Corporate Finance Test #1 Questions and
Answers | Accurate with 100 correct
questions and answers ranked A+
1. The corporate document that sets forth the business purpose of a firm is the:
a. indenture contract.
b. state tax agreement.
c. corporate bylaws.
d. corporate charter.
e. articles of incorporation.
2. The rules by which corporations govern themselves are called:
a. indenture provisions.
b. indemnity provisions.
c. charter agreements.
d. bylaws.
e. articles of incorporation.
3. A business entity operated and taxed like a partnership, but with limited liability for the owners, is
called a:
a. limited liability company.
b. general partnership.
c. limited proprietorship.
d. sole proprietorship.
e. corporation.
4. The primary goal of financial management is to:
a. maximize current dividends per share of the existing stock.
b. maximize the current value per share of the existing stock.
c. avoid financial distress.
d. minimize operational costs and maximize firm efficiency.
e. maintain steady growth in both sales and net earnings.
5. A conflict of interest between the stockholders and management of a firm is called:
a. stockholders’ liability.
b. corporate breakdown.
c. the agency problem.
d. corporate activism.
e. legal liability.
6. Agency costs refer to:
a. the total dividends paid to stockholders over the lifetime of a firm.
b. the costs that result from default and bankruptcy of a firm.
c. corporate income subject to double taxation.
d. the costs of any conflicts of interest between stockholders and management.
e. the total interest paid to creditors over the lifetime of the firm.
16. A stakeholder is:
a. any person or entity that owns shares of stock of a corporation.
b. any person or entity that has voting rights based on stock ownership of a corporation.
, c. a person who initially started a firm and currently has management control over the cash flows of the
firm due to his/her current ownership of company stock.
d. a creditor to whom the firm currently owes money and who consequently has a claim on the cash flows
of the firm.
e. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows
of the firm.
7. The original sale of securities by governments and corporations to the general public occurs in the:
a. primary market.
b. secondary market.
c. private placement market.
d. proprietary market.
e. liquidation market.
8. When one shareholder sells stock directly to another the transaction is said to occur in the:
a. dealer market.
b. primary market.
c. secondary market.
d. OTC market.
e. NASDAQ market.
9. A market where dealers buy and sell securities for themselves, at their own risk, is called a(n):
a. primary market.
b. secondary market.
c. dealer market.
d. auction market.
e. liquidation market.
10. A market where trading takes place directly between buyers and sellers is called a(n):
a. primary market.
b. OTC market.
c. dealer market.
d. auction market.
e. liquidation market.
11. Which of the following questions are addressed by financial managers?
I. How long will it take to produce a product?
II. How long should customers be given to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm build a new factory?
a. I and IV only
b. II and III only
c. I, II, and III only
d. II, III, and IV only
e. I, II, III, and IV
12. The treasurer and the controller of a corporation generally report to the:
a. board of directors.
b. chairman of the board.
c. chief executive officer.
d. president.
e. vice president of finance.
23. Which one of the following statements is correct concerning the organizational
structure of a corporation?
a. The vice president of finance reports to the chairman of the board.
, b. The chief executive officer reports to the board of directors.
c. The controller reports to the president.
d. The treasurer reports to the chief executive officer.
e. The chief operations officer reports to the vice president of production.
24. Which one of the following is a capital budgeting decision?
a. determining how much debt should be borrowed from a particular lender
b. deciding whether or not to open a new store
c. deciding when to repay a long-term debt
d. determining how much inventory to keep on hand
e. determining how much money should be kept in the checking account
25. When considering a capital budgeting project the financial manager should consider:
a. only the size of the project.
b. only the timing of the project cash flows.
c. only the risk of the project cash flows.
d. only the size and timing of the project cash flows.
e. the size, timing, and risk of the project cash flows.
26. Capital structure decisions include consideration of the:
I. amount of long-term debt to assume.
II. cost of acquiring funds.
III. current assets and liabilities.
IV. net working capital.
a. I and II only
b. II and III only
c. III and IV only
d. I, II, and IV only
e. I, III, and IV only
27. The decision of which lender to use and which type of long-term loan is best for a
project is part of:
a. working capital management.
b. the net working capital decision.
c. capital budgeting.
d. a controller’s duties.
e. the capital structure decision.
28. Working capital management includes decisions concerning which of the following?
I. accounts payable
II. long-term debt
III. accounts receivable
IV. inventory
a. I and II only
b. I and III only
c. II and IV only
d. I, II, and III only
e. I, III, and IV only
29. Working capital management:
a. ensures that sufficient equipment is available to produce the amount of product desired
on a daily basis.
b. ensures that long-term debt is acquired at the lowest possible cost.
c. ensures that dividends are paid to all stockholders on an annual basis.
d. balances the amount of company debt to the amount of available equity.
e. is concerned with having sufficient funds to operate the business on a daily basis.
