TEST BANK FOR A) How much debt should the firm borrow from a particular lender?
B) Should the firm build a new production facility?
Corporate Finance 13th Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
C) Should the firm issue new equity to pay for its growth goals?
D) How much inventory should the firm keep on hand?
E) How much credit should the firm extend to a particular customer?
Chapter 1
Student name:__________
4) Which one of the following statements is accurate?
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question. A) Net working capital equals current assets plus current liabilities.
1) Generally, among those who report directly to the ________ are the treasurer and the B) Current liabilities are debts that must be repaid in 18 months or less.
controller of a corporation. C) Current assets are assets with short lives, such as accounts receivable.
D) Long-term debt is defined as a residual claim on a firm’s assets.
A) board of directors E) Tangible assets are fixed assets such as patents.
B) chairperson of the board
C) chief executive officer
D) president
5) Among the typical responsibilities of the corporate controller is:
E) chief financial officer
A) capital expenditures management.
B) cash management.
2) A typical chain of command in a corporation is described by which one of the following
C) tax reporting.
statements?
D) financial planning.
E) credit management.
A) The information systems manager reports to the treasurer.
B) The credit manager reports to the treasurer.
C) The controller reports to the chief executive officer.
D) The tax manager reports to the treasurer. 6) ________ is typically the responsibility of the corporate treasurer.
E) The capital expenditures manager reports to the controller.
A) Financial planning
B) Cost accounting
C) Tax reporting
3) Answering which one of the following questions involves making a capital budgeting
D) Information systems
decision?
E) Financial accounting
7) A firm’s ________ define(s) its capital structure.
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, A) mixture of various types of production equipment A) current liability.
B) investment selections for its excess cash reserves B) long-term debt.
C) combination of cash and cash equivalents C) intangible asset.
D) combination of accounts appearing on the left side of its balance sheet D) accounts receivable.
E) proportions of financing from debt and equity E) current asset.
8) The focus of short-term finance is on: 12) The business entity that is typically the least expensive to form is the:
A) the timing of cash flows. A) limited liability company.
B) acquiring and selling fixed assets. B) joint stock company.
C) financing long-term projects. C) general partnership.
D) capital budgeting. D) limited partnership.
E) issuing additional shares of common stock. E) sole proprietorship.
9) Net working capital includes: 13) A ________ is a business owned by a single individual.
A) copyrights. A) corporation
B) manufacturing equipment. B) sole proprietorship
C) common stock. C) general partnership
D) long-term debt. D) limited partnership
E) inventory. E) limited liability company
10) ________ is defined as planning and managing a firm’s long-term assets. 14) Regarding a sole proprietorship, which one of the following statements is accurate?
A) Working capital management A) It is more difficult to form than other forms of business.
B) Cash management B) Its business profits are taxed twice at the federal level.
C) Cost accounting management C) Its business profits are taxed separately from the personal income of the owner.
D) Capital budgeting D) The owner may be forced to sell his or her personal assets to pay the company's
E) Capital structure management debts.
E) It has an unlimited life span.
11) An amount the firms owes, which it must repay within twelve months, is called a(n):
15) Regarding a sole proprietorship, which one of the following statements is accurate?
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, A) The ability to raise capital is limited by the owner’s personal wealth. A) personal liability for all of the firm’s debts.
B) It pays taxes at the corporate tax rate. B) limited life of the entity.
C) Ownership of the firm is easy to transfer to another individual. C) limited liability protection for all of the partners.
D) It must pay income taxes separately from the taxes paid by the owner. D) relatively low cost of formation.
E) The legal costs to form it are usually substantial. E) ease of transferring full ownership to others.
16) The primary advantage of being a limited partner rather than a general partner is: 20) One disadvantage of the corporate form of business ownership is the:
A) being entitled to a larger portion of the partnership’s income. A) limited liability protection provided for all owners.
B) having responsibility for day-to-day management of the business. B) firm’s ability to raise cash.
C) earning profits that are free from income taxation. C) unlimited life of the firm.
D) the ability to have overall control of the partnership. D) difficulties encountered when changing ownership.
E) one’s personal financial liability is limited to the amount of capital invested. E) double taxation of business profits.
17) A general partner: 21) Which one of the following statements is correct?
A) has less legal liability than a limited partner. A) Both partnerships and corporations are subject to double taxation.
B) can end the partnership by withdrawing. B) Sole proprietorships and partnerships are taxed in a similar fashion.
C) faces double taxation of profits whereas a limited partner does not. C) Partnerships are the most complicated type of business to form.
D) cannot lose more than the amount of his or her equity investment. D) Both partnerships and corporations have limited liability for all owners.
E) is the term applied only to corporations that invest in partnerships. E) All types of business formations have limited lives.
18) A partnership: 22) The articles of incorporation:
A) is taxed in the same fashion that a corporation is taxed. A) can be used to remove the firm’s management.
