Test Bank for Fundamentals of Financial Management, 16th Edition by Eugene F. Brigham & Joel F. Houston | Latest 2025/2026 Update

TEST BANK FOR Fundamentals of Financial Management 16th Edition
by Eugene F. Brigham and Joel F. Houston




1. An Overview of Financial Management.

,True / False

Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F statements are
used in multiple-choice questions.

Multiple Choice: True/False


1. In most corporations, the CFO ranks under the CEO.
a. True
b. False
ANSWER: True

2. The Chairman of the Board must also be the CEO.
a. True
b. False
ANSWER: False

3. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest
ranking individual. The CEO generally works under the board and its chairman, and the board generally has the
authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she
can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a
person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe
it is bad to vest both offices in the same person.
a. True
b. False
ANSWER: True

4. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
ANSWER: True

5. A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to
personal liabilities in the event of bankruptcy than are investors in a typical partnership.
a. True
b. False
ANSWER: False

6. An advantage of the corporate form of organization is that corporations are generally less highly
regulated than proprietorships and partnerships.
a. True
b. False
ANSWER: False
7. Some partners in a partnership may have different rights, privileges, and responsibilities than other partners.
a. True

b. False
ANSWER: True

,8. One Xadvantage Xof Xthe Xcorporate Xform Xof Xorganization Xis Xthat Xit Xavoids Xdouble Xtaxation.
a. True
b. False
ANSWER: X False

9. It Xis Xgenerally Xharder Xto Xtransfer Xone's Xownership Xinterest Xin Xa Xpartnership Xthan Xin Xa Xcorporation.
a. True
b. False
ANSWER: X True

10. One Xdanger Xof Xstarting Xa Xproprietorship Xis Xthat Xyou Xmay Xbe Xexposed Xto Xpersonal Xliability Xif Xthe
Xbusiness Xgoes X bankrupt. XThis Xproblem Xwould Xbe Xavoided Xif Xyou Xformed Xa Xcorporation Xto Xoperate Xthe

Xbusiness.

a. True
b. False
ANSWER: X True

11. If Xa Xcorporation Xelects Xto Xbe Xtaxed Xas Xan XS Xcorporation, Xthen Xit Xcan Xavoid Xthe Xcorporate Xtax.
XHowever, Xits X stockholders Xwill Xhave Xto Xpay Xpersonal Xtaxes Xon Xthe Xfirm's Xnet Xincome.

a. True
b. False
ANSWER: X True

12. If Xa Xcorporation Xelects Xto Xbe Xtaxed Xas Xan XS Xcorporation, Xthen Xboth Xit Xand Xits Xstockholders Xcan Xavoid
Xall XFederal X taxes. XThis Xprovision Xwas Xput Xinto Xthe XFederal XTax XCode Xin Xorder Xto Xencourage Xthe

Xformation Xof Xsmall X businesses.

a. True
b. False
ANSWER: X False

13. It Xis Xgenerally Xless Xexpensive Xto Xform Xa Xcorporation Xthan Xa Xproprietorship Xbecause, Xwith Xa
Xproprietorship, X extensive Xlegal Xdocuments Xare Xrequired.

a. True
b. False
ANSWER: X False

14. The Xmore Xcapital Xa Xfirm Xis Xlikely Xto Xrequire, Xthe Xgreater Xthe Xprobability Xthat Xit Xwill Xbe Xorganized Xas Xa
Xcorporation.

a. True
b. False
ANSWER: X True
15. One Xdisadvantage Xof Xforming Xa Xcorporation Xrather Xthan Xa Xpartnership Xis Xthat Xthis Xmakes Xit Xmore
Xdifficult Xfor X the Xfirm's Xinvestors Xto Xtransfer Xtheir Xownership Xinterests.

a. True
b. False
ANSWER: X False

, 16. Organizing Xas Xa Xcorporation Xmakes Xit Xeasier Xfor Xthe Xfirm Xto Xraise Xcapital. XThis Xis Xbecause
Xcorporations' X stockholders Xare Xnot Xsubject Xto Xpersonal Xliabilities Xif Xthe Xfirm Xgoes Xbankrupt Xand

Xalso Xbecause Xit Xis Xeasier Xto X transfer Xshares Xof Xstock Xthan Xpartnership Xinterests.

a. True
b. False
ANSWER: X True

17. In Xorder Xto Xmaximize Xits Xshareholders' Xvalue, Xa Xfirm's Xmanagement Xmust Xattempt Xto Xmaximize
Xthe Xstock X price Xin Xthe Xlong Xrun, Xor Xthe Xstock's X"intrinsic Xvalue."

a. True
b. False
ANSWER: X True

18. If Xmanagement Xoperates Xin Xa Xmanner Xdesigned Xto Xmaximize Xthe Xfirm's Xexpected Xprofits Xfor Xthe
Xcurrent Xyear, X this Xwill Xalso Xmaximize Xthe Xstockholders' Xwealth Xas Xof Xthe Xcurrent Xyear.

a. True
b. False
ANSWER: X False

19. In Xorder Xto Xmaximize Xits Xshareholders' Xvalue, Xa Xfirm's Xmanagement Xmust Xattempt Xto Xmaximize Xthe Xexpected
XEPS.

a. True
b. False
ANSWER: X False

20. In Xorder Xto Xmaximize Xits Xshareholders' Xvalue, Xa Xfirm's Xmanagement Xmust Xattempt Xto Xmaximize
Xthe Xstock X price Xon Xa Xspecific Xtarget Xdate.

a. True
b. False
ANSWER: X False

21. As Xa Xresult Xof Xfinancial Xscandals Xoccurring Xduring Xthe Xpast Xdecade, Xthere Xhas Xbeen Xa Xstrong Xpush Xto
Ximprove X business Xethics.

a. True
b. False
ANSWER: X True

22. There Xare Xmany Xtypes Xof Xunethical Xbusiness Xbehavior. XOne Xexample Xis Xwhere Xexecutives Xprovide
Xinformation X that Xthey Xknow Xis Xincorrect Xto Xbanks Xand Xto Xstockholders. XIt Xis Xillegal Xto Xprovide Xsuch

Xinformation Xto Xbanks, Xbut Xit Xis X not Xillegal Xto Xprovide Xit Xto Xstockholders Xbecause Xthey X are Xthe Xowners Xof

Xthe Xfirm, Xnot Xoutsiders.

a. True
b. False
ANSWER: X False
23. A Xstock's Xmarket Xprice Xwould Xequal Xits Xintrinsic Xvalue Xif Xall Xinvestors Xhad Xall Xthe Xinformation Xthat Xis
Xavailable X about Xthe Xstock. XIn Xthis Xcase Xthe Xstock's Xmarket Xprice Xwould Xequal Xits Xintrinsic Xvalue.

a. True
b. False