5) A firm that goes bankrupt will always be liquidated.
Test Bank for Answer: FALSE
Fundamentals of Corporate Finance, 5th Edition by Robert Parrino, David Kidwell, Bates & Diff: 2
Gillan. ISBN 9781119795438 Learning Objective: LO 1
Chapter 1-21 Bloomcode: Application
AACSB: Analytic
Chapter 1 The Financial Manager and the Firm IMA: Corporate Finance
AICPA: Resource Management
1) The financial manager is responsible for making decisions that are in the best interests of the
firm's owners. 6) Capital assets are generally short term in nature.
Answer: TRUE Answer: FALSE
Diff: 1 Diff: 1
Learning Objective: LO 1 Learning Objective: LO 1
Bloomcode: Knowledge Bloomcode: Knowledge
AACSB: Analytic AACSB: Analytic
IMA: FSA IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives AICPA: Process and Resource Management Perspectives
2) A patent is a productive asset for a technology-based firm. 7) A good capital budgeting or investment decision is one in which the benefits are worth more to
Answer: TRUE the firm than the cost of the project.
Diff: 1 Answer: TRUE
Learning Objective: LO 1 Explanation: Regardless of the project, a good investment is one in which the benefits are worth
Bloomcode: Knowledge more to the firm than the costs of the asset.
AACSB: Analytic Diff: 2
IMA: Business Economics Learning Objective: LO 1
AICPA: Global and Industry Perspectives Bloomcode: Analysis
AACSB: Analytic
3) Intangible assets generate most of a manufacturing firm's cash flows. IMA: Budget Preparation
Answer: FALSE AICPA: Resource Management
Diff: 2
Learning Objective: LO 1 8) Investment decisions determine how firms raise capital to pay for their investments.
Bloomcode: Application Answer: FALSE
AACSB: Analytic Diff: 1
IMA: Corporate Finance Learning Objective: LO 1
AICPA: Process and Resource Management Perspectives Bloomcode: Knowledge
AACSB: Analytic
4) The most fundamental way a business can grow in size is by reinvesting cash flows or earnings. IMA: Investment Decisions
Answer: TRUE AICPA: Strategic/Critical Thinking
Diff: 1
Learning Objective: LO 1 9) Net working capital is the dollar difference between a firm's total current assets and total
Bloomcode: Knowledge liabilities.
AACSB: Analytic Answer: FALSE
IMA: FSA Diff: 1
AICPA: Process and Resource Management Perspectives Learning Objective: LO 1
Bloomcode: Knowledge
AACSB: Analytic
IMA: Budget Preparation
AICPA: Process and Resource Management Perspectives
1 2
,10) A sole proprietorship is a business where ownership interest can be transferred to someone 15) The owners of C-corporations are not subject to double taxation.
else. Answer: FALSE
Answer: FALSE Diff: 1
Diff: 1 Learning Objective: LO 2
Learning Objective: LO 2 Bloomcode: Knowledge
Bloomcode: Knowledge AACSB: Analytic
AACSB: Analytic IMA: Business Economics
IMA: Business Economics AICPA: Global and Industry Perspectives
AICPA: Global and Industry Perspectives
16) Privately held corporations are allowed to have stockholders.
11) One of the disadvantages of a general partnership is the double taxation of profits. Answer: TRUE
Answer: FALSE Diff: 1
Diff: 1 Learning Objective: LO 2
Learning Objective: LO 2 Bloomcode: Knowledge
Bloomcode: Comprehension AACSB: Analytic
AACSB: Analytic IMA: Business Economics
IMA: Business Economics AICPA: Global and Industry Perspectives
AICPA: Global and Industry Perspectives
17) The treasurer of a corporation usually reports to the CFO of the firm.
12) Unlimited liability means that the owner of a firm is responsible for paying all the bills of the Answer: TRUE
firm in the event of a bankruptcy. Diff: 1
Answer: TRUE Learning Objective: LO 3
Diff: 2 Bloomcode: Knowledge
Learning Objective: LO 2 AACSB: Analytic
Bloomcode: Application IMA: Business Economics
AACSB: Analytic AICPA: Global and Industry Perspectives
IMA: Business Economics
AICPA: Global and Industry Perspectives 18) The external auditors of the firm provide an independent annual audit of the firm's financial
statements and report their findings directly to the CFO of the firm.
