Corporate Finance Test Bank Chap #1
Corporate Finance Test Bank Chap #1
Corporate Finance Test Bank Chap #1
A.
B.
C.
D.
A.
B.
C.
D.
I only
I and II only
II only
I, II, and III
A.
B.
C.
D.
I only
II and III
III only
I, II, and III
A.
B.
C.
D.
is a legal entity.
has the same ownership and management.
has limited liability.
is closely regulated.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
sole proprietorships.
partnerships.
corporations.
both partnerships and corporations.
A.
B.
C.
D.
I and II only
I, II, and III only
IV only
I, II, III, and IV
A.
B.
C.
D.
A.
B.
C.
D.
production machinery
factories
trademarks
office equipment
A.
B.
C.
D.
financing decision.
liquidity decision.
capital budgeting decision.
leasing decision.
A.
B.
C.
D.
common stock
bank loans
preferred stock
buildings
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
12. The treasurer is usually responsible for the following functions of a corporation:
I) tax obligations; II) investor relationships; III) cash management; IV) raising new
capital
A.
B.
C.
D.
I only
I and II only
II, III, and IV only
I, II, III, and IV
A.
B.
C.
D.
14. The controller is usually responsible for the following functions of a corporation
EXCEPT:
I) preparation of financial statements; II) internal accounting; III) cash management;
IV) taxes
A.
B.
C.
D.
I only
III only
I and II only
IV only
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
I only
I and II only
I, II, III, and IV
IV only
A.
B.
C.
D.
treasurer's functions.
controller's functions.
the chief operating officer's functions.
both the treasurer and the controller's functions.
A.
B.
C.
D.
18. Costs associated with the conflicts of interest between the bondholders and the
shareholders of a corporation are called:
A.
B.
C.
D.
legal costs.
bankruptcy costs.
administrative costs.
agency costs.
A. managers may not attempt to maximize the value of the firm to shareholders.
B.
shareholders incur monitoring costs.
C. of the separation of ownership and management.
D.
all of the options.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
20. The following groups are some of the claimants to a firm's income stream:
I) shareholders; II) bondholders; III) employees; IV) management; V) government
A.
B.
C.
D.
I and II only
I, II, and III only
I, II, III, and IV only
I, II, III, IV, and V
A.
B.
C.
D.
maximize profits.
maximize sales.
maximize the value of the firm for the shareholders.
maximize managers' benefits.
A.
B.
C.
D.
A.
B.
C.
D.
24. The choice of the proper mixture of debt and equity, used to finance a corporation, is
also referred to as the:
A.
B.
C.
D.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
25. Which of the following is not a common function of the firm's chief financial officer?
A.
B.
C.
D.
A.
B.
C.
D.
A.
B.
C.
D.
A.
B.
C.
D.
I only
I and II only
IV only
I, II, and III only
A.
B.
C.
D.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
30. Mr. Free has $100 dollars income this year and zero income next year. The market
interest rate is 10% per year. If Mr. Free consumes $30 this year and invests the rest
in the market, what will be his consumption next year?
A.
B.
C.
D.
$50
$55
$77
$100
31. Mr. Bird has $100 income this year and zero income next year. The market interest
rate is 10% per year. Mr. Bird also has an investment opportunity in which he can
invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this year
and invests in the project. What will be his consumption next year?
A.
B.
C.
D.
$80
$82
$100
$102
32. Ms. Venus has $100 income this year and $110 next year. The market interest rate is
10% per year. Suppose Ms. Venus consumes $60 this year. What will be her
consumption next year?
A.
B.
C.
D.
$120
$154
$170
210
33. Mr. Thomas has $100 income this year and zero income next year. The market
interest rate is 10% per year. Mr. Thomas also has an investment opportunity in
which he can invest $50 this year and receive $80 next year. Suppose Mr. Thomas
consumes $50 this year and invests in the project. What will be his consumption next
year?
A.
B.
C.
D.
$50
$55
$80
$110
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
34. Mr. Dell has $100 income this year and zero income next year. The market interest
rate is 10% per year. Mr. Dell also has an investment opportunityhaving the same
risk as the market in which he can invest $50 this year and receive $80 next year.
Suppose Mr. Dell consumes $50 this year and invests in the project. What is the NPV
of the investment opportunity?
A.
B.
C.
D.
$0
$5
$22.73
none of the options
35. Ms. Anderson has $60,000 income this year and $40,000 next year. The market
interest rate is 10% per year. Suppose Ms. Anderson consumes $80,000 this year.
What will be her consumption next year?
