Test Bank for Corporate Finance, 12th Edition, Stephen Ross, Randolph Westerfield, Jeffrey, Bradford Jordan

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Test Bank for Corporate Finance, 12th Edition, Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

Chapter 01 - Introduction to Corporate Finance

Multiple Choice Questions

1. Which one of the following terms is defined as the management of a firm's long-term

investments?

A. working capital management

B. financial allocation

C. agency cost analysis

D. capital budgeting

E. capital structure

Refer to section 1.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-1

Section: 1.1

Topic: Capital budgeting

2. Which one of the following terms is defined as the mixture of a firm's debt and equity

financing?

A. working capital management

B. cash management

C. cost analysis

D. capital budgeting

E. capital structure

Refer to section 1.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-1

Section: 1.1

Topic: Capital structure

1-1

Chapter 01 - Introduction to Corporate Finance

3. Which one of the following is defined as a firm's short-term assets and its short-term

liabilities?

A. working capital

B. debt

C. investment capital

D. net capital

E. capital structure

Refer to section 1.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-1

Section: 1.1

Topic: Working capital

4. A business owned by a solitary individual who has unlimited liability for its debt is called

A. corporation.

B. sole proprietorship.

C. general partnership.

D. limited partnership.

E. limited liability company.

Refer to section 1.2

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-3

Section: 1.2

Topic: Sole proprietorship

1-2

Chapter 01 - Introduction to Corporate Finance

5. A business formed by two or more individuals who each have unlimited liability for all of

the firm's business debts is called a:

A. corporation.

B. sole proprietorship.

C. general partnership.

D. limited partnership.

E. limited liability company.

Refer to section 1.2

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-3

Section: 1.2

Topic: General partnership

6. A business partner whose potential financial loss in the partnership will not exceed his or

her investment in that partnership is called a:

A. generally partner.

B. sole proprietor.

C. limited partner.

D. corporate shareholder.

E. zero partner.

Refer to section 1.2

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-3

Section: 1.2

Topic: Limited partner

1-3

Chapter 01 - Introduction to Corporate Finance

7. A business created as a distinct legal entity and treated as a legal "person" is called a:

A. corporation.

B. sole proprietorship.

C. general partnership.

D. limited partnership.

E. unlimited liability company.

Refer to section 1.2

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-3

Section: 1.2

Topic: Corporation

8. Which one of the following terms is defined as a conflict of interest between the corporate

shareholders and the corporate managers?

A. articles of incorporation

B. corporate breakdown

C. agency problem

D. bylaws

E. legal liability

Refer to section 1.4

AACSB: Ethics

Difficulty: Basic

Learning Objective: 1-4

Section: 1.4

Topic: Agency problem

1-4

Chapter 01 - Introduction to Corporate Finance

9. A stakeholder is:

A. a person who owns shares of stock.

B. any person who has voting rights based on stock ownership of a corporation.

C. a person who initially founded a firm and currently has management control over that firm.

D. a creditor to whom a firm currently owes money.

E. any person or entity other than a stockholder or creditor who potentially has a claim on the

cash flows of a firm.

Refer to section 1.4

AACSB: Ethics

Difficulty: Basic

Learning Objective: 1-4

Section: 1.4

Topic: Stakeholder

10. Which of the following questions are addressed by financial managers?

I. How should a product be marketed?

II. Should customers be given 30 or 45 days to pay for their credit purchases?

III. Should the firm borrow more money?

IV. Should the firm acquire new equipment?

A. I and IV only

B. II and III only

C. I, II, and III only

D. II, III, and IV only

E. I, II, III, and IV

Refer to section 1.1

AACSB: N/A

Difficulty: Basic

Learning Objective: 1-1

Section: 1.1

Topic: Financial management

1-5

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