TEST BANK For Fundamentals of Corporate Finance, 5th
Edition by Robert Parrino, David Kidwell, Verified Chapters 1 -
21, Complete Newest Version
When conducting a financial analysis of a firm, financial analysts:
a) frequently use accounting information.
b) assume the future will be a repeat of the past as reflected in the firm's accounting
reports.
c) rely solely on accounting information.
d) ignore accounting information but do use marketing information.
e) cannot use accounting information as it is historical. - ANSWER: a) frequently use
accounting information.
Corporate shareholders:
a) have basically no control over the actual corporation.
b) receive tax-free distributions since all profits are taxed at the corporate level.
c) have the ability to change the corporation's bylaws.
d) are proportionately liable for the firm's debts.
e) are protected from all financial losses. - ANSWER: c) have the ability to change the
corporation's bylaws.
Which one of the following statements about a limited partnership is correct?
a) Equity financing is easy to obtain and unlimited.
b) There must be at least one general partner.
c) All partners have their losses limited to their capital investment in the partnership.
d) Any partner can transfer his or her ownership interest without ending the
partnership.
e) All partners are treated equally. - ANSWER: b) There must be at least one general
partner.
Which one of the following forms of business organization offers liability protection
to some of its owners but not to all of its owners?
a) Sole proprietorship
b) Limited liability company
c) General partnership
d) Corporation
e) Limited partnership - ANSWER: e) Limited partnership
Which one of the following functions is generally a responsibility assigned to the
corporate treasurer?
a) Data processing
b) Cost accounting
c) Capital expenditures
d) Corporate taxes
e) Financial accounting - ANSWER: c) Capital expenditures
,Which one of the following is contained in the corporate bylaws?
a) State of incorporation
b) Intended life of the corporation
c) Business purpose of the corporation
d) Procedures for electing corporate directors
e) Number of authorized shares - ANSWER: d) Procedures for electing corporate
directors
Probably the least effective means of aligning management goals with shareholder
interests is:
a) the potential for a proxy fight by an unhappy segment of shareholders.
b) automatically increasing management salaries on an annual basis.
c) basing all management bonuses on performance goals.
d) holding management salaries steady while increasing stock option grants.
e) the threat of a takeover of the firm. - ANSWER: b) automatically increasing
management salaries on an annual basis.
What is the primary goal of financial management for a sole proprietorship?
a) Decrease long-term debt to reduce the risk to the owner
b) Minimize the tax impact on the proprietor
c) Minimize the reliance on fixed costs
d) Maximize net income given the current resources of the firm
e) Maximize the market value of the equity - ANSWER: e) Maximize the market value
of the equity
A corporation:
a) is prohibited from entering into contractual agreements.
b) is a legal entity separate from its owners.
c) has its existence regulated by the rules set forth in its charter.
d) is ultimately controlled by its board of directors.
e) has its identity defined by its bylaws. - ANSWER: b) is a legal entity separate from
its owners.
Maria is the sole proprietor of an antique store that is located in a rented
warehouse. The store has an outstanding loan with the local bank but no other debt
obligations. There are no specific assets pledged as security for the loan. Due to a
sudden and unexpected downturn in the economy, the store is unable to generate
sufficient funds to pay the loan payments due to the bank. Which of the following
options does the bank have to collect the money it is owed?
I. Sell the inventory and apply the proceeds to the debt
II. Sell the lighting fixtures from the building and apply the proceeds to the debt
III. Withdraw funds from Maria's personal account at the bank to pay the store's
debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt
a) I and II only
b) III only
, c) I, II, and III only
d) I only
e) I, III, and IV only - ANSWER: e) I, III, and IV only
Bama & Co. owes a total of $21,684 in taxes for this year. The taxable income is
$61,509. If the firm earns $100 more in income, it will owe an additional $56 in
taxes. What is the average tax rate on income of $71,609?
a) 28.00 percent
b) 30.33 percent
c) 33.33 percent
d) 35.00 percent
e) 35.29 percent - ANSWER: e) 35.29 percent
The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending
net fixed assets of $371,920. The depreciation expense for the year is $46,080 and
the interest expense is $11,460. What is the amount of the net capital spending?
a) -$22,360
b) -$4,780
c) $23,720
d) $58,340
e) $69,800 - ANSWER: e) $69,800
Morgantown Movers has net working capital of $11,300, current assets of $31,200,
equity of $53,400, and long-term debt of $11,600. What is the amount of the net
fixed assets?
a) $31,800
b) $32,900
c) $45,500
d) $48,100
e) $53,700 - ANSWER: e) $53,700
The market value of a firm's fixed assets:
a) must exceed the book value of those assets.
b) is more predictable than the book value of those assets.
c) in addition to the firm's net working capital reflects the true value of a firm.
d) is decreased annually by the depreciation expense.
e) is equal to the estimated current cash value of those assets. - ANSWER: e) is equal
to the estimated current cash value of those assets.
