Test Bank for Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, J. Ari Pandes, Thomas Holloway Chapter 1-26

Test Bank for
Fundamentals Of Corporate Finance 11ce Stephen A. Ross, Randolph W. Westerfield, Bradford
D. Jordan, J. Ari Pandes, Thomas Holloway
Chapter 1-26 Answers are at the Eand of Each Chapter

Chapter 1

Student name:__________
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) The size, timing and risk of cash flows are important when evaluating a capital budgeting
decision.
⊚ true
⊚ false

2) A capital expenditure project becomes desirable when the project is worth more to the firm
than the cost to acquire it.
⊚ true
⊚ false

3) A capital expenditure project becomes desirable when the present value of the cash flow
generated by the project exceeds the project's present value of cost.
⊚ true
⊚ false

4) Optimal capital structure determines the least expensive sources of funds for the firm to
borrow.
⊚ true
⊚ false

5) Optimal capital structure determines how much debt the firm should have in relation to its
level of equity.
⊚ true
⊚ false

6) Capital structure determines the level of current assets that is required to maintain the firm's
operations.
⊚ true
⊚ false

,7) Capital structure determines how much risk is associated with the future cash flows of a
project.
⊚ true
⊚ false

8) Determining when a supplier should be paid is a capital structure decision.
⊚ true
⊚ false

9) Establishing the accounts receivable policies is a capital structure decision.
⊚ true
⊚ false

10) Determining the amount of money to borrow to finance a 10-year project is a capital
structure decision.
⊚ true
⊚ false

11) Deciding if a new project should be accepted is a working capital decision.
⊚ true
⊚ false

12) When evaluating a project in which a firm might invest, the size but not the timing of the
cash flows is important.
⊚ true
⊚ false

13) Working capital management addresses the firm's appropriate level of inventory.
⊚ true
⊚ false

14) Common stockholders or limited partners can lose, at most, what they have invested in a
firm.
⊚ true
⊚ false

15) Partnership income is treated as personal income of the partners.
⊚ true
⊚ false

,16) A limited partner can lose his or her investment in the partnership.
⊚ true
⊚ false

17) Maximization of the current earnings of the firm is the main goal of the financial manager.
⊚ true
⊚ false

18) The primary goal of a financial manager should be to maximize the value of shares issued to
new investors in the corporation.
⊚ true
⊚ false

19) The primary goal of financial management is to minimize the corporate tax liability.
⊚ true
⊚ false

20) Control of the firm ultimately rests with board of directors. They elect the management, who,
in turn, lead the company.
⊚ true
⊚ false

21) The goal of financial managers does not imply that illegal or unethical actions should be
taken in the hope of increasing the value of the firm.
⊚ true
⊚ false

22) Unethical behaviour does not impact volatility of the stock markets.
⊚ true
⊚ false

23) The board of directors has the power to act on behalf of the shareholders to hire and fire the
operating management of the firm. In a legal sense, the directors are "principals" and the
shareholders are "agents".
⊚ true
⊚ false

24) When owners are managers (such as in a sole proprietorship), a firm will have agency costs.
⊚ true
⊚ false

, 25) IBEC Inc. of Toronto spends approximately $2 million annually to hire auditors to go over
the firm's financial statements. This is an example of an indirect agency cost.
⊚ true
⊚ false

26) Control of the firm ultimately rests with shareholders. They elect the board of directors, who
then hire and fire management.
⊚ true
⊚ false

27) Stakeholder theory suggests that employees, customers, suppliers, and various levels of
government all have financial interests in the firm.
⊚ true
⊚ false

28) Corporate social responsibility (CSR) is also referred to as corporate sustainability.
⊚ true
⊚ false

29) Corporate social responsibility (CSR) is also referred to as the triple bottom line.
⊚ true
⊚ false

30) The triple bottom line is defined as a company's commitment to operate in an economically,
socially and environmentally sustainable manner.
⊚ true
⊚ false

31) There is a significant relationship between CSR activity and corporate performance.
⊚ true
⊚ false

32) Research results on CSR activity and corporate performance has been mixed.
⊚ true
⊚ false