
related to these accounts are referred to as:
A) capital structure decisions.
B) capital budgeting decisions.
C) working capital management.
D) operating management.
E) fixed account structure.
Answer: C
Difficulty: 1 Easy
Section: 1.2 Business Finance and the Financial Manager
Topic: Financial management decisions
Learning Objective: 01-01 Discuss the basic types of financial management decisions and
the role of the financial manager.
Bloom's: Remember
AACSB: Analytical Thinking
4) Margie opened a used bookstore and is both the 100 percent owner and the store's
manager. Which type of business entity does Margie own if she is personally liable for all
the store's debts?
A) Sole proprietorship
B) Limited partnership
C) Corporation
D) Joint stock company
E) General partnership
Answer: A
Difficulty: 1 Easy
Section: 1.3 Forms of Business Organization
,Topic: Forms of business organization
Learning Objective: 01-03 Compare the financial implications of the different forms of
business organizations.
Bloom's: Remember
AACSB: Analytical Thinking
5) Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided
to create a business together renting surfboards, paddle boats, and inflatable devices in
California. Will and Bill will equally share in the decision making and in the business profits
or losses. Which type of business did they create if they both have full personal liability for
the firm's debts?
A) Sole proprietorship
B) Limited partnership
C) Corporation
D) Joint stock company
E) General partnership
Answer: E
Difficulty: 1 Easy
Section: 1.3 Forms of Business Organization
Topic: Forms of business organization
Learning Objective: 01-03 Compare the financial implications of the different forms of
business organizations.
Bloom's: Remember
AACSB: Analytical Thinking
6) Matt and Alicia created a firm that is a separate legal entity and will share ownership of
that firm on a 75/25 basis. Which type of entity did they create if they have no personal
liability for the firm's debts?
A) Limited partnership
B) Corporation
C) Sole proprietorship
D) General partnership
E) Public company
, Answer: B
Difficulty: 1 Easy
Section: 1.3 Forms of Business Organization
Topic: Forms of business organization
Learning Objective: 01-03 Compare the financial implications of the different forms of
business organizations.
Bloom's: Remember
AACSB: Analytical Thinking
7) The potential conflict of interest between a firm's owners and its managers is referred to
as which type of conflict?
A) Organizational
B) Structural
C) Formative
D) Agency
E) Territorial
Answer: D
Difficulty: 1 Easy
Section: 1.5 The Agency Problem and Control of the Corporation
Topic: Agency costs and problems
Learning Objective: 01-04 Describe the conflicts of interest that can arise between
managers and owners.
Bloom's: Remember
AACSB: Ethics
8) An employee has a claim on the cash flows of Martin's Machines. This claim is defined as
a claim by one of the firm's:
A) residual owners.
B) shareholders.
C) financiers.
D) provisional partners.
E) stakeholders.
Chapter 1 Introduction to Financial Management
1) Jenna has been promoted and is now in charge of all external financing. In other words,
she is in charge of:
A) capital structure management.
B) asset allocation.
C) risk management.
D) capital budgeting.
E) working capital management.
Answer: A
Difficulty: 1 Easy
Section: 1.2 Business Finance and the Financial Manager
Topic: Financial management decisions
Learning Objective: 01-01 Discuss the basic types of financial management decisions and
the role of the financial manager.
Bloom's: Remember
AACSB: Analytical Thinking
2) Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of
debt and equity is referred to as the firm's:
A) capital structure.
B) capital budget.
C) asset allocation.
D) working capital.
E) risk structure.
Answer: A
Difficulty: 1 Easy
Section: 1.2 Business Finance and the Financial Manager
Topic: Financial management decisions
,Learning Objective: 01-01 Discuss the basic types of financial management decisions and
the role of the financial manager.
Bloom's: Remember
AACSB: Analytical Thinking
3) Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions
related to these accounts are referred to as:
A) capital structure decisions.
B) capital budgeting decisions.
C) working capital management.
D) operating management.
E) fixed account structure.
Answer: C
Difficulty: 1 Easy
Section: 1.2 Business Finance and the Financial Manager
Topic: Financial management decisions
Learning Objective: 01-01 Discuss the basic types of financial management decisions and
the role of the financial manager.
Bloom's: Remember
AACSB: Analytical Thinking
4) Margie opened a used bookstore and is both the 100 percent owner and the store's
manager. Which type of business entity does Margie own if she is personally liable for all
the store's debts?
A) Sole proprietorship
B) Limited partnership
C) Corporation
D) Joint stock company
E) General partnership
Answer: A
Difficulty: 1 Easy
Section: 1.3 Forms of Business Organization
,Topic: Forms of business organization
Learning Objective: 01-03 Compare the financial implications of the different forms of
business organizations.
Bloom's: Remember
AACSB: Analytical Thinking
5) Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided
to create a business together renting surfboards, paddle boats, and inflatable devices in
California. Will and Bill will equally share in the decision making and in the business profits
or losses. Which type of business did they create if they both have full personal liability for
the firm's debts?
A) Sole proprietorship
B) Limited partnership
C) Corporation
D) Joint stock company
E) General partnership
Answer: E
Difficulty: 1 Easy
Section: 1.3 Forms of Business Organization
Topic: Forms of business organization
Learning Objective: 01-03 Compare the financial implications of the different forms of
business organizations.
Bloom's: Remember
AACSB: Analytical Thinking
6) Matt and Alicia created a firm that is a separate legal entity and will share ownership of
that firm on a 75/25 basis. Which type of entity did they create if they have no personal
liability for the firm's debts?
A) Limited partnership
B) Corporation
C) Sole proprietorship
D) General partnership
E) Public company
, Answer: B
Difficulty: 1 Easy
Section: 1.3 Forms of Business Organization
Topic: Forms of business organization
Learning Objective: 01-03 Compare the financial implications of the different forms of
business organizations.
Bloom's: Remember
AACSB: Analytical Thinking
7) The potential conflict of interest between a firm's owners and its managers is referred to
as which type of conflict?
A) Organizational
B) Structural
C) Formative
D) Agency
E) Territorial
Answer: D
Difficulty: 1 Easy
Section: 1.5 The Agency Problem and Control of the Corporation
Topic: Agency costs and problems
Learning Objective: 01-04 Describe the conflicts of interest that can arise between
managers and owners.
Bloom's: Remember
AACSB: Ethics
8) An employee has a claim on the cash flows of Martin's Machines. This claim is defined as
a claim by one of the firm's:
A) residual owners.
B) shareholders.
C) financiers.
D) provisional partners.
E) stakeholders.