13) The process of transferring ownership of a sole proprietorship is relatively easy compared to a Answer: FALSE
public corporation. Diff: 1
Answer: FALSE Learning Objective: LO 3
Diff: 1 Bloomcode: Knowledge
Learning Objective: LO 2 AACSB: Analytic
Bloomcode: Comprehension IMA: Reporting
AACSB: Analytic AICPA: Reporting
IMA: Business Economics
AICPA: Global and Industry Perspectives 19) Maximizing revenue should be the goal of the firm.
Answer: FALSE
14) General partners in a business have limited liability with regard to money owed to creditors. Diff: 1
Answer: FALSE Learning Objective: LO 4
Diff: 1 Bloomcode: Knowledge
Learning Objective: LO 2 AACSB: Analytic
Bloomcode: Comprehension IMA: Performance Measurement
AACSB: Analytic AICPA: Strategic/Critical Thinking
IMA: Business Economics
AICPA: Global and Industry Perspectives
3 4
,20) An agency conflict can arise when the agent of the firm does not act in the best interest of the 24) A stakeholder is:
owners. A) someone geographically close to the firm's headquarters.
Answer: TRUE B) someone who has a claim on the cash flows of the firm.
Diff: 2 C) a business organization.
Learning Objective: LO 5 D) someone working for the competitor of the firm.
Bloomcode: Application Answer: B
AACSB: Analytic Diff: 1
IMA: Business Economics Learning Objective: LO 1
AICPA: Global and Industry Perspectives Bloomcode: Knowledge
AACSB: Analytic
21) The owners of a firm are unaffected by agency costs. IMA: Business Economics
Answer: FALSE AICPA: Global and Industry Perspectives
Diff: 2
Learning Objective: LO 5 25) If you have provided capital to a firm, then you are:
Bloomcode: Application A) a manager.
AACSB: Analytic B) a stakeholder.
IMA: Business Economics C) a partner.
AICPA: Global and Industry Perspectives D) an employee.
Answer: B
22) Fraudulent business practices do not affect the growth of the financial markets. Diff: 1
Answer: FALSE Learning Objective: LO 1
Diff: 1 Bloomcode: Knowledge
Learning Objective: LO 6 AACSB: Analytic
Bloomcode: Knowledge IMA: Business Economics
AACSB: Ethics AICPA: Global and Industry Perspectives
IMA: Business Applications
AICPA: Professional Demeanor 26) Which of the following is NOT a stakeholder?
A) An employee
23) To start a business, the owners need: B) A lender
A) wealth. C) The IRS
B) a clear vision of what products or services they want to produce. D) The owner
C) employees. Answer: D
D) productive assets such as buildings, technology, or patents. Diff: 2
Answer: B Learning Objective: LO 1
Diff: 1 Bloomcode: Application
Learning Objective: LO 1 AACSB: Analytic
Bloomcode: Knowledge IMA: Business Economics
AACSB: Analytic AICPA: Global and Industry Perspectives
IMA: Business Economics
AICPA: Global and Industry Perspectives
27) A trademark is an example of:
A) a liquid asset.
B) an intangible asset.
C) a contingent asset.
D) a physical asset.
Answer: B
Diff: 1
Learning Objective: LO 1
5 6
, Bloomcode: Knowledge C) long-term debt.
AACSB: Analytic D) payroll fund.
IMA: Business Economics Answer: A
AICPA: Global and Industry Perspectives Diff: 1
Learning Objective: LO 1
28) Which of the following is NOT a characteristic of a shareholder? Bloomcode: Knowledge
A) Expects to receive dividends AACSB: Analytic
B) Expects to receive a capital gain on an investment IMA: Corporate Finance
C) Expects to receive interest AICPA: Process and Resource Management Perspectives
D) Expects to have rights as defined in the corporation's charter and bylaws
Answer: D 32) Current liabilities are liabilities that:
Diff: 1 A) will be converted to cash within a year.