B) terminates upon the death of any limited partner. B) are amended annually by the firm’s stockholders.
C) creates for all general partners an unlimited liability for the partnership's debts. C) set forth the rights granted to shareholders.
D) has the same ability as a corporation to raise capital. D) set forth the rules by which the corporation regulates its existence.
E) allows for easy transfer of ownership from one general partner to another. E) can set forth the conditions under which the firm can avoid double taxation.
19) One advantage of a partnership is the: 23) Corporate bylaws:
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, A) establish the name of the corporation. A) limited; no
B) establish the rights granted to its shareholders. B) unlimited; total
C) set forth the purpose of the firm. C) limited; total
D) establish the rules by which the corporation regulates its existence. D) unlimited; no
E) set forth the number of members of the initial board of directors. E) unlimited; limited
24) Regarding corporations, which one of the following statements is accurate? 28) Which one of the following business types is best for raising large amounts of capital?
A) After a predetermined number of years, ownership can no longer be transferred. A) Sole proprietorship
B) The ability to raise capital is limited by the personal wealth of the owners. B) Limited liability company
C) Primary shareholders have unlimited liability for corporate debts. C) Corporation
D) The entity can outlive all of its initial owners. D) General partnership
E) When the last original owner dies or withdraws, the entity is terminated. E) Limited partnership
25) If a business is formed as a corporation, ownership of the business: 29) Which type of business organization has the same rights and privileges accorded to a
legal person?
A) must be granted with equal rights assigned to each and every shareholder.
B) can be transferred an unlimited number of times. A) Sole proprietorship
C) can only be transferred with the approval of the board of directors. B) General partnership
D) is controlled by the corporate officers. C) Limited partnership
E) must be held by non-management owners. D) Corporation
E) Limited liability company
26) The owners of a limited liability company typically would prefer to:
30) A ________ is a business formed by two or more individuals who each have unlimited
A) be taxed like a corporation. personal liability for all of the firm’s debts.
B) have liability exposure similar to that of a sole proprietor.
C) be taxed personally on all business income. A) corporation
D) have liability exposure similar to that of a general partner. B) sole proprietorship
E) be taxed like a corporation, and have liability like a partnership. C) general partnership
D) limited partnership
E) limited liability company
27) In a general partnership, the general partners have _____ liability for the firm’s debts and
have _____ control over day-to-day operations.
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B) Should the firm build a new production facility?
Corporate Finance 13th Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
C) Should the firm issue new equity to pay for its growth goals?
D) How much inventory should the firm keep on hand?
E) How much credit should the firm extend to a particular customer?
Chapter 1
Student name:__________
4) Which one of the following statements is accurate?
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question. A) Net working capital equals current assets plus current liabilities.
1) Generally, among those who report directly to the ________ are the treasurer and the B) Current liabilities are debts that must be repaid in 18 months or less.
controller of a corporation. C) Current assets are assets with short lives, such as accounts receivable.
D) Long-term debt is defined as a residual claim on a firm’s assets.
A) board of directors E) Tangible assets are fixed assets such as patents.
B) chairperson of the board
C) chief executive officer
D) president
5) Among the typical responsibilities of the corporate controller is:
E) chief financial officer
A) capital expenditures management.
B) cash management.
2) A typical chain of command in a corporation is described by which one of the following
C) tax reporting.
statements?
D) financial planning.
E) credit management.
A) The information systems manager reports to the treasurer.
B) The credit manager reports to the treasurer.
C) The controller reports to the chief executive officer.
D) The tax manager reports to the treasurer. 6) ________ is typically the responsibility of the corporate treasurer.
E) The capital expenditures manager reports to the controller.
A) Financial planning
B) Cost accounting
C) Tax reporting
3) Answering which one of the following questions involves making a capital budgeting
D) Information systems
decision?
E) Financial accounting
7) A firm’s ________ define(s) its capital structure.
Version 1 1 Version 1 2
, A) mixture of various types of production equipment A) current liability.
B) investment selections for its excess cash reserves B) long-term debt.
C) combination of cash and cash equivalents C) intangible asset.
D) combination of accounts appearing on the left side of its balance sheet D) accounts receivable.
E) proportions of financing from debt and equity E) current asset.
8) The focus of short-term finance is on: 12) The business entity that is typically the least expensive to form is the:
A) the timing of cash flows. A) limited liability company.
B) acquiring and selling fixed assets. B) joint stock company.
C) financing long-term projects. C) general partnership.
D) capital budgeting. D) limited partnership.
E) issuing additional shares of common stock. E) sole proprietorship.
9) Net working capital includes: 13) A ________ is a business owned by a single individual.
