Type:
Test Bank
Resource:
Corporate Finance
Edition:
9th Edition
Author(s):
Stephen A. Ross Randolph W. Westerfield Jeffrey Jaffe
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) The balance sheet is made up of what five key components: 1) ______ A) fixed assets, current liabilities, long term debt, tangible current assets and shareholders' equity. B) intangible fixed assets, current liabilities, long term debt, net income and current assets. C) fixed assets, long term debt, current assets, current liabilities and shareholders' equity. D) current assets, fixed assets, long term debt, shareholders equity and retained earnings. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-01 The balance sheet is made up of what five ke...
2) In terms of the balance sheet model of the firm, the value of the firm in financial markets is
equal to: 2) ______ A) tangible fixed assets plus intangible fixed assets. B) sales minus costs. C) cash inflow minus cash outflow. D) the value of the debt plus the value of the equity. E) the value of the debt minus the value of the equity. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-02 In terms of the balance sheet model of the f...
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3) Inventory is a component of: 3) ______ A) current assets. B) current liabilities. C) equity. D) fixed assets. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-03 Inventory is a component of:
4) Using the balance sheet model of the firm, finance may be thought of as analysis of three
primary subject areas. Which of the following groups correctly lists these three areas? 4) ______ A) Capital budgeting, capital structure, net working capital. B) Capital budgeting, capital structure, security marketing. C) Capital budgeting, net working capital, tax analysis. D) Capital budgeting, tax analysis, security marketing. E) Net working capital, tax analysis, security marketing. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-04 Using the balance sheet model of the firm, f...
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5) Which of the following is not considered one of the basic questions of corporate finance? 5) ______ A) What long-lived assets should the firm invest? B) How much inventory should the firm hold? C) How can the firm raise cash for required capital expenditures? D) How should the short-term operating cash flows be managed? E) What amount of long term debt and equity should the company issue to the market in
the following years? Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-05 Which of the following is not considered one...
6) The need to manage net working capital arises because: 6) ______ A) financial management is naturally broken into those areas. B) shareholders want to ensure they receive dividend payments. C) there is a mismatch between the timing of cash inflows and cash outflows. D) the sum of current assets and current liabilities usually is zero. E) the capital structure pie is limited in size. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-06 The need to manage net working capital arise...
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7) Which one of these is a cash outflow from a corporation? 7) ______ A) sale of an asset B) dividend payment C) sale of common stock D) issuance of debt E) profit retained by the firm Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-07 Which one of these is a cash outflow from a ...
8) Which one of these is a cash inflow to a corporation? 8) ______ A) Purchase of a long-term asset B) Repurchase of shares C) Collection of account receivables D) Reduction of accounts payables Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-08 Which one of these is a cash inflow to a cor...
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9) In the managerial structure of the corporation the two officers and their responsibilities that
report directly to the Chief Financial Officer are: 9) ______ A) the credit manager who handles accounts receivable and the tax manager who
minimizes tax payments. B) the personnel manager who manages salaries and compensation and the production operations manager who manages facility operations. C) the treasurer who is responsible handling cash flow and making financial decisions and the tax manager who minimizes tax payments. D) the controller who manages the accounting function and the treasurer who is responsible handling cash flow and making financial decisions. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-09 In the managerial structure of the corporati...
10) Value is created and recognized over time if: 10) ______ A) cash raised is invested in the investment activities of the firm. B) funds are raised in the capital markets. C) cash paid to shareholders and bondholders, is greater than cash raised in the financial
markets. D) management pursues activities to reduce taxes to zero. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-10 Value is created and recognized over time if...
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11) Time preference refers to the fact that: 11) ______ A) corporations match current assets with current liabilities to minimize the short-term
financing cost. B) corporations match both current and long-term assets with current and long-term liabilities to minimize the change of bankruptcy. C) investors prefer current cash flows to future cash flows. D) investors seek to time cash flows to minimize tax liabilities. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-11 Time preference refers to the fact that:
12) A corporate security can be viewed as a contingent claim on the firm's value. This means
that: 12) ______ A) debt holders will receive their payoff from the firm based on their fixed claim or the
firm's value if less than the fixed claim. B) debt holders will receive the maximum between the firm's value and the fixed claim. C) no payoff will be made to the debtholders unless the firm's value is greater than the fixed claim of the debt. D) no debt payoff will be made if there is an equity payoff. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-02 The Balance-Sheet Model of the Firm Source : Chapter 01 Test Bank > TB 01-12 A corporate security can be viewed as a cont...
