Question 1

Which one of the following statements concerning a sole proprietorship is correct?

Accepted Answer

A) A sole proprietorship is difficult to form. 
B) The business profits are taxed twice at the federal level. 
C) The business profits are taxed separately from the personal income of the owner. 
D) The owner may be forced to sell his/her personal assets to pay company debts. 
E) A sole proprietorship has an unlimited life. 
A) A sole proprietorship is difficult to form. 
B) The business profits are taxed twice at the federal level. 
C) The business profits are taxed separately from the personal income of the owner. 
D) The owner may be forced to sell his/her personal assets to pay company debts. 
E) A sole proprietorship has an unlimited life. D

Question 2

One disadvantage of the corporate form of business ownership is the:

Accepted Answer

A) limited liability protection provided for all owners. 
B) firm's ability to raise cash. 
C) unlimited life of the firm. 
D) difficulties encountered when changing ownership. 
E) double taxation of profits. 
A) limited liability protection provided for all owners. 
B) firm's ability to raise cash. 
C) unlimited life of the firm. 
D) difficulties encountered when changing ownership. 
E) double taxation of profits. E

Question 3

A business formed by two or more individuals who each have unlimited personal liability for all of the firm's debts is called a:

Accepted Answer

A) corporation. 
B) sole proprietorship. 
C) general partnership. 
D) limited partnership. 
E) limited liability company. 
A) corporation. 
B) sole proprietorship. 
C) general partnership. 
D) limited partnership. 
E) limited liability company. C

Question 4

A business owned by a single individual is called a:

Accepted Answer

A) corporation. 
B) sole proprietorship. 
C) general partnership. 
D) limited partnership. 
E) limited liability company. 
A) corporation. 
B) sole proprietorship. 
C) general partnership. 
D) limited partnership. 
E) limited liability company.

Question 5

The ultimate control of a corporation lies in the hands of the corporate:

Accepted Answer

A) board of directors. 
B) stockholders. 
C) president. 
D) chief executive officer. 
E) chairman of the board. 
A) board of directors. 
B) stockholders. 
C) president. 
D) chief executive officer. 
E) chairman of the board.

Question 6

A firm creates value by:

Accepted Answer

A) having a greater cash inflow from its stockholders than its outflow to them. 
B) paying more cash to its creditors and stockholders than the amount it received from them. 
C) borrowing long-term debt. 
D) generating sales whether or not payment is received for all of those sales. 
E) purchasing assets that create cash inflows equal to the cost of those assets. 
A) having a greater cash inflow from its stockholders than its outflow to them. 
B) paying more cash to its creditors and stockholders than the amount it received from them. 
C) borrowing long-term debt. 
D) generating sales whether or not payment is received for all of those sales. 
E) purchasing assets that create cash inflows equal to the cost of those assets.

Question 7

Which of these have been cited as results from a corporation "going dark"?

Accepted Answer

A) Increased market liquidity and lower costs 
B) Lower audit costs and lower interest rates on bank loans 
C) Increased access to capital and lower costs associated with that capital 
D) Increased audit costs and stock price increases 
E) Limited access to capital markets and stock price declines 
A) Increased market liquidity and lower costs 
B) Lower audit costs and lower interest rates on bank loans 
C) Increased access to capital and lower costs associated with that capital 
D) Increased audit costs and stock price increases 
E) Limited access to capital markets and stock price declines

Question 8

Which one of the following statements is correct?

Accepted Answer

A) Both partnerships and corporations incur double taxation. 
B) Sole proprietorships and partnerships are taxed in a similar fashion. 
C) Partnerships are the most complicated type of business to form. 
D) Both partnerships and corporations have limited liability for general partners and shareholders. 
E) All types of business formations have limited lives. 
A) Both partnerships and corporations incur double taxation. 
B) Sole proprietorships and partnerships are taxed in a similar fashion. 
C) Partnerships are the most complicated type of business to form. 
D) Both partnerships and corporations have limited liability for general partners and shareholders. 
E) All types of business formations have limited lives.

Question 9

Which one of these statements is correct?

Accepted Answer

A) Individuals tend to prefer later cash flows over current cash flows. 
B) The value of an investment depends on the size,timing,and risk of the investment's cash flows. 
C) When selecting one of two projects,managers should select the project with the higher total expected cash flow. 
D) Most investors prefer greater risk over less risk. 
E) Accountants record sales and expenses after the related cash flows occur. 
A) Individuals tend to prefer later cash flows over current cash flows. 
B) The value of an investment depends on the size,timing,and risk of the investment's cash flows. 
C) When selecting one of two projects,managers should select the project with the higher total expected cash flow. 
D) Most investors prefer greater risk over less risk. 
E) Accountants record sales and expenses after the related cash flows occur.

Question 10

One advantage of a partnership is the:

Accepted Answer

A) personal liability for all of the firm's debts. 
B) limited life of the entity. 
C) limited liability protection for all of the partners. 
D) relatively low formation cost. 
E) ease of transferring full ownership. 
A) personal liability for all of the firm's debts. 
B) limited life of the entity. 
C) limited liability protection for all of the partners. 
D) relatively low formation cost. 
E) ease of transferring full ownership.

Question 11

Which one of these is most apt to be an agency problem?

