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Chapter 01 - Introduction to Corporate Finance


Chapter 01
Introduction to Corporate Finance




True / False Questions


1. In capital budgeting, the financial manager tries to identify investment opportunities that
are worth more to the firm than they cost to acquire.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



2. The size, timing and risk of cash flows are important when evaluating a capital budgeting
decision.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



3. A capital expenditure project becomes desirable when the project is worth more to the firm
than the cost to acquire it.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions




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,Chapter 01 - Introduction to Corporate Finance




4. A capital expenditure project becomes desirable when the value of the cash flow generated
by the project exceeds the project's cost.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



5. Capital structure determines the least expensive sources of funds for the firm to borrow.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



6. Capital structure determines how much debt the firm should have in relation to its level of
equity.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



7. Capital structure determines the level of current assets that is required to maintain the firm's
operational level.
FALSE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions




1-2

,Chapter 01 - Introduction to Corporate Finance




8. Capital structure determines how much risk is associated with the future cash flows of a
project.
FALSE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



9. Determining when a supplier should be paid is a capital structure decision.
FALSE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



10. Establishing the accounts receivable policies is a capital structure decision.
FALSE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



11. Determining the amount of money to borrow to finance a 10-year project is a capital
structure decision.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions




1-3

, Chapter 01 - Introduction to Corporate Finance




12. Deciding if a new project should be accepted is a working capital decision.
FALSE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



13. When evaluating a project in which a firm might invest, the size but not the timing of the
cash flows is important.
FALSE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



14. Working capital management addresses the firm's appropriate level of inventory.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 The basic types of financial management decisions and the role of the financial manager.
Topic: 01-04 Financial Management Decisions



15. Common stockholders or limited partners can lose, at most, what they have invested in a
firm.
TRUE


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-02 The financial implications of the different forms of business organization.
Topic: 01-07 Partnership
Topic: 01-08 Corporation




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