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13) If a firm has debt outstanding, the shareholders contingent claim payoff is: 13) ______ A) equal to the promised payment to the debtholders B) equal to the firm's value minus the fixed debt payment, if the residual value is
positive. C) equal to the firm value minus the fixed debt payment, whether it is positive or negative. D) equal to the debt payment plus the residual value of the firm. E) equal to the payment provided by the stockholders when the equity was issued Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-02 The Balance-Sheet Model of the Firm Source : Chapter 01 Test Bank > TB 01-13 If a firm has debt outstanding, the sharehol...
14) The Simple Corporation has outstanding obligation to the Complex Corporation of $250. It is
year-end and the total cash flow of Simple from all sources is $325. The contingent payoff to the debtholders and the equity shareholders is: 14) ______ A) $250; $325. B) $75; $250. C) $250; $75. D) $325; $250. Question Details Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : Medium Topic : 01-02 The Balance-Sheet Model of the Firm Source : Chapter 01 Test Bank > TB 01-14 The Simple Corporation has outstanding oblig...
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15) The general partner(s) in a general partnership agree to share work, costs and profits and
losses. Each partner: 15) ______ A) has liability only up to the amount of their investment. B) has liability for the debts of the partnership. C) has liability only if it is formally documented. D) never has any liability but the limited partners do. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Medium Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-15 The general partner(s) in a general partners...
16) In a general partnership, the general partners have _____ liability and have _____ control
over day-to-day operations. 16) ______ A) limited; no B) unlimited; total C) limited; total D) unlimited; no E) no; total Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Medium Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-16 In a general partnership, the general partne...
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17) The ultimate control of a corporation lies in the hands of the corporate: 17) ______ A) board of directors. B) shareholders C) CEO of the firm D) chairman of the board E) government Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-17 The ultimate control of a corporation lies i...
18) The division of profits and losses among the members of a partnership is formalized in the: 18) ______ A) indemnity clause B) indenture contract C) statement of purpose D) partnership agreement Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-18 The division of profits and losses among the...
19) The cheapest business entity to form is typically the: 19) ______ A) limited liability company. B) joint stock company. C) general partnership. D) limited partnership. E) sole proprietorship. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-19 The cheapest business entity to form is typi...
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20) The Splitz Corporation has borrowed $5 million in debt with a promise to repay $5.5 million
in one year. The corporation had 10 million shares outstanding worth $2 each at the time of the borrowing. Splitz earns $6 million during the year. What is the debtholder's contingent claim; how much do the debtholders receive; and, how much do the equity holders receive? 20) ______ A) $5.5 million; $6 million; $20 million B) $5 million; $5.5 million; $0 C) $5 million; $5.5 million; $20 million D) $5.5 million; $5.5 million; $0.5 million Question Details Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : Medium Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-20 The Splitz Corporation has borrowed...
21) The Splitz Corporation has borrowed $5 million in debt with a promise to repay $5.5 million
in one year. The corporation had 10 million shares outstanding worth $2 each at the time of the borrowing. Splitz earns $5 million during the year. What is the debtholder's contingent claim; how much does the debtholder receive; and, how much do the equity holders receive? 21) ______ A) $5 million; $5.5 million; $20 million B) $5.5 million; $5 million; $0 C) $5 million; $-0.5 million; $20 million D) $-0.5 million; $5 million; $0 Question Details Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : Medium Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-21 The Splitz Corporation has borrowed...
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22) Corporate securities are contingent claims because: 22) ______ A) they don't represent a direct claim on the firm. B) the firm may be bought out. C) the securities value is derived from the total value of the firm. D) book value can be negative. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Hard Topic : 01-02 The Balance-Sheet Model of the Firm Source : Chapter 01 Test Bank > TB 01-22 Corporate securities are contingent claims b...
23) If a firm promised a payment to the debtholders greater than the firm's value, then: 23) ______ A) the firm will be broke and the debtholder will receive the firm's value. B) the debtholders receive the promised payment while the shareholders pay the
difference between the firm's value and the payment to the debtholders. C) the firm's value will be shared between equity and debtholders and shareholders according to the payment promised by the firm. D) the shareholders will get nothing from the firm. E) the firm would be broke, the debtholder will receive the firm's value, and the shareholders with get nothing. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Hard Topic : 01-02 The Balance-Sheet Model of the Firm Source : Chapter 01 Test Bank > TB 01-23 If a firm promised a payment to the debthold...