Learning Objective: LO 1 B) must be paid within a year.
Bloomcode: Knowledge C) will be converted to equity within a year.
AACSB: Analytic D) are contingent depending upon a future outcome.
IMA: Corporate Finance Answer: B
AICPA: Process and Resource Management Perspectives Diff: 1
Learning Objective: LO 1
29) Which of the following is a basic source of funds for a firm? Bloomcode: Knowledge
A) Debt AACSB: Analytic
B) Equity IMA: Corporate Finance
C) Asset liquidations AICPA: Process and Resource Management Perspectives
D) Both A and B
Answer: D
Diff: 1
Learning Objective: LO 1 33) Current assets are assets that:
Bloomcode: Knowledge A) will be converted to cash within a year.
AACSB: Analytic B) must be paid within a year.
IMA: Corporate Finance C) will be converted to equity within a year.
AICPA: Process and Resource Management Perspectives D) must be depreciated.
Answer: A
30) The cash remaining with the firm after paying its operating expenses, making payments to Diff: 1
creditors, and taxes is called: Learning Objective: LO 1
A) earnings per share. Bloomcode: Comprehension
B) capital contributed in excess of par. AACSB: Analytic
C) residual cash flows. IMA: Budget Preparation
D) assets. AICPA: Process and Resource Management Perspectives
Answer: C
Diff: 1 34) The capital budgeting decision process can be described as:
Learning Objective: LO 1 A) how a firm's day-to-day financial matters should be managed.
Bloomcode: Knowledge B) how a firm's assets should be financed.
AACSB: Analytic C) determining which productive assets should be purchased.
IMA: Corporate Finance D) involving purchase of short-term assets.
AICPA: Process and Resource Management Perspectives Answer: C
Diff: 2
31) Cash dividends are paid out of: Learning Objective: LO 1
A) residual cash flows. Bloomcode: Application
B) liquidated assets. AACSB: Analytic
IMA: Budget Preparation
7 8
Test Bank for Answer: FALSE
Fundamentals of Corporate Finance, 5th Edition by Robert Parrino, David Kidwell, Bates & Diff: 2
Gillan. ISBN 9781119795438 Learning Objective: LO 1
Chapter 1-21 Bloomcode: Application
AACSB: Analytic
Chapter 1 The Financial Manager and the Firm IMA: Corporate Finance
AICPA: Resource Management
1) The financial manager is responsible for making decisions that are in the best interests of the
firm's owners. 6) Capital assets are generally short term in nature.
Answer: TRUE Answer: FALSE
Diff: 1 Diff: 1
Learning Objective: LO 1 Learning Objective: LO 1
Bloomcode: Knowledge Bloomcode: Knowledge
AACSB: Analytic AACSB: Analytic
IMA: FSA IMA: Corporate Finance
AICPA: Process and Resource Management Perspectives AICPA: Process and Resource Management Perspectives
2) A patent is a productive asset for a technology-based firm. 7) A good capital budgeting or investment decision is one in which the benefits are worth more to
Answer: TRUE the firm than the cost of the project.
Diff: 1 Answer: TRUE
Learning Objective: LO 1 Explanation: Regardless of the project, a good investment is one in which the benefits are worth
Bloomcode: Knowledge more to the firm than the costs of the asset.
AACSB: Analytic Diff: 2
IMA: Business Economics Learning Objective: LO 1
AICPA: Global and Industry Perspectives Bloomcode: Analysis
AACSB: Analytic
3) Intangible assets generate most of a manufacturing firm's cash flows. IMA: Budget Preparation
Answer: FALSE AICPA: Resource Management
Diff: 2
Learning Objective: LO 1 8) Investment decisions determine how firms raise capital to pay for their investments.