Answers | Accurate with 100 correct
questions and answers ranked A+
1. The corporate document that sets forth the business purpose of a firm is the:
a. indenture contract.
b. state tax agreement.
c. corporate bylaws.
d. corporate charter.
e. articles of incorporation.
2. The rules by which corporations govern themselves are called:
a. indenture provisions.
b. indemnity provisions.
c. charter agreements.
d. bylaws.
e. articles of incorporation.
3. A business entity operated and taxed like a partnership, but with limited liability for the owners, is
called a:
a. limited liability company.
b. general partnership.
c. limited proprietorship.
d. sole proprietorship.
e. corporation.
4. The primary goal of financial management is to:
a. maximize current dividends per share of the existing stock.
b. maximize the current value per share of the existing stock.
c. avoid financial distress.
d. minimize operational costs and maximize firm efficiency.
e. maintain steady growth in both sales and net earnings.
5. A conflict of interest between the stockholders and management of a firm is called:
a. stockholders’ liability.
b. corporate breakdown.
c. the agency problem.
d. corporate activism.
e. legal liability.
6. Agency costs refer to:
a. the total dividends paid to stockholders over the lifetime of a firm.
b. the costs that result from default and bankruptcy of a firm.
c. corporate income subject to double taxation.
d. the costs of any conflicts of interest between stockholders and management.
e. the total interest paid to creditors over the lifetime of the firm.
16. A stakeholder is:
a. any person or entity that owns shares of stock of a corporation.
b. any person or entity that has voting rights based on stock ownership of a corporation.
, c. a person who initially started a firm and currently has management control over the cash flows of the
firm due to his/her current ownership of company stock.
d. a creditor to whom the firm currently owes money and who consequently has a claim on the cash flows
of the firm.
e. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows
of the firm.
7. The original sale of securities by governments and corporations to the general public occurs in the:
a. primary market.
b. secondary market.
c. private placement market.
d. proprietary market.
e. liquidation market.
8. When one shareholder sells stock directly to another the transaction is said to occur in the:
a. dealer market.
b. primary market.
c. secondary market.
d. OTC market.
e. NASDAQ market.
9. A market where dealers buy and sell securities for themselves, at their own risk, is called a(n):
a. primary market.
b. secondary market.
c. dealer market.
d. auction market.
e. liquidation market.
10. A market where trading takes place directly between buyers and sellers is called a(n):
a. primary market.
b. OTC market.
c. dealer market.
d. auction market.
e. liquidation market.
11. Which of the following questions are addressed by financial managers?
I. How long will it take to produce a product?
II. How long should customers be given to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm build a new factory?
a. I and IV only
b. II and III only
c. I, II, and III only
d. II, III, and IV only
e. I, II, III, and IV
12. The treasurer and the controller of a corporation generally report to the:
a. board of directors.
b. chairman of the board.
c. chief executive officer.
d. president.
e. vice president of finance.
23. Which one of the following statements is correct concerning the organizational
structure of a corporation?
a. The vice president of finance reports to the chairman of the board.
, b. The chief executive officer reports to the board of directors.
c. The controller reports to the president.
d. The treasurer reports to the chief executive officer.
e. The chief operations officer reports to the vice president of production.
24. Which one of the following is a capital budgeting decision?
a. determining how much debt should be borrowed from a particular lender
b. deciding whether or not to open a new store
c. deciding when to repay a long-term debt
d. determining how much inventory to keep on hand
e. determining how much money should be kept in the checking account
25. When considering a capital budgeting project the financial manager should consider:
a. only the size of the project.
b. only the timing of the project cash flows.
c. only the risk of the project cash flows.
d. only the size and timing of the project cash flows.
e. the size, timing, and risk of the project cash flows.
26. Capital structure decisions include consideration of the:
I. amount of long-term debt to assume.
II. cost of acquiring funds.
III. current assets and liabilities.
IV. net working capital.
a. I and II only
b. II and III only
c. III and IV only
d. I, II, and IV only
e. I, III, and IV only
27. The decision of which lender to use and which type of long-term loan is best for a
project is part of:
a. working capital management.
b. the net working capital decision.
c. capital budgeting.
d. a controller’s duties.
e. the capital structure decision.
28. Working capital management includes decisions concerning which of the following?
I. accounts payable
II. long-term debt
III. accounts receivable
IV. inventory
a. I and II only
b. I and III only
c. II and IV only
d. I, II, and III only
e. I, III, and IV only
29. Working capital management:
a. ensures that sufficient equipment is available to produce the amount of product desired
on a daily basis.
b. ensures that long-term debt is acquired at the lowest possible cost.
c. ensures that dividends are paid to all stockholders on an annual basis.
d. balances the amount of company debt to the amount of available equity.
e. is concerned with having sufficient funds to operate the business on a daily basis.