A) copyrights. A) corporation
B) manufacturing equipment. B) sole proprietorship
C) common stock. C) general partnership
D) long-term debt. D) limited partnership
E) inventory. E) limited liability company
10) ________ is defined as planning and managing a firm’s long-term assets. 14) Regarding a sole proprietorship, which one of the following statements is accurate?
A) Working capital management A) It is more difficult to form than other forms of business.
B) Cash management B) Its business profits are taxed twice at the federal level.
C) Cost accounting management C) Its business profits are taxed separately from the personal income of the owner.
D) Capital budgeting D) The owner may be forced to sell his or her personal assets to pay the company's
E) Capital structure management debts.
E) It has an unlimited life span.
11) An amount the firms owes, which it must repay within twelve months, is called a(n):
15) Regarding a sole proprietorship, which one of the following statements is accurate?
Version 1 3 Version 1 4
, A) The ability to raise capital is limited by the owner’s personal wealth. A) personal liability for all of the firm’s debts.
B) It pays taxes at the corporate tax rate. B) limited life of the entity.
C) Ownership of the firm is easy to transfer to another individual. C) limited liability protection for all of the partners.
D) It must pay income taxes separately from the taxes paid by the owner. D) relatively low cost of formation.
E) The legal costs to form it are usually substantial. E) ease of transferring full ownership to others.
16) The primary advantage of being a limited partner rather than a general partner is: 20) One disadvantage of the corporate form of business ownership is the:
A) being entitled to a larger portion of the partnership’s income. A) limited liability protection provided for all owners.
B) having responsibility for day-to-day management of the business. B) firm’s ability to raise cash.
C) earning profits that are free from income taxation. C) unlimited life of the firm.
D) the ability to have overall control of the partnership. D) difficulties encountered when changing ownership.
E) one’s personal financial liability is limited to the amount of capital invested. E) double taxation of business profits.
17) A general partner: 21) Which one of the following statements is correct?
A) has less legal liability than a limited partner. A) Both partnerships and corporations are subject to double taxation.
B) can end the partnership by withdrawing. B) Sole proprietorships and partnerships are taxed in a similar fashion.
C) faces double taxation of profits whereas a limited partner does not. C) Partnerships are the most complicated type of business to form.
D) cannot lose more than the amount of his or her equity investment. D) Both partnerships and corporations have limited liability for all owners.
E) is the term applied only to corporations that invest in partnerships. E) All types of business formations have limited lives.
18) A partnership: 22) The articles of incorporation:
A) is taxed in the same fashion that a corporation is taxed. A) can be used to remove the firm’s management.
B) terminates upon the death of any limited partner. B) are amended annually by the firm’s stockholders.
C) creates for all general partners an unlimited liability for the partnership's debts. C) set forth the rights granted to shareholders.
D) has the same ability as a corporation to raise capital. D) set forth the rules by which the corporation regulates its existence.
E) allows for easy transfer of ownership from one general partner to another. E) can set forth the conditions under which the firm can avoid double taxation.
19) One advantage of a partnership is the: 23) Corporate bylaws:
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, A) establish the name of the corporation. A) limited; no
B) establish the rights granted to its shareholders. B) unlimited; total
C) set forth the purpose of the firm. C) limited; total
D) establish the rules by which the corporation regulates its existence. D) unlimited; no
E) set forth the number of members of the initial board of directors. E) unlimited; limited
24) Regarding corporations, which one of the following statements is accurate? 28) Which one of the following business types is best for raising large amounts of capital?
A) After a predetermined number of years, ownership can no longer be transferred. A) Sole proprietorship
B) The ability to raise capital is limited by the personal wealth of the owners. B) Limited liability company
C) Primary shareholders have unlimited liability for corporate debts. C) Corporation
D) The entity can outlive all of its initial owners. D) General partnership
E) When the last original owner dies or withdraws, the entity is terminated. E) Limited partnership
25) If a business is formed as a corporation, ownership of the business: 29) Which type of business organization has the same rights and privileges accorded to a
legal person?
A) must be granted with equal rights assigned to each and every shareholder.
B) can be transferred an unlimited number of times. A) Sole proprietorship
C) can only be transferred with the approval of the board of directors. B) General partnership
D) is controlled by the corporate officers. C) Limited partnership
E) must be held by non-management owners. D) Corporation
E) Limited liability company
26) The owners of a limited liability company typically would prefer to:
30) A ________ is a business formed by two or more individuals who each have unlimited
A) be taxed like a corporation. personal liability for all of the firm’s debts.
B) have liability exposure similar to that of a sole proprietor.
C) be taxed personally on all business income. A) corporation
D) have liability exposure similar to that of a general partner. B) sole proprietorship
E) be taxed like a corporation, and have liability like a partnership. C) general partnership
D) limited partnership
E) limited liability company
27) In a general partnership, the general partners have _____ liability for the firm’s debts and
have _____ control over day-to-day operations.
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