Bloomcode: Application Answer: FALSE
AACSB: Analytic Diff: 1
IMA: Corporate Finance Learning Objective: LO 1
AICPA: Process and Resource Management Perspectives Bloomcode: Knowledge
AACSB: Analytic
4) The most fundamental way a business can grow in size is by reinvesting cash flows or earnings. IMA: Investment Decisions
Answer: TRUE AICPA: Strategic/Critical Thinking
Diff: 1
Learning Objective: LO 1 9) Net working capital is the dollar difference between a firm's total current assets and total
Bloomcode: Knowledge liabilities.
AACSB: Analytic Answer: FALSE
IMA: FSA Diff: 1
AICPA: Process and Resource Management Perspectives Learning Objective: LO 1
Bloomcode: Knowledge
AACSB: Analytic
IMA: Budget Preparation
AICPA: Process and Resource Management Perspectives
1 2
,10) A sole proprietorship is a business where ownership interest can be transferred to someone 15) The owners of C-corporations are not subject to double taxation.
else. Answer: FALSE
Answer: FALSE Diff: 1
Diff: 1 Learning Objective: LO 2
Learning Objective: LO 2 Bloomcode: Knowledge
Bloomcode: Knowledge AACSB: Analytic
AACSB: Analytic IMA: Business Economics
IMA: Business Economics AICPA: Global and Industry Perspectives
AICPA: Global and Industry Perspectives
16) Privately held corporations are allowed to have stockholders.
11) One of the disadvantages of a general partnership is the double taxation of profits. Answer: TRUE
Answer: FALSE Diff: 1
Diff: 1 Learning Objective: LO 2
Learning Objective: LO 2 Bloomcode: Knowledge
Bloomcode: Comprehension AACSB: Analytic
AACSB: Analytic IMA: Business Economics
IMA: Business Economics AICPA: Global and Industry Perspectives
AICPA: Global and Industry Perspectives
17) The treasurer of a corporation usually reports to the CFO of the firm.
12) Unlimited liability means that the owner of a firm is responsible for paying all the bills of the Answer: TRUE
firm in the event of a bankruptcy. Diff: 1
Answer: TRUE Learning Objective: LO 3
Diff: 2 Bloomcode: Knowledge
Learning Objective: LO 2 AACSB: Analytic
Bloomcode: Application IMA: Business Economics
AACSB: Analytic AICPA: Global and Industry Perspectives
IMA: Business Economics
AICPA: Global and Industry Perspectives 18) The external auditors of the firm provide an independent annual audit of the firm's financial
statements and report their findings directly to the CFO of the firm.
13) The process of transferring ownership of a sole proprietorship is relatively easy compared to a Answer: FALSE
public corporation. Diff: 1
Answer: FALSE Learning Objective: LO 3
Diff: 1 Bloomcode: Knowledge
Learning Objective: LO 2 AACSB: Analytic
Bloomcode: Comprehension IMA: Reporting
AACSB: Analytic AICPA: Reporting
IMA: Business Economics
AICPA: Global and Industry Perspectives 19) Maximizing revenue should be the goal of the firm.
Answer: FALSE
14) General partners in a business have limited liability with regard to money owed to creditors. Diff: 1
Answer: FALSE Learning Objective: LO 4
Diff: 1 Bloomcode: Knowledge
Learning Objective: LO 2 AACSB: Analytic
Bloomcode: Comprehension IMA: Performance Measurement
AACSB: Analytic AICPA: Strategic/Critical Thinking
IMA: Business Economics
AICPA: Global and Industry Perspectives
3 4
,20) An agency conflict can arise when the agent of the firm does not act in the best interest of the 24) A stakeholder is:
owners. A) someone geographically close to the firm's headquarters.
Answer: TRUE B) someone who has a claim on the cash flows of the firm.
Diff: 2 C) a business organization.
Learning Objective: LO 5 D) someone working for the competitor of the firm.
Bloomcode: Application Answer: B
AACSB: Analytic Diff: 1
IMA: Business Economics Learning Objective: LO 1
AICPA: Global and Industry Perspectives Bloomcode: Knowledge
AACSB: Analytic
21) The owners of a firm are unaffected by agency costs. IMA: Business Economics
Answer: FALSE AICPA: Global and Industry Perspectives
Diff: 2
Learning Objective: LO 5 25) If you have provided capital to a firm, then you are:
Bloomcode: Application A) a manager.