The Brown Jug has compiled the following information:
What is the operating cash flow for 2014?
a) $21,900
b) $26,700
c) $42,100
d) $48,300
e) $52,600 - ANSWER: c) $42,100
Edition by Robert Parrino, David Kidwell, Verified Chapters 1 -
21, Complete Newest Version
When conducting a financial analysis of a firm, financial analysts:
a) frequently use accounting information.
b) assume the future will be a repeat of the past as reflected in the firm's accounting
reports.
c) rely solely on accounting information.
d) ignore accounting information but do use marketing information.
e) cannot use accounting information as it is historical. - ANSWER: a) frequently use
accounting information.
Corporate shareholders:
a) have basically no control over the actual corporation.
b) receive tax-free distributions since all profits are taxed at the corporate level.
c) have the ability to change the corporation's bylaws.
d) are proportionately liable for the firm's debts.
e) are protected from all financial losses. - ANSWER: c) have the ability to change the
corporation's bylaws.
Which one of the following statements about a limited partnership is correct?
a) Equity financing is easy to obtain and unlimited.
b) There must be at least one general partner.
c) All partners have their losses limited to their capital investment in the partnership.
d) Any partner can transfer his or her ownership interest without ending the
partnership.
e) All partners are treated equally. - ANSWER: b) There must be at least one general
partner.
Which one of the following forms of business organization offers liability protection
to some of its owners but not to all of its owners?
a) Sole proprietorship
b) Limited liability company
c) General partnership
d) Corporation
e) Limited partnership - ANSWER: e) Limited partnership
Which one of the following functions is generally a responsibility assigned to the
corporate treasurer?
a) Data processing
b) Cost accounting
c) Capital expenditures
d) Corporate taxes
e) Financial accounting - ANSWER: c) Capital expenditures
,Which one of the following is contained in the corporate bylaws?
a) State of incorporation
b) Intended life of the corporation
c) Business purpose of the corporation
d) Procedures for electing corporate directors
e) Number of authorized shares - ANSWER: d) Procedures for electing corporate
directors
Probably the least effective means of aligning management goals with shareholder
interests is:
a) the potential for a proxy fight by an unhappy segment of shareholders.
b) automatically increasing management salaries on an annual basis.
c) basing all management bonuses on performance goals.
d) holding management salaries steady while increasing stock option grants.
e) the threat of a takeover of the firm. - ANSWER: b) automatically increasing
management salaries on an annual basis.
What is the primary goal of financial management for a sole proprietorship?
a) Decrease long-term debt to reduce the risk to the owner
b) Minimize the tax impact on the proprietor
c) Minimize the reliance on fixed costs
d) Maximize net income given the current resources of the firm
e) Maximize the market value of the equity - ANSWER: e) Maximize the market value
of the equity
A corporation:
a) is prohibited from entering into contractual agreements.
b) is a legal entity separate from its owners.
c) has its existence regulated by the rules set forth in its charter.
d) is ultimately controlled by its board of directors.
e) has its identity defined by its bylaws. - ANSWER: b) is a legal entity separate from
its owners.
Maria is the sole proprietor of an antique store that is located in a rented
warehouse. The store has an outstanding loan with the local bank but no other debt
obligations. There are no specific assets pledged as security for the loan. Due to a
sudden and unexpected downturn in the economy, the store is unable to generate
sufficient funds to pay the loan payments due to the bank. Which of the following
options does the bank have to collect the money it is owed?
I. Sell the inventory and apply the proceeds to the debt
II. Sell the lighting fixtures from the building and apply the proceeds to the debt
III. Withdraw funds from Maria's personal account at the bank to pay the store's
debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt
a) I and II only
b) III only
, c) I, II, and III only
d) I only
e) I, III, and IV only - ANSWER: e) I, III, and IV only
Bama & Co. owes a total of $21,684 in taxes for this year. The taxable income is
$61,509. If the firm earns $100 more in income, it will owe an additional $56 in
taxes. What is the average tax rate on income of $71,609?
a) 28.00 percent
b) 30.33 percent
c) 33.33 percent
d) 35.00 percent
e) 35.29 percent - ANSWER: e) 35.29 percent
The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending
net fixed assets of $371,920. The depreciation expense for the year is $46,080 and
the interest expense is $11,460. What is the amount of the net capital spending?
a) -$22,360
b) -$4,780
c) $23,720
d) $58,340
e) $69,800 - ANSWER: e) $69,800
Morgantown Movers has net working capital of $11,300, current assets of $31,200,
equity of $53,400, and long-term debt of $11,600. What is the amount of the net
fixed assets?
a) $31,800
b) $32,900
c) $45,500
d) $48,100
e) $53,700 - ANSWER: e) $53,700
The market value of a firm's fixed assets:
a) must exceed the book value of those assets.
b) is more predictable than the book value of those assets.
c) in addition to the firm's net working capital reflects the true value of a firm.
d) is decreased annually by the depreciation expense.
e) is equal to the estimated current cash value of those assets. - ANSWER: e) is equal
to the estimated current cash value of those assets.
The Brown Jug has compiled the following information:
What is the operating cash flow for 2014?
a) $21,900
b) $26,700
c) $42,100
d) $48,300
e) $52,600 - ANSWER: c) $42,100