Accepted Answer

A) Increasing the dividend payments to shareholders 
B) Paying off debt in a timely manner 
C) Increasing the sales of a profitable division 
D) Forsaking a profitable project because it involves some risk 
E) Selling an unprofitable division of the firm 
A) Increasing the dividend payments to shareholders 
B) Paying off debt in a timely manner 
C) Increasing the sales of a profitable division 
D) Forsaking a profitable project because it involves some risk 
E) Selling an unprofitable division of the firm

Question 12

The treasurer and the controller of a corporation generally report to the:

Accepted Answer

A) board of directors. 
B) chairman of the board. 
C) chief executive officer. 
D) president. 
E) chief financial officer. 
A) board of directors. 
B) chairman of the board. 
C) chief executive officer. 
D) president. 
E) chief financial officer.

Question 13

The cheapest business entity to form is typically the:

Accepted Answer

A) limited liability company. 
B) joint stock company. 
C) general partnership. 
D) limited partnership. 
E) sole proprietorship. 
A) limited liability company. 
B) joint stock company. 
C) general partnership. 
D) limited partnership. 
E) sole proprietorship.

Question 14

A proxy fight occurs when:

Accepted Answer

A) the board of directors disagree on the members of the management team. 
B) a group solicits voting rights to replace the board of directors. 
C) a competitor offers to sell their ownership interest in the firm. 
D) the firm files for bankruptcy. 
E) the firm is declared insolvent. 
A) the board of directors disagree on the members of the management team. 
B) a group solicits voting rights to replace the board of directors. 
C) a competitor offers to sell their ownership interest in the firm. 
D) the firm files for bankruptcy. 
E) the firm is declared insolvent.

Question 15

Which one of these represents the best means of increasing current shareholder value?

Accepted Answer

A) Maximizing the capital rate of the firm 
B) Increasing the current value of the overall firm 
C) Forsaking all new projects 
D) Minimizing the overall size of the firm 
E) Decreasing the number of employees 
A) Maximizing the capital rate of the firm 
B) Increasing the current value of the overall firm 
C) Forsaking all new projects 
D) Minimizing the overall size of the firm 
E) Decreasing the number of employees

Question 16

Given the corporate form of business organization,ownership:

Accepted Answer

A) must be granted with equal rights assigned to each and every shareholder. 
B) transfers are unlimited. 
C) can only be transferred with the approval of the board of directors. 
D) is controlled by the corporate officers. 
E) must be held by non-management owners. 
A) must be granted with equal rights assigned to each and every shareholder. 
B) transfers are unlimited. 
C) can only be transferred with the approval of the board of directors. 
D) is controlled by the corporate officers. 
E) must be held by non-management owners.

Question 17

A general partner:

Accepted Answer

A) has less legal liability than a limited partner. 
B) can end the partnership by withdrawing. 
C) faces double taxation of profits whereas a limited partner does not. 
D) cannot lose more than the amount of his/her equity investment. 
E) is the term applied only to corporations which invest in partnerships. 
A) has less legal liability than a limited partner. 
B) can end the partnership by withdrawing. 
C) faces double taxation of profits whereas a limited partner does not. 
D) cannot lose more than the amount of his/her equity investment. 
E) is the term applied only to corporations which invest in partnerships.

Question 18

Accounting profits and cash flows are generally:

Accepted Answer

A) the same since they reflect current laws and accounting standards. 
B) the same since accounting profits reflect the timing of cash flows. 
C) different because of GAAP rules regarding the recognition of income. 
D) different because cash inflows must occur before revenue recognition. 
E) the same due to the requirements of GAAP. 
A) the same since they reflect current laws and accounting standards. 
B) the same since accounting profits reflect the timing of cash flows. 
C) different because of GAAP rules regarding the recognition of income. 
D) different because cash inflows must occur before revenue recognition. 
E) the same due to the requirements of GAAP.

Question 19

Which one of the following parties is considered a stakeholder of a firm?

Accepted Answer

A) Customer 
B) Short-term creditor 
C) Long-term creditor 
D) Preferred stockholder 
E) Common stockholder 
A) Customer 
B) Short-term creditor 
C) Long-term creditor 
D) Preferred stockholder 
E) Common stockholder

Question 20

A business created as a distinct legal entity is called a:

Accepted Answer

A) corporation. 
B) sole proprietorship. 
C) general partnership. 
D) limited partnership. 
E) unlimited liability company. 
A) corporation. 
B) sole proprietorship. 
C) general partnership. 
D) limited partnership. 
E) unlimited liability company.

Exam 1: Introduction to Corporate Finance

Which one of the following statements concerning a sole proprietorship is correct?

One disadvantage of the corporate form of business ownership is the:

A business formed by two or more individuals who each have unlimited personal liability for all of the firm's debts is called a:

A business owned by a single individual is called a:

The ultimate control of a corporation lies in the hands of the corporate:

A firm creates value by:

Which of these have been cited as results from a corporation "going dark"?

Which one of the following statements is correct?

Which one of these statements is correct?

One advantage of a partnership is the:

Which one of these is most apt to be an agency problem?

The treasurer and the controller of a corporation generally report to the:

The cheapest business entity to form is typically the:

A proxy fight occurs when:

Which one of these represents the best means of increasing current shareholder value?

Given the corporate form of business organization,ownership:

A general partner:

Accounting profits and cash flows are generally:

Which one of the following parties is considered a stakeholder of a firm?

A business created as a distinct legal entity is called a:

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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