Test Bank for Financial Management: Theory & Practice, 17th Edition Brigham
Chap 01 17e Brigham
Indicate whether the statement is true or false.
1. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common
stock and thus shareholders' wealth.
a. True
b. False
ANSWER: False
2. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other
firms or individuals, Firm A is a financial intermediary.
a. True
b. False
ANSWER: True
3. Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's
unlimited personal liability for the business' debts.
a. True
b. False
ANSWER: True
4. Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.
a. True
b. False
ANSWER: True
5. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively
formed, are two key advantages to that form of business.
a. True
b. False
ANSWER: True
6. The major advantage of a regular partnership or a corporation as a form of business organization is the fact that
both offer their owners limited liability, whereas proprietorships do not.
a. True
b. False
ANSWER: False
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, Name: Class: Date:
Chap 01 17e Brigham
7. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21
per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.
This is a primary market transaction.
a. True
b. False
ANSWER: True
8. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
a. True
b. False
ANSWER: True
9. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the
organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to
attract large amounts of capital and thus to grow to a very large size.
a. True
b. False
ANSWER: True
10. The disadvantages associated with a proprietorship are similar to those under a partnership. One exception
relates to the more formal nature of the partnership agreement and the commitment of all partners' personal
assets. As a result, partnerships do not have difficulty raising large amounts of capital.
a. True
b. False
ANSWER: False
11.
If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market
transaction.
a. True
b. False
ANSWER: False
12. The form of organization for a business is not an important issue, as this decision has very little effect on the
income and wealth of the firm's owners.
a. True
b. False
ANSWER: False
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Chap 01 17e Brigham
Indicate whether the statement is true or false.
1. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common
stock and thus shareholders' wealth.
a. True
b. False
ANSWER: False
2. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other
firms or individuals, Firm A is a financial intermediary.
a. True
b. False
ANSWER: True
3. Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's
unlimited personal liability for the business' debts.
a. True
b. False
ANSWER: True
4. Debt is a less risky than equity because a debtholder's claim has priority to an equity holder's claim.
a. True
b. False
ANSWER: True
5. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively
formed, are two key advantages to that form of business.
a. True
b. False
ANSWER: True
6. The major advantage of a regular partnership or a corporation as a form of business organization is the fact that
both offer their owners limited liability, whereas proprietorships do not.
a. True
b. False
ANSWER: False
. Page 1
, Name: Class: Date:
Chap 01 17e Brigham
7. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21
per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors.
This is a primary market transaction.
a. True
b. False
ANSWER: True
8. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
a. True
b. False
ANSWER: True
9. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the
organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to
attract large amounts of capital and thus to grow to a very large size.
a. True
b. False
ANSWER: True
10. The disadvantages associated with a proprietorship are similar to those under a partnership. One exception
relates to the more formal nature of the partnership agreement and the commitment of all partners' personal
assets. As a result, partnerships do not have difficulty raising large amounts of capital.
a. True
b. False
ANSWER: False
11.
If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market
transaction.
a. True
b. False
ANSWER: False
12. The form of organization for a business is not an important issue, as this decision has very little effect on the
income and wealth of the firm's owners.
a. True
b. False
ANSWER: False
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