,© McGraw-Hill Australia Ross, Essentials of Corporate Finance, Fifth Edition Chapter 01 Testbank
Chapter 01 Testbank
1. The primary market refers to:
A. the original sale of securities by the issuer.
B. transactions between two institutional shareholders.
C. the sale of securities by an individual shareholder.
D. the first trade of a firm's securities when the financial markets open in the morning.
2. The most important function of a financial market is:
A. to facilitate the flow of funds between lenders and borrowers.
B. to provide a market for shares.
C. to provide information about an issuing company's financial situation.
D. to secure profits for brokers and agents.
3. A primary financial market is one that:
A. involves the sale of existing securities.
B. offers securities with the highest expected return.
C. offers the greatest choice of shares and debentures.
D. involves the sale of securities for the first time.
4. Secondary markets:
A. allow borrowers to raise long-term funds.
B. facilitate capital-raising in the primary market.
C. allow borrowers to raise short-term funds.
D. all of the answers options are correct.
5. A corporation:
A. can neither sue another party nor be sued.
B. may not own property.
C. may enter into contracts to borrow funds.
D. can issue its own shares but cannot purchase shares in another entity.
6. The amount of debt and equity used by a firm to finance its operations is called the firm's:
A. debt ratio.
B. working capital ratio.
C. capital structure.
D. financial position.
,© McGraw-Hill Australia Ross, Essentials of Corporate Finance, Fifth Edition Chapter 01 Testbank
7. Short-term assets and short-term liabilities are referred to as the firm's:
A. cash flow.
B. capital budget.
C. capital structure.
D. working capital.
8. The management of a firm's cash, inventory and payables is referred to as:
A. cash-flow forecasting.
B. asset management.
C. capital management.
D. working capital management.
9. A business organisation that is similar to a sole proprietorship but has two or more owners is
called a:
A. limited liability company.
B. corporation.
C. dual company.
D. partnership.
10. The legal papers which designate a firm's name, nature of business and intended life are
called the:
A. corporate by-laws.
B. charter or constitution.
C. partnership agreement.
D. joint share company forms.
11. Any situation where a conflict may arise between the firm's owners and its managers is
referred to as a(n):
A. organisational problem.
B. personnel conflict.
C. agency problem.
D. control issue.
12. A negotiated sale of securities by an issuer to a specific buyer is called a(n):
A. public offering.
B. secondary placement.
C. independent placement.
D. private placement.
13. Over-the-counter markets are __________ markets.
A. dealer
, © McGraw-Hill Australia Ross, Essentials of Corporate Finance, Fifth Edition Chapter 01 Testbank
B. franchise
C. private
D. auction
14. A securities market with a physical location that is designed to match buyers with sellers is
called a(n) ________ market:
A. dealer
B. private
C. auction
D. franchise
15. Which one of the following statements is related to capital budgeting?
A. A firm should monitor the ratio of debt to equity financing that it uses.
B. A firm should monitor the amount of its current assets as compared to its current liabilities.
C. A firm should consider the size, risk and timing of an asset's cash flows before deciding to
purchase that asset.
D. A firm should consider various types of loans offered by various lenders before taking out a
loan.
16. Working capital management includes which of the following?
I. Controlling the inventory level
II. Determining when to pay suppliers
III. Deciding how much non-current debt to assume
IV. Controlling the amount of cash that is readily available
A. I and II only
B. I and IV only
C. II and III only
D. I, II and IV only
17. Who of the following are the actual owners of firms?
A. All the shareholders.
B. The bondholders.
C. The largest shareholders.
D. The senior management team.
18. Will and Bill both enjoy sunshine, water and surfboards. Thus, the two friends decided to
create a business together in Sydney renting surfboards, paddle boats and inflatable devices. Will
and Bill will equally share in the decision making and in the 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. Joint share company
Chapter 01 Testbank
1. The primary market refers to:
A. the original sale of securities by the issuer.
B. transactions between two institutional shareholders.
C. the sale of securities by an individual shareholder.
D. the first trade of a firm's securities when the financial markets open in the morning.
2. The most important function of a financial market is:
A. to facilitate the flow of funds between lenders and borrowers.
B. to provide a market for shares.
C. to provide information about an issuing company's financial situation.
D. to secure profits for brokers and agents.
3. A primary financial market is one that:
A. involves the sale of existing securities.
B. offers securities with the highest expected return.
C. offers the greatest choice of shares and debentures.
D. involves the sale of securities for the first time.
4. Secondary markets:
A. allow borrowers to raise long-term funds.
B. facilitate capital-raising in the primary market.
C. allow borrowers to raise short-term funds.
D. all of the answers options are correct.
5. A corporation:
A. can neither sue another party nor be sued.
B. may not own property.
C. may enter into contracts to borrow funds.
D. can issue its own shares but cannot purchase shares in another entity.
6. The amount of debt and equity used by a firm to finance its operations is called the firm's:
A. debt ratio.
B. working capital ratio.
C. capital structure.
D. financial position.
,© McGraw-Hill Australia Ross, Essentials of Corporate Finance, Fifth Edition Chapter 01 Testbank
7. Short-term assets and short-term liabilities are referred to as the firm's:
A. cash flow.
B. capital budget.
C. capital structure.
D. working capital.
8. The management of a firm's cash, inventory and payables is referred to as:
A. cash-flow forecasting.
B. asset management.
C. capital management.
D. working capital management.
9. A business organisation that is similar to a sole proprietorship but has two or more owners is
called a:
A. limited liability company.
B. corporation.
C. dual company.
D. partnership.
10. The legal papers which designate a firm's name, nature of business and intended life are
called the:
A. corporate by-laws.
B. charter or constitution.
C. partnership agreement.
D. joint share company forms.
11. Any situation where a conflict may arise between the firm's owners and its managers is
referred to as a(n):
A. organisational problem.
B. personnel conflict.
C. agency problem.
D. control issue.
12. A negotiated sale of securities by an issuer to a specific buyer is called a(n):
A. public offering.
B. secondary placement.
C. independent placement.
D. private placement.
13. Over-the-counter markets are __________ markets.
A. dealer
, © McGraw-Hill Australia Ross, Essentials of Corporate Finance, Fifth Edition Chapter 01 Testbank
B. franchise
C. private
D. auction
14. A securities market with a physical location that is designed to match buyers with sellers is
called a(n) ________ market:
A. dealer
B. private
C. auction
D. franchise
15. Which one of the following statements is related to capital budgeting?
A. A firm should monitor the ratio of debt to equity financing that it uses.
B. A firm should monitor the amount of its current assets as compared to its current liabilities.
C. A firm should consider the size, risk and timing of an asset's cash flows before deciding to
purchase that asset.
D. A firm should consider various types of loans offered by various lenders before taking out a
loan.
16. Working capital management includes which of the following?
I. Controlling the inventory level
II. Determining when to pay suppliers
III. Deciding how much non-current debt to assume
IV. Controlling the amount of cash that is readily available
A. I and II only
B. I and IV only
C. II and III only
D. I, II and IV only
17. Who of the following are the actual owners of firms?
A. All the shareholders.
B. The bondholders.
C. The largest shareholders.
D. The senior management team.
18. Will and Bill both enjoy sunshine, water and surfboards. Thus, the two friends decided to
create a business together in Sydney renting surfboards, paddle boats and inflatable devices. Will
and Bill will equally share in the decision making and in the 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. Joint share company
