Corporate Finance MCQ's || with Confirmed Answers.
The liability of sole proprietors is limited to the amount of their investment in the company.
correct answers FALSE - The liability of sole proprietors is unlimited
General partners have limited personal liability for business debts in a limited partnership.
correct answers FALSE - General partners have unlimited personal liability in a limited
partnership.
The liability of sole proprietors is limited to the amount of their investment in the company.
correct answers FALSE - The liability of sole proprietors is unlimited
The separation of ownership and management is one distinctive feature of corporations. correct
answers TRUE
A major disadvantage of partnerships is that they have double taxation of profits. correct answers
FALSE - The owner and business are not separately taxed in partnerships.
Financial assets have value because they are claims on the firm's real assets and the cash that
those assets will produce. correct answers TRUE
Capital budgeting decisions are used to determine how to raise the cash necessary for
investments. correct answers FALSE - Capital Budgeting (investment) decision to invest in
tangible and
intangible assets.
A successful investment is one that increases the value of the firm. correct answers TRUE
Facebook's decision to spend $700 million to acquire Instagram is an investment decision.
correct answers TRUE
Boards of directors are generally appointed by the firm's senior officers. correct answers FALSE
- Boards of directors appoints the firm's senior officers.
Financial analysts are involved in monitoring the risk associated with investment projects
and financing decisions. correct answers TRUE
The primary goal of any company should be to maximize current period profits. correct answers
FALSE - The primary goal is to maximize the wealth of shareholders.
Maximizing profits is the same as maximizing the value of the firm. correct answers FALSE -
maximizing the value of the firm = maximizing the share price
Sole proprietorships face the same agency problems as those associated with corporations.
correct answers FALSE - No separation of ownership and control in sole proprietorship
,Real assets can be intangible assets. correct answers TRUE
Making good investment and financing decisions is the chief task of the financial manager.
correct answers TRUE
If a project's value is less than its required investment, then the project is financially
attractive. correct answers FALSE - If a project's value is greater than its required investment,
then the project
is financially attractive.
GlaxoSmithKline's spending of $3.6 billion on research and development of new drugs is
a capital budgeting decision but not a financing decision. correct answers TRUE
Deltas's issuance of a $1.0 billion bond is a financing decision. correct answers TRUE
An IOU ("I owe you") from your brother-in-law is a financial asset. correct answers TRUE
The separation of ownership and management is one distinctive feature of both
corporations and sole proprietors. correct answers FALSE - only corporations
Shareholders welcome higher short-term profits even when they damage long-term profits.
correct answers FALSE - Damage in the long run decline the value of the firm. It negatively
affects
the shareholder wealth maximization.
A well-designed compensation package can help a firm achieve its goal of maximizing
market value. correct answers TRUE
While control of large public companies in the United States is exercised through the board
of directors and pressure from the stock market, in many other countries the stock market is
less important and control shifts to major stockholders, typically banks and other companies.
correct answers TRUE
Investors are responsible for deciding whether to reinvest in the firm's operations or take
the profits as a distribution. correct answers FALSE - Financial managers are responsible for
deciding whether to reinvest in
the firm's operations or take the profits as a distribution.
Established firms can create value by developing long-term relationships and maintaining
a good reputation. correct answers TRUE
Only small companies can go through financial markets to obtain financing. correct answers
FALSE - Large companies (issuing debt securities and/or stocks)
The reinvestment of cash back into the firm's operations is an example of a flow of savings
to investment. correct answers TRUE
, Smaller businesses are especially dependent upon internally generated funds. correct answers
TRUE
An individual can save and invest in a corporation by lending money to it or by purchasing
additional shares. correct answers TRUE
Previously issued securities are traded among investors in the secondary markets. correct
answers TRUE
Only the IPOs for large corporations are sold in primary markets. correct answers FALSE -
Issuing debt securities in addition to IPO in primary markets.
Hedge fund managers, unlike mutual fund managers, do not receive fund-performancerelated
fees. correct answers FALSE - Hedge fund managers receive fund-performance-related fees.
The markets for long-term debt and equity are called capital markets. correct answers TRUE
The stocks of major companies are traded in many markets throughout the world on a
continuous or near-continuous basis. correct answers TRUE
The market for derivatives is also a source of financing for corporations. correct answers FALSE
- It only helps financial managers to manage the business risk.
In the United States, banks are the most important source of long-term financing for
corporations. correct answers FALSE - Insurance companies are more important than banks for
the long-term
financing of business.
A financial intermediary invests in financial assets rather than real assets. correct answers TRUE
The key to the banks' ability to make illiquid loans is their ability to pool liquid deposits
from thousands of depositors. correct answers TRUE
The cost of capital is the interest rate paid on a loan from a bank or some other financial
institution. correct answers FALSE - Cost of capital is the minimum acceptable rate of return on
capital
investment.
Like public companies, private companies can also use their stock price as a measure of
performance. correct answers FALSE - Information regarding the stock value of a private
company is not publicly
listed.
