CHAPTER 1
AN OVERVIEW OF FINANCIAL MANAGEMENT
(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)
Test Bank for Fundamentals of Financial
Management, 13 Edition by Brigham
Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F
statements are used in multiple-choice questions. See the preface for information on the AACSB
letter indicators (F, M, etc.) on the subject lines.
Multiple Choice: True/False
(1-1) Role of finance FM Answer: a EASY
i. In most corporations, the CFO ranks under the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: b EASY
ii. The Chairman of the Board must also be the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: a EASY
iii. The board of directors is the highest ranking body in a corporation, and the chairman of the board
is the highest ranking individual. The CEO generally works under the board and its chairman, and
the board generally has the authority to remove the CEO under certain conditions. The CEO,
however, cannot remove the board, but he or she can endeavor to have the board voted out and a
Chapter 1: Overview True/False Page 1
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, new board voted in should a conflict arise. It is possible for a person to simultaneously serve as
CEO and chairman of the board, though many corporate control experts believe it is bad to vest
both offices in the same person.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
iv. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
(1-3) Forms of organization FM Answer: b EASY
v. A disadvantage of the corporate form of organization is that corporate stockholders are more
exposed to personal liabilities in the event of bankruptcy than are investors in a typical
partnership.
a. True
b. False
Chapter 1: Overview True/False Page 2
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
,(1-3) Forms of organization FM Answer: b EASY
vi. An advantage of the corporate form of organization is that corporations are generally less highly
regulated than proprietorships and partnerships.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
vii. Some partners in a partnership may have different rights, privileges, and responsibilities than
other partners.
a. True
b. False
(1-3) Forms of organization FM Answer: b EASY
viii. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
ix. It is generally harder to transfer one’s ownership interest in a partnership than in a corporation.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
Chapter 1: Overview True/False Page 3
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, x. One danger of starting a proprietorship is that you may be exposed to personal liability if the
business goes bankrupt. This problem would be avoided if you formed a corporation to operate
the business.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
xi. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax.
However, its stockholders will have to pay personal taxes on the firm's net income.
a. True
b. False
(1-3) Forms of organization FM Answer: b EASY
xii. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid
all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the
formation of small businesses.
a. True
b. False
Chapter 1: Overview True/False Page 4
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
AN OVERVIEW OF FINANCIAL MANAGEMENT
(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)
Test Bank for Fundamentals of Financial
Management, 13 Edition by Brigham
Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F
statements are used in multiple-choice questions. See the preface for information on the AACSB
letter indicators (F, M, etc.) on the subject lines.
Multiple Choice: True/False
(1-1) Role of finance FM Answer: a EASY
i. In most corporations, the CFO ranks under the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: b EASY
ii. The Chairman of the Board must also be the CEO.
a. True
b. False
(1-1) Role of finance FM Answer: a EASY
iii. The board of directors is the highest ranking body in a corporation, and the chairman of the board
is the highest ranking individual. The CEO generally works under the board and its chairman, and
the board generally has the authority to remove the CEO under certain conditions. The CEO,
however, cannot remove the board, but he or she can endeavor to have the board voted out and a
Chapter 1: Overview True/False Page 1
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, new board voted in should a conflict arise. It is possible for a person to simultaneously serve as
CEO and chairman of the board, though many corporate control experts believe it is bad to vest
both offices in the same person.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
iv. Partnerships and proprietorships generally have a tax advantage over corporations.
a. True
b. False
(1-3) Forms of organization FM Answer: b EASY
v. A disadvantage of the corporate form of organization is that corporate stockholders are more
exposed to personal liabilities in the event of bankruptcy than are investors in a typical
partnership.
a. True
b. False
Chapter 1: Overview True/False Page 2
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
,(1-3) Forms of organization FM Answer: b EASY
vi. An advantage of the corporate form of organization is that corporations are generally less highly
regulated than proprietorships and partnerships.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
vii. Some partners in a partnership may have different rights, privileges, and responsibilities than
other partners.
a. True
b. False
(1-3) Forms of organization FM Answer: b EASY
viii. One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
ix. It is generally harder to transfer one’s ownership interest in a partnership than in a corporation.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
Chapter 1: Overview True/False Page 3
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, x. One danger of starting a proprietorship is that you may be exposed to personal liability if the
business goes bankrupt. This problem would be avoided if you formed a corporation to operate
the business.
a. True
b. False
(1-3) Forms of organization FM Answer: a EASY
xi. If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax.
However, its stockholders will have to pay personal taxes on the firm's net income.
a. True
b. False
(1-3) Forms of organization FM Answer: b EASY
xii. If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid
all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the
formation of small businesses.
a. True
b. False
Chapter 1: Overview True/False Page 4
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted
in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
