FIN 3403 PRINCIPLES OF BUSINESS FINANCE MANAGEMENT

FIN 3403 PRINCIPLES OF BUSINESS FINANCE TEST BANK WITH ALL CHAPTERS COVERED WITH CORRECT ANSWERS. 1.1 Finance: An Overview 1) Which of the following statements best represents what finance is about? A) How political, social, and economic forces affect corporations B) Maximizing profits C) The study of how people and businesses make investment decisions and how to finance those decisions D) Reducing risk 2) From a financial point of view, a company that decides to develop new product is making A) a financing decision. B) an investment decision. C) a capital structure decision. D) a cash flow decision. 3) Working capital management refers to A) long-term financing decisions. B) the management of cash flows. C) investing in product development. D) capital structure. 4) Finance managers need to interact constantly with A) marketing managers. B) accounting staff. C) management information systems staff. D) all of the above. 5) The personal decision to obtain a college degree in business is primarily a(n) decision. A) social B) investment C) ethical D) financing 6) The area of finance that deals with long-term investment decisions is known as A) capital structure. B) working capital management. C) financial strategy. D) capital budgeting. 7) Capital structure refers to the financing of long-term investments. Answer: TRUE 8) Business financial decisions are fundamentally different from personal financial decisions. Answer: FALSE 9) What are the three basic questions addressed by the study of investments? Answer: 1. What investments should the firm undertake? 2. How should the firm fund these investments? 3. How can the firm best manage cash flows in its day-to-day operations? 1.2 Three Types of Business 1) Which of the following is NOT an advantage of the sole proprietorship? A) Limited liability B) No time limit imposed on its existence C) No legal requirements for starting the business D) None of the above 2) What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form? A) Sole proprietorships are subject to double taxation of profits. B) The cost of formation. C) Inadequate profit sharing. D) Owners have unlimited liability. 3) Which of the following is NOT true for limited partnerships? A) Limited partners can only manage the business. B) One general partner must exist who has unlimited liability. C) Only the name of general partners can appear in the name of the firm. D) Limited partners may sell their interest in the company. 4) The true owners of the corporation are the A) holders of debt issues of the firm. B) preferred stockholders. C) board of directors of the firm. D) common stockholders. 5) In terms of organizational costs, which of the following sequences is generally correct, moving from lowest to highest cost? A) General partnership, sole proprietorship, limited partnership, corporation B) Sole proprietorship, general partnership, limited partnership, corporation C) Corporation, limited partnership, general partnership, sole proprietorship D) Sole proprietorship, general partnership, corporation, limited partnership 6) Assume that you are starting a business. Further assume that the business is expected to grow very quickly and a great deal of capital will be needed soon. What type of business organization would you choose? A) Corporation B) General Partnership C) Sole proprietorship D) Limited partnership 7) Which one of the following categories of owners enjoys limited liability? A) General partners in a limited partnership or limited liability company B) Shareholders (common stock) of a corporation C) Sole proprietors D) Both A and B 8) Which of the following is a characteristic of a limited partnership? A) It allows one or more partners to have limited liability. B) It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply. C) It prohibits the limited partners from participating in the management of the partnership. D) All of the above. 9) Which of the following forms of organization blends elements of partnerships and corporations? A) D.B.A.'s B) Sole proprietorships C) Limited liability companies (LLC's) D) General partnership 10) Which of the following types of business forms is least risky to investors? A) Sole proprietorship B) Limited partnership C) General partnership D) A public corporation 11) Which forms of organization are free of initial legal requirements? A) Sole proprietorship B) General partnership C) Corporation D) Both A and B 12) For these types of organization, no distinction is made between business and personal assets. A) Sole proprietorship B) General partnership C) Limited partnership D) Both A and B 13) Which of the following is a significant disadvantage of a general partnership? A) The cost of forming it is high. B) Each partner is fully responsible for the liabilities incurred by the partnership. C) There is a risk associated with the industry in which it operates. D) Forming the business is very complex. 14) Which of the following forms of business organization is the dominant economic force in the United States? A) The sole proprietorship B) The general partnership C) The limited partnership D) The joint venture E) The corporation 15) A limited partner is liable A) for only his or her own share of the partnership's debts. B) for his or her own share of the partnership's debts and contingently liable for the other partners shares. C) only up to the amount invested by that partner. D) for none of the partnership's debts. 16) A corporation is owned by A) shareholders and partners. B) the shareholders who hold the company's stock. C) the Board of Directors. D) its Chief Executive Officer. 17) The major sources of financing for corporations are A) partners contributions. B) exchanges between shareholders. C) interest and dividends. D) debt and equity. 18) The term stockholder is equivalent to A) general partner. B) creditor. C) shareholder. D) stakeholder. 19) The sole proprietorship is the same as the individual for liability purposes. Answer: TRUE 20) In a general partnership, all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm. Answer: TRUE 21) There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership. Answer: FALSE 22) The owners of a corporation are liable for the corporation's obligations up to the amount of their investment. Answer: TRUE 23) General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership. Answer: FALSE 24) Ultimate control in a corporation is vested in the board of directors. Answer: FALSE 25) Owners must register and pay yearly fees to their State of residence when establishing a sole proprietorship. Answer: FALSE 26) Limited partners may actively manage the business. Answer: FALSE 27) The life of a corporation is not dependent upon the status of the investors. Answer: TRUE 28) A sole proprietorship is the most desirable business form in all circumstances. Answer: FALSE 29) In a sole proprietorship, the owner is personally responsible without limitation for the liabilities incurred. Answer: TRUE 30) In a limited partnership, at least one general partner must remain in the association; the privilege of limited liability still applies to this partner. Answer: FALSE 31) In a general partnership, each partner is liable for the partnership's obligations only up to a percentage of the obligation equal to that partner's percentage of ownership of the partnership. Answer: FALSE 1.3 The Goal of the Financial Manager 1) Maximization of shareholder wealth as a goal is superior to accounting profit maximization because A) it considers the time value of the money. B) following the shareholder wealth maximization goal will ensure high stock prices. C) accounting profits are not the same as cash flows. D) A and C. 2) Which of the following best describes the goal of the firm? A) The maximization of the total market value of the firm's common stock B) Profit maximization C) Risk minimization D) None of the above 3) Profit maximization does not adequately describe the goal of the firm because A) profit maximization does not require the consideration of risk. B) profit maximization ignores the timing of a project's return. C) maximization of dividend payout ratio is a better description of the goal of the firm. D) A and B. 4) Which of the following goals of the firm is equivalent to the maximization of shareholder wealth? A) Profit maximization B) Risk minimization C) Maximization of the total market value of the firm's common stock D) None of the above 5) If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should A) positively affect profits. B) increase the market value of the firm's common stock. C) either increase or have no effect on the value of the firm's com