The opportunity cost of capital is the expected rate of return that shareholders can obtain
The liability of sole proprietors is limited to the amount of their investment in the company.
correct answers FALSE - The liability of sole proprietors is unlimited
General partners have limited personal liability for business debts in a limited partnership.
correct answers FALSE - General partners have unlimited personal liability in a limited
partnership.
The liability of sole proprietors is limited to the amount of their investment in the company.
correct answers FALSE - The liability of sole proprietors is unlimited
The separation of ownership and management is one distinctive feature of corporations. correct
answers TRUE
A major disadvantage of partnerships is that they have double taxation of profits. correct answers
FALSE - The owner and business are not separately taxed in partnerships.
Financial assets have value because they are claims on the firm's real assets and the cash that
those assets will produce. correct answers TRUE
Capital budgeting decisions are used to determine how to raise the cash necessary for
investments. correct answers FALSE - Capital Budgeting (investment) decision to invest in
tangible and
intangible assets.
A successful investment is one that increases the value of the firm. correct answers TRUE
Facebook's decision to spend $700 million to acquire Instagram is an investment decision.
correct answers TRUE
Boards of directors are generally appointed by the firm's senior officers. correct answers FALSE
- Boards of directors appoints the firm's senior officers.
Financial analysts are involved in monitoring the risk associated with investment projects
and financing decisions. correct answers TRUE
The primary goal of any company should be to maximize current period profits. correct answers
FALSE - The primary goal is to maximize the wealth of shareholders.
Maximizing profits is the same as maximizing the value of the firm. correct answers FALSE -
maximizing the value of the firm = maximizing the share price
Sole proprietorships face the same agency problems as those associated with corporations.
correct answers FALSE - No separation of ownership and control in sole proprietorship
,Real assets can be intangible assets. correct answers TRUE
Making good investment and financing decisions is the chief task of the financial manager.
correct answers TRUE
If a project's value is less than its required investment, then the project is financially
attractive. correct answers FALSE - If a project's value is greater than its required investment,
then the project
is financially attractive.
GlaxoSmithKline's spending of $3.6 billion on research and development of new drugs is
a capital budgeting decision but not a financing decision. correct answers TRUE
Deltas's issuance of a $1.0 billion bond is a financing decision. correct answers TRUE
An IOU ("I owe you") from your brother-in-law is a financial asset. correct answers TRUE
The separation of ownership and management is one distinctive feature of both
corporations and sole proprietors. correct answers FALSE - only corporations
Shareholders welcome higher short-term profits even when they damage long-term profits.
correct answers FALSE - Damage in the long run decline the value of the firm. It negatively
affects
the shareholder wealth maximization.
A well-designed compensation package can help a firm achieve its goal of maximizing
market value. correct answers TRUE
While control of large public companies in the United States is exercised through the board
of directors and pressure from the stock market, in many other countries the stock market is
less important and control shifts to major stockholders, typically banks and other companies.
correct answers TRUE
Investors are responsible for deciding whether to reinvest in the firm's operations or take
the profits as a distribution. correct answers FALSE - Financial managers are responsible for
deciding whether to reinvest in
the firm's operations or take the profits as a distribution.
Established firms can create value by developing long-term relationships and maintaining
a good reputation. correct answers TRUE
Only small companies can go through financial markets to obtain financing. correct answers
FALSE - Large companies (issuing debt securities and/or stocks)
The reinvestment of cash back into the firm's operations is an example of a flow of savings
to investment. correct answers TRUE
, Smaller businesses are especially dependent upon internally generated funds. correct answers
TRUE
An individual can save and invest in a corporation by lending money to it or by purchasing
additional shares. correct answers TRUE
Previously issued securities are traded among investors in the secondary markets. correct
answers TRUE
Only the IPOs for large corporations are sold in primary markets. correct answers FALSE -
Issuing debt securities in addition to IPO in primary markets.
Hedge fund managers, unlike mutual fund managers, do not receive fund-performancerelated
fees. correct answers FALSE - Hedge fund managers receive fund-performance-related fees.
The markets for long-term debt and equity are called capital markets. correct answers TRUE
The stocks of major companies are traded in many markets throughout the world on a
continuous or near-continuous basis. correct answers TRUE
The market for derivatives is also a source of financing for corporations. correct answers FALSE
- It only helps financial managers to manage the business risk.
In the United States, banks are the most important source of long-term financing for
corporations. correct answers FALSE - Insurance companies are more important than banks for
the long-term
financing of business.
A financial intermediary invests in financial assets rather than real assets. correct answers TRUE
The key to the banks' ability to make illiquid loans is their ability to pool liquid deposits
from thousands of depositors. correct answers TRUE
The cost of capital is the interest rate paid on a loan from a bank or some other financial
institution. correct answers FALSE - Cost of capital is the minimum acceptable rate of return on
capital
investment.
Like public companies, private companies can also use their stock price as a measure of
performance. correct answers FALSE - Information regarding the stock value of a private
company is not publicly
listed.
The opportunity cost of capital is the expected rate of return that shareholders can obtain