A.
B.
C.
D.
$18,000
$30,000
$60,000
$70,000
36. The line that connects the maximum that one can consume this year (now, on the
horizontal axis) and the maximum one can consume next year:
A.
B.
C.
D.
37. Ms. Newcastle has $60,000 income this year and $40,000 next year. The market
interest rate is 10% per year. Suppose Ms. Newcastle wishes to consume $62,000
next year. What will be her consumption this year?
A.
B.
C.
D.
$19,000
$40,000
$60,000
$70,000
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
38. Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in
a project that costs $30,000 this year, which generates an income of $36,000 next
year. The market interest rate is 10%. What will be his consumption next year if Mr.
Smith invests in the project and consumes $50,000 this year?
A.
B.
C.
D.
$40,000
$52,000
$60,000
$62,000
39. The board of directors is ultimately responsible for all large investment decisions.
True
False
40. A corporation has a legal existence of its own and is based on "articles of
incorporation".
True
False
False
False
43. In large firms, there is usually a chief financial officer (CFO) who oversees both the
treasurer's and the controller's work.
True
False
44. The controller's responsibilities typically include banking relations and cash
management.
True
False
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
46. Managers, shareholders, and the firm's debtholders have identical information about
the value of the firm.
True
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
50. Briefly explain the sequence of cash flows between financial markets and the firm.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
55. Explain why "maximization of shareholders' wealth" is the appropriate ultimate, longterm goal of the firm.
56. Briefly explain some of the institutional arrangements that ensure that managers
work toward increasing the value of a firm.
57. Briefly explain how individuals can adjust their current and future consumption
according to their preferences.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
1.
A.
B.
C.
D.
2.
A.
B.
C.
D.
I only
I and II only
II only
I, II, and III
Type: Medium
3.
A.
B.
C.
D.
I only
II and III
III only
I, II, and III
Type: Easy
4.
A.
B.
C.
D.
is a legal entity.
has the same ownership and management.
has limited liability.
is closely regulated.
Type: Medium
1-13
2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
5.
A.
B.
C.
D.
sole proprietorships.
partnerships.
corporations.
both partnerships and corporations.
Type: Easy
6.
A.
B.
C.
D.
I and II only
I, II, and III only
IV only
I, II, III, and IV
Type: Medium
7.
A.
B.
C.
D.
8.
A.
B.
C.
D.
production machinery
factories
trademarks
office equipment
Type: Medium
9.
A.
B.
C.
D.
financing decision.
liquidity decision.
capital budgeting decision.
leasing decision.
Type: Medium
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
10.
A.
B.
C.
D.
common stock
bank loans
preferred stock
buildings
Type: Medium
11.
A.
B.
C.
D.
12.
A.
B.
C.
D.
I only
I and II only
II, III, and IV only
I, II, III, and IV
Type: Difficult
13.
A.
B.
C.
D.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
14.
A.
B.
C.
D.
I only
III only
I and II only
IV only
Type: Difficult
15.
A.
B.
C.
D.
I only
I and II only
I, II, III, and IV
IV only
Type: Medium
16.
A.
B.
C.
D.
treasurer's functions.
controller's functions.
the chief operating officer's functions.
both the treasurer and the controller's functions.
Type: Easy
17.
A.
B.
C.
D.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
18.
Costs associated with the conflicts of interest between the bondholders and the
shareholders of a corporation are called:
A.
B.
C.
D.
legal costs.
bankruptcy costs.
administrative costs.
agency costs.
Type: Difficult
19.
A. managers may not attempt to maximize the value of the firm to shareholders.
B.
shareholders incur monitoring costs.
C.
of the separation of ownership and management.
D.
all of the options.
Type: Medium
20.
The following groups are some of the claimants to a firm's income stream:
I) shareholders; II) bondholders; III) employees; IV) management; V) government
A.
B.
C.
D.
I and II only
I, II, and III only
I, II, III, and IV only
I, II, III, IV, and V
Type: Medium
21.
A.
B.
C.
D.
maximize profits.
maximize sales.
maximize the value of the firm for the shareholders.
maximize managers' benefits.
Type: Difficult
22.
A.
B.
C.
D.
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2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23.
A.
B.
C.
D.
24.
The choice of the proper mixture of debt and equity, used to finance a corporation,
is also referred to as the:
A.
B.
C.
D.
25.
Which of the following is not a common function of the firm's chief financial
officer?
A.
B.
C.
D.
26.
A.
B.
C.
D.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
27.
A.
B.
C.
D.
28.
A.
B.
