Test Bank – Fundamentals of Financial Management 16th Edition | Eugene F. Brigham & Joel F. Houston | Finance, Business & Accounting | 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: U True

8. One Uadvantage Uof Uthe Ucorporate Uform Uof Uorganization Uis Uthat Uit Uavoids Udouble Utaxation.
a. True
b. False
ANSWER: U False

9. It Uis Ugenerally Uharder Uto Utransfer Uone's Uownership Uinterest Uin Ua Upartnership Uthan Uin Ua Ucorporation.
a. True
b. False
ANSWER: U True

10. One Udanger Uof Ustarting Ua Uproprietorship Uis Uthat Uyou Umay Ube Uexposed Uto Upersonal Uliability Uif Uthe
Ubusiness Ugoes U bankrupt. UThis Uproblem Uwould Ube Uavoided Uif Uyou Uformed Ua Ucorporation Uto Uoperate Uthe

Ubusiness.

a. True
b. False
ANSWER: U True

11. If Ua Ucorporation Uelects Uto Ube Utaxed Uas Uan US Ucorporation, Uthen Uit Ucan Uavoid Uthe Ucorporate Utax.
UHowever, Uits U stockholders Uwill Uhave Uto Upay Upersonal Utaxes Uon Uthe Ufirm's Unet Uincome.

a. True
b. False
ANSWER: U True

12. If Ua Ucorporation Uelects Uto Ube Utaxed Uas Uan US Ucorporation, Uthen Uboth Uit Uand Uits Ustockholders Ucan Uavoid
Uall UFederal U taxes. UThis Uprovision Uwas Uput Uinto Uthe UFederal UTax UCode Uin Uorder Uto Uencourage Uthe

Uformation Uof Usmall U businesses.

a. True
b. False
ANSWER: U False

13. It Uis Ugenerally Uless Uexpensive Uto Uform Ua Ucorporation Uthan Ua Uproprietorship Ubecause, Uwith Ua
Uproprietorship, U extensive Ulegal Udocuments Uare Urequired.

a. True
b. False
ANSWER: U False

14. The Umore Ucapital Ua Ufirm Uis Ulikely Uto Urequire, Uthe Ugreater Uthe Uprobability Uthat Uit Uwill Ube Uorganized Uas Ua
Ucorporation.

a. True
b. False
ANSWER: U True
15. One Udisadvantage Uof Uforming Ua Ucorporation Urather Uthan Ua Upartnership Uis Uthat Uthis Umakes Uit Umore
Udifficult Ufor U the Ufirm's Uinvestors Uto Utransfer Utheir Uownership Uinterests.

a. True
b. False
ANSWER: U False

, 16. Organizing Uas Ua Ucorporation Umakes Uit Ueasier Ufor Uthe Ufirm Uto Uraise Ucapital. UThis Uis Ubecause
Ucorporations' U stockholders Uare Unot Usubject Uto Upersonal Uliabilities Uif Uthe Ufirm Ugoes Ubankrupt Uand

Ualso Ubecause Uit Uis Ueasier Uto U transfer Ushares Uof Ustock Uthan Upartnership Uinterests.

a. True
b. False
ANSWER: U True

17. In Uorder Uto Umaximize Uits Ushareholders' Uvalue, Ua Ufirm's Umanagement Umust Uattempt Uto Umaximize
Uthe Ustock U price Uin Uthe Ulong Urun, Uor Uthe Ustock's U"intrinsic Uvalue."

a. True
b. False
ANSWER: U True

18. If Umanagement Uoperates Uin Ua Umanner Udesigned Uto Umaximize Uthe Ufirm's Uexpected Uprofits Ufor Uthe
Ucurrent Uyear, U this Uwill Ualso Umaximize Uthe Ustockholders' Uwealth Uas Uof Uthe Ucurrent Uyear.

a. True
b. False
ANSWER: U False

19. In Uorder Uto Umaximize Uits Ushareholders' Uvalue, Ua Ufirm's Umanagement Umust Uattempt Uto Umaximize Uthe
Uexpected UEPS.

a. True
b. False
ANSWER: U False

20. In Uorder Uto Umaximize Uits Ushareholders' Uvalue, Ua Ufirm's Umanagement Umust Uattempt Uto Umaximize
Uthe Ustock U price Uon Ua Uspecific Utarget Udate.

a. True
b. False
ANSWER: U False

21. As Ua Uresult Uof Ufinancial Uscandals Uoccurring Uduring Uthe Upast Udecade, Uthere Uhas Ubeen Ua Ustrong Upush Uto
Uimprove U business Uethics.

a. True
b. False
ANSWER: U True

22. There Uare Umany Utypes Uof Uunethical Ubusiness Ubehavior. UOne Uexample Uis Uwhere Uexecutives Uprovide
Uinformation U that Uthey Uknow Uis Uincorrect Uto Ubanks Uand Uto Ustockholders. UIt Uis Uillegal Uto Uprovide Usuch

Uinformation Uto Ubanks, Ubut Uit Uis U not Uillegal Uto Uprovide Uit Uto Ustockholders Ubecause Uthey U are Uthe Uowners Uof

Uthe Ufirm, Unot Uoutsiders.

a. True
b. False
ANSWER: U False
23. A Ustock's Umarket Uprice Uwould Uequal Uits Uintrinsic Uvalue Uif Uall Uinvestors Uhad Uall Uthe Uinformation Uthat Uis
Uavailable U about Uthe Ustock. UIn Uthis Ucase Uthe Ustock's Umarket Uprice Uwould Uequal Uits Uintrinsic Uvalue.

a. True