AACSB: Analytic B) a stakeholder.
IMA: Business Economics C) a partner.
AICPA: Global and Industry Perspectives D) an employee.
Answer: B
22) Fraudulent business practices do not affect the growth of the financial markets. Diff: 1
Answer: FALSE Learning Objective: LO 1
Diff: 1 Bloomcode: Knowledge
Learning Objective: LO 6 AACSB: Analytic
Bloomcode: Knowledge IMA: Business Economics
AACSB: Ethics AICPA: Global and Industry Perspectives
IMA: Business Applications
AICPA: Professional Demeanor 26) Which of the following is NOT a stakeholder?
A) An employee
23) To start a business, the owners need: B) A lender
A) wealth. C) The IRS
B) a clear vision of what products or services they want to produce. D) The owner
C) employees. Answer: D
D) productive assets such as buildings, technology, or patents. Diff: 2
Answer: B Learning Objective: LO 1
Diff: 1 Bloomcode: Application
Learning Objective: LO 1 AACSB: Analytic
Bloomcode: Knowledge IMA: Business Economics
AACSB: Analytic AICPA: Global and Industry Perspectives
IMA: Business Economics
AICPA: Global and Industry Perspectives
27) A trademark is an example of:
A) a liquid asset.
B) an intangible asset.
C) a contingent asset.
D) a physical asset.
Answer: B
Diff: 1
Learning Objective: LO 1
5 6
, Bloomcode: Knowledge C) long-term debt.
AACSB: Analytic D) payroll fund.
IMA: Business Economics Answer: A
AICPA: Global and Industry Perspectives Diff: 1
Learning Objective: LO 1
28) Which of the following is NOT a characteristic of a shareholder? Bloomcode: Knowledge
A) Expects to receive dividends AACSB: Analytic
B) Expects to receive a capital gain on an investment IMA: Corporate Finance
C) Expects to receive interest AICPA: Process and Resource Management Perspectives
D) Expects to have rights as defined in the corporation's charter and bylaws
Answer: D 32) Current liabilities are liabilities that:
Diff: 1 A) will be converted to cash within a year.
Learning Objective: LO 1 B) must be paid within a year.
Bloomcode: Knowledge C) will be converted to equity within a year.
AACSB: Analytic D) are contingent depending upon a future outcome.
IMA: Corporate Finance Answer: B
AICPA: Process and Resource Management Perspectives Diff: 1
Learning Objective: LO 1
29) Which of the following is a basic source of funds for a firm? Bloomcode: Knowledge
A) Debt AACSB: Analytic
B) Equity IMA: Corporate Finance
C) Asset liquidations AICPA: Process and Resource Management Perspectives
D) Both A and B
Answer: D
Diff: 1
Learning Objective: LO 1 33) Current assets are assets that:
Bloomcode: Knowledge A) will be converted to cash within a year.
AACSB: Analytic B) must be paid within a year.
IMA: Corporate Finance C) will be converted to equity within a year.
AICPA: Process and Resource Management Perspectives D) must be depreciated.
Answer: A
30) The cash remaining with the firm after paying its operating expenses, making payments to Diff: 1
creditors, and taxes is called: Learning Objective: LO 1
A) earnings per share. Bloomcode: Comprehension
B) capital contributed in excess of par. AACSB: Analytic
C) residual cash flows. IMA: Budget Preparation
D) assets. AICPA: Process and Resource Management Perspectives
Answer: C
Diff: 1 34) The capital budgeting decision process can be described as:
Learning Objective: LO 1 A) how a firm's day-to-day financial matters should be managed.
Bloomcode: Knowledge B) how a firm's assets should be financed.
AACSB: Analytic C) determining which productive assets should be purchased.
IMA: Corporate Finance D) involving purchase of short-term assets.
AICPA: Process and Resource Management Perspectives Answer: C
Diff: 2
31) Cash dividends are paid out of: Learning Objective: LO 1
A) residual cash flows. Bloomcode: Application
B) liquidated assets. AACSB: Analytic
IMA: Budget Preparation
7 8