C.
D.
I only
I and II only
IV only
I, II, and III only
Type: Easy
29.
A.
B.
C.
D.
30.
Mr. Free has $100 dollars income this year and zero income next year. The market
interest rate is 10% per year. If Mr. Free consumes $30 this year and invests the
rest in the market, what will be his consumption next year?
A.
B.
C.
D.
$50
$55
$77
$100
Type: Difficult
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
31.
Mr. Bird has $100 income this year and zero income next year. The market interest
rate is 10% per year. Mr. Bird also has an investment opportunity in which he can
invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this
year and invests in the project. What will be his consumption next year?
A.
B.
C.
D.
$80
$82
$100
$102
Type: Difficult
32.
Ms. Venus has $100 income this year and $110 next year. The market interest rate
is 10% per year. Suppose Ms. Venus consumes $60 this year. What will be her
consumption next year?
A.
B.
C.
D.
$120
$154
$170
210
Type: Difficult
33.
Mr. Thomas has $100 income this year and zero income next year. The market
interest rate is 10% per year. Mr. Thomas also has an investment opportunity in
which he can invest $50 this year and receive $80 next year. Suppose Mr. Thomas
consumes $50 this year and invests in the project. What will be his consumption
next year?
A.
B.
C.
D.
$50
$55
$80
$110
Mr. Thomas' investment this year = 100 - 50 = 50. His income next year by taking
the investment opportunity is equal to 80.
Type: Difficult
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
34.
Mr. Dell has $100 income this year and zero income next year. The market interest
rate is 10% per year. Mr. Dell also has an investment opportunityhaving the
same risk as the market in which he can invest $50 this year and receive $80 next
year. Suppose Mr. Dell consumes $50 this year and invests in the project. What is
the NPV of the investment opportunity?
A.
B.
C.
D.
$0
$5
$22.73
none of the options
Type: Difficult
35.
Ms. Anderson has $60,000 income this year and $40,000 next year. The market
interest rate is 10% per year. Suppose Ms. Anderson consumes $80,000 this year.
What will be her consumption next year?
A.
B.
C.
D.
$18,000
$30,000
$60,000
$70,000
Type: Difficult
36.
The line that connects the maximum that one can consume this year (now, on the
horizontal axis) and the maximum one can consume next year:
A.
B.
C.
D.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
37.
Ms. Newcastle has $60,000 income this year and $40,000 next year. The market
interest rate is 10% per year. Suppose Ms. Newcastle wishes to consume $62,000
next year. What will be her consumption this year?
A.
B.
C.
D.
$19,000
$40,000
$60,000
$70,000
Type: Difficult
38.
Mr. Smith has an income of $40,000 this year and $60,000 next year. He can
invest in a project that costs $30,000 this year, which generates an income of
$36,000 next year. The market interest rate is 10%. What will be his consumption
next year if Mr. Smith invests in the project and consumes $50,000 this year?
A.
B.
C.
D.
$40,000
$52,000
$60,000
$62,000
Type: Difficult
39.
The board of directors is ultimately responsible for all large investment decisions.
TRUE
Type: Medium
40.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
41.
42.
43.
In large firms, there is usually a chief financial officer (CFO) who oversees both the
treasurer's and the controller's work.
TRUE
Type: Easy
44.
45.
46.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
47.
A corporation is a legal entity and has an existence of its own. Generally, large
businesses are organized as corporations.
Type: Easy
48.
Type: Medium
49.
Type: Medium
50.
Briefly explain the sequence of cash flows between financial markets and the firm.
Cash
Cash
Cash
Cash
is
is
is
is
Type: Medium
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
51.
Type: Medium
52.
Chief financial officer (CFO): Supervises the treasurer and the controller in a large
corporation. CFO is involved in corporate planning and financial policy.
Treasurer: Is responsible for obtaining funds and managing cash, banking
relationships and investor relationships.
Controller: Is responsible for accounting functions, payroll, and taxes.
Type: Medium
53.
Type: Medium
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
54.
Type: Medium
55.
Under perfect market conditions, everyone can borrow or lend at the same interest
rate. This implies that differences in consumption patterns can be adjusted in the
capital markets. Given this, all investors will agree that they are better off if the
firm maximizes their current wealth, i.e., maximizing shareholders' wealth.
Type: Difficult
56.
Briefly explain some of the institutional arrangements that ensure that managers
work toward increasing the value of a firm.
Type: Medium
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
57.
Briefly explain how individuals can adjust their current and future consumption
according to their preferences.
Type: Difficult
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2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.