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24) Agency costs as the sum costs of: 24) ______ A) monitoring costs of the shareholders and the residual loss of wealth due to divergent
management behavior. B) the costs of implementing control devices and the monitoring costs of the shareholders. C) the costs of implementing control devices and the residual loss of wealth due to divergent management behavior. D) the set-of-contracts needed to structure the firm and residual wealth. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Hard Topic : 01-04 The Financial Manager Source : Chapter 01 Test Bank > TB 01-24 Agency costs as the sum costs of:
25) Which one of these best fits the description of an agency cost? 25) ______ A) increasing the dividend payments per share B) the benefits received from reducing production costs per unit C) the payment of corporate income taxes D) the payment required for an outside audit of the firm E) the payment of interest on a firm's debts Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-04 The Financial Manager Source : Chapter 01 Test Bank > TB 01-25 Which one of these best fits the description...
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26) Agency costs refer to: 26) ______ A) the total dividends paid to stockholders over the lifetime of a firm. B) the costs that result from default and bankruptcy of a firm. C) corporate income subject to double taxation. D) the costs of any conflicts of interest between stockholders and management. E) the total interest paid to creditors over the lifetime of the firm. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Easy Topic : 01-04 The Financial Manager Source : Chapter 01 Test Bank > TB 01-26 Agency costs refer to:
27) Managerial goals may differ from those of the shareholders. It is noted that managers may: 27) ______ A) have a preference for expense consumption. B) be motivated by controlling sufficient resources to stay in business. C) avoid the control of the capital market and rely on internally generated funds. D) be wanted to depend on external parties. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Hard Topic : 01-04 The Financial Manager Source : Chapter 01 Test Bank > TB 01-27 Managerial goals may differ from those of th...
28) What is the primary goal of the corporation? 28) ______ A) Maximize the pay and compensation of employees and managers of the firm. B) Maximize the value of the stockholders as they are the owners of the corporation. C) Minimize the wealth of the shareholders and maximize the wealth of managers. D) Maximize the societal value to minimize governmental interference. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-04 The Financial Manager Source : Chapter 01 Test Bank > TB 01-28 What is the primary goal of the corporation?
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29) Financial markets are composed of: 29) ______ A) capital markets and equity markets. B) capital markets and debt markets. C) capital markets and money markets. D) equity markets and money markets. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-05 Identification of Cash Flows Source : Chapter 01 Test Bank > TB 01-29 Financial markets are composed of:
30) The primary market is defined as: 30) ______ A) the market for insured securities. B) the market for new issues. C) the market for securities of the largest firms. D) the over-the-counter market. Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Easy Topic : 01-05 Identification of Cash Flows Source : Chapter 01 Test Bank > TB 01-30 The primary market is defined as:
31) Which one of the following is a primary market transaction? 31) ______ A) A dealer selling shares of stock to an individual investor. B) A dealer buying newly issued shares of stock from a corporation. C) An individual investor selling shares of stock to another individual. D) A bank selling shares of a medical firm to an individual. Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-05 Identification of Cash Flows Source : Chapter 01 Test Bank > TB 01-31 Which one of the following is a primary mark...
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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 32) Flea Fall Inc., a maker of dog flea collars, paid $125,000 cash for inventory on January 1, 2014. On December 31, 2014, the company's sales total $147,000 of which $117,000 has been collected. If inventory represents Flea Falls only cost, calculate the firms accounting profit as well as its cash flow as of December 31.
Question Details Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-32 Flea Fall Inc., a maker of dog flea collars,...
33) The Harlow Corporation has promised to pay its debtholders an amount of $2,700 over the
next year. The firm's shareholders hold claim to whatever is left after the debtholders' claims have been satisfied. Calculate Harlow's debt and equity level if its assets total $1,100 at the end of the year. Recalculate for asset levels of $2,200 and $6,000.
Question Details Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-33 The Harlow Corporation has promised to pay i...
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34) A financial manager's most important job is to create value from capital budgeting, financing,
and liquidity activities. Explain how financial managers create value.
Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-34 A financial managers most important...
35) List and briefly describe the three basic areas addressed by a financial manager.
Question Details Accessibility : Keyboard Navigation Bloom's : Remember Difficulty : Medium Topic : 01-01 What is Corporate Finance? Source : Chapter 01 Test Bank > TB 01-35 List and briefly describe the three basic ar...
36) The decision to incorporate must consider the fact that earnings will be taxed at both the
corporate and personal levels. Since this is disadvantageous, provide three reasons why one may want to incorporate.
Question Details Accessibility : Keyboard Navigation Bloom's : Understand Difficulty : Hard Topic : 01-03 Capital Structure Source : Chapter 01 Test Bank > TB 01-36 The decision to incorporate must consider th...
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