Fundamentals of Corporate Finance, 5th Edition Robert Parrino By
Robert Parrino
Fundamentals of Corporate Finance, 5e (Parrino) Chapter 1 The Financial Manager and the Firm Question type: True/False 1) The financial manager is responsible for making decisions that are in the best interests of the firm's owners. Answer: TRUE Diff: 1 Learning Objective: LO 1 Bloomcode: Knowledge AACSB: Analytic IMA: FSA AICPA: Process and Resource Management Perspectives 2) A patent is a productive asset for a technology-based firm. Answer: TRUE Diff: 1 Learning Objective: LO 1 Bloomcode: Knowledge AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 3) Intangible assets generate most of a manufacturing firm's cash flows. Answer: FALSE Diff: 2 Learning Objective: LO 1 Bloomcode: Application AACSB: Analytic IMA: Corporate Finance AICPA: Process and Resource Management Perspectives 4) The most fundamental way a business can grow in size is by reinvesting cash flows or earnings. Answer: TRUE Diff: 1 Learning Objective: LO 1 Bloomcode: Knowledge AACSB: Analytic IMA: FSA AICPA: Process and Resource Management Perspectives 5) A firm that goes bankrupt will always be liquidated. Answer: FALSE Diff: 2 1 .
Learning Objective: LO 1 Bloomcode: Application AACSB: Analytic IMA: Corporate Finance AICPA: Resource Management 6) Capital assets are generally short term in nature. Answer: FALSE Diff: 1 Learning Objective: LO 1 Bloomcode: Knowledge AACSB: Analytic IMA: Corporate Finance AICPA: Process and Resource Management Perspectives 7) A good capital budgeting or investment decision is one in which the benefits are worth more to the firm than the cost of the project. Answer: TRUE Explanation: Regardless of the project, a good investment is one in which the benefits are worth more to the firm than the costs of the asset. Diff: 2 Learning Objective: LO 1 Bloomcode: Analysis AACSB: Analytic IMA: Budget Preparation AICPA: Resource Management 8) Investment decisions determine how firms raise capital to pay for their investments. Answer: FALSE Diff: 1 Learning Objective: LO 1 Bloomcode: Knowledge AACSB: Analytic IMA: Investment Decisions AICPA: Strategic/Critical Thinking 9) Net working capital is the dollar difference between a firm's total current assets and total liabilities. Answer: FALSE Diff: 1 Learning Objective: LO 1 Bloomcode: Knowledge AACSB: Analytic IMA: Budget Preparation AICPA: Process and Resource Management Perspectives
2 .
10) A sole proprietorship is a business where ownership interest can be transferred to someone else. Answer: FALSE Diff: 1 Learning Objective: LO 2 Bloomcode: Knowledge AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 11) One of the disadvantages of a general partnership is the double taxation of profits. Answer: FALSE Diff: 1 Learning Objective: LO 2 Bloomcode: Comprehension AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives e 12) Unlimited liability means that the owner of a firm is responsible for paying all the bills of the firm in the event of a bankruptcy. Answer: TRUE Diff: 2 Learning Objective: LO 2 Bloomcode: Application AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 13) The process of transferring ownership of a sole proprietorship is relatively easy compared to a public corporation. Answer: FALSE Diff: 1 Learning Objective: LO 2 Bloomcode: Comprehension AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 14) General partners in a business have limited liability with regard to money owed to creditors. Answer: FALSE Diff: 1 Learning Objective: LO 2 Bloomcode: Comprehension AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 3 .
15) The owners of C-corporations are not subject to double taxation.. Answer: FALSE Diff: 1 Learning Objective: LO 2 Bloomcode: Knowledge AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 16) Privately held corporations are allowed to have stockholders. Answer: TRUE Diff: 1 Learning Objective: LO 2 Bloomcode: Knowledge AACSB: Analytic IMA: Business Economics AICPA: Global and Industry Perspectives 17) The treasurer of a corporation usually reports to the CFO of the firm. Answer: TRUE Diff: 1 Learning Objective: LO 3 Bloomcode: Knowledge AACSB: Analytic 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. Answer: FALSE Diff: 1 Learning Objective: LO 3 Bloomcode: Knowledge AACSB: Analytic IMA: Reporting AICPA: Reporting 19) Maximizing revenue should be the goal of the firm. Answer: FALSE Diff: 1 Learning Objective: LO 4 Bloomcode: Knowledge AACSB: Analytic IMA: Performance Measurement AICPA: Strategic/Critical Thinking 4 .