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Corporate Finance 13th Edition By Stephen
Ross, Randolph Westerfield, Jeffrey Jaffe,
Bradford Jordan! RATED A+
1. The primary goal of financial management is to:
A) Maximize current profits
B) Maximize market share
C) Maximize the current value per share of the company's
existing stock
D) Minimize the company's tax liability
Answer: C
Rationale: The primary goal is shareholder wealth maximization,
which is best measured by the current market value of the
company’s stock.
2. Which of the following is a disadvantage of the corporate
form of organization?
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A) Unlimited liability for owners
B) Double taxation of profits
C) Difficulty in transferring ownership
D) Limited access to capital markets
Answer: B
Rationale: Corporate profits are taxed at the corporate level, and
dividends are taxed again at the shareholder level. Owners have
limited liability, and ownership is easily transferred.
3. The agency problem arises from:
A) Conflicts of interest between stockholders and bondholders
B) The separation of ownership and control in a corporation
C) The presence of government regulations
D) The high cost of issuing new securities
Answer: B
Rationale: Managers (agents) may not always act in the best
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interests of shareholders (principals) due to differing incentives and
information asymmetry.
4. Which of the following is a capital budgeting decision?
A) Deciding whether to issue bonds or stock to raise funds
B) Determining how much inventory to keep on hand
C) Deciding whether to purchase a new factory
D) Choosing a bank for a short-term loan
Answer: C
Rationale: Capital budgeting involves long-term investment
decisions in fixed assets. Financing decisions (bonds vs. stock) are
capital structure decisions.
5. A sole proprietorship is characterized by:
A) Limited liability for the owner
B) Unlimited liability for the owner
C) Easy transfer of ownership
D) Double taxation
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Answer: B
Rationale: The owner is personally liable for all business debts.
There is no double taxation, but ownership transfer is difficult.
6. The term “capital structure” refers to:
A) The mix of long-term debt and equity used to finance a firm’s
assets
B) The current assets of the firm
C) The firm’s investment in fixed assets
D) The firm’s dividend policy
Answer: A
Rationale: Capital structure is the proportion of debt and equity
that a firm uses to finance its operations and growth.
7. Which of the following is an example of a working capital
management decision?
A) Deciding whether to build a new plant
B) Deciding how much cash to hold in the treasury
Corporate Finance 13th Edition By Stephen
Ross, Randolph Westerfield, Jeffrey Jaffe,
Bradford Jordan! RATED A+
1. The primary goal of financial management is to:
A) Maximize current profits
B) Maximize market share
C) Maximize the current value per share of the company's
existing stock
D) Minimize the company's tax liability
Answer: C
Rationale: The primary goal is shareholder wealth maximization,
which is best measured by the current market value of the
company’s stock.
2. Which of the following is a disadvantage of the corporate
form of organization?
,Page 2 of 50
A) Unlimited liability for owners
B) Double taxation of profits
C) Difficulty in transferring ownership
D) Limited access to capital markets
Answer: B
Rationale: Corporate profits are taxed at the corporate level, and
dividends are taxed again at the shareholder level. Owners have
limited liability, and ownership is easily transferred.
3. The agency problem arises from:
A) Conflicts of interest between stockholders and bondholders
B) The separation of ownership and control in a corporation
C) The presence of government regulations
D) The high cost of issuing new securities
Answer: B
Rationale: Managers (agents) may not always act in the best
,Page 3 of 50
interests of shareholders (principals) due to differing incentives and
information asymmetry.
4. Which of the following is a capital budgeting decision?
A) Deciding whether to issue bonds or stock to raise funds
B) Determining how much inventory to keep on hand
C) Deciding whether to purchase a new factory
D) Choosing a bank for a short-term loan
Answer: C
Rationale: Capital budgeting involves long-term investment
decisions in fixed assets. Financing decisions (bonds vs. stock) are
capital structure decisions.
5. A sole proprietorship is characterized by:
A) Limited liability for the owner
B) Unlimited liability for the owner
C) Easy transfer of ownership
D) Double taxation
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Answer: B
Rationale: The owner is personally liable for all business debts.
There is no double taxation, but ownership transfer is difficult.
6. The term “capital structure” refers to:
A) The mix of long-term debt and equity used to finance a firm’s
assets
B) The current assets of the firm
C) The firm’s investment in fixed assets
D) The firm’s dividend policy
Answer: A
Rationale: Capital structure is the proportion of debt and equity
that a firm uses to finance its operations and growth.
7. Which of the following is an example of a working capital
management decision?
A) Deciding whether to build a new plant
B) Deciding how much cash to hold in the treasury
