FM11_Ch_01_Test_Bank

FM11_Ch_01_Test_Bank - CHAPTER 1 AN OVERVIEW OF CORPORATE...

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CHAPTER 1 AN OVERVIEW OF CORPORATE FINANCE AND THE FINANCIAL ENVIRONMENT (Difficulty: E = Easy, M = Medium, and T = Tough) True-False Easy: Financial manager Answer: a Diff: E 1 . In general, the role of the financial manager is to plan for the acquisition and use of funds so as to maximize the value of the firm. a. True b. False Financial manager Answer: a Diff: E 2 . The financial manager interacts jointly with many different individuals and departments within the firm. Forecasting and planning, as well as coordination and control, are two of the major areas of responsibility where this interaction takes place. a. True b. False Financial manager Answer: b Diff: E 3 . The financial manager must execute his or her duties independent of the other activities of the firm in order to properly maximize the value of the firm. a. True b. False Firm organization Answer: a Diff: E 4 . Deciding upon the form of organization for a business is an important financial decision with potentially significant consequences for the future wealth of the owners. a. True b. False Firm organization Answer: b Diff: E 5 . The major advantage of a regular partnership or a corporation as a form of business is the fact that both offer their owners limited liability, whereas proprietorships do not. a. True b. False Chapter 1 - Page 1
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Answer: a Diff: E 6 . Three of the disadvantages of a partnership, (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership, result in another significant disadvantage, difficulty in attracting large amounts of capital. a. True b. False Proprietorship Answer: a Diff: E 7 . Two key limitations of the proprietorship form of business involve potential difficulty in raising needed capital and the presence of unlimited personal liability for business debts. a. True b. False Limited liability Answer: a Diff: E 8 . The key value of limited liability is that it lowers the firm's risk thereby enhancing its value. a. True b. False Value maximization Answer: b Diff: E 9 . By maximizing the earnings of the firm we will ensure that the price per share of common stock is maximized, hence shareholders' wealth will also be maximized. a. True b. False Financial intermediaries Answer: a Diff: E 10 . If Firm A owns no real assets of its own, but simply accepts the savings of individuals and invests them in financial assets issued by other firms or individuals, Firm A is a financial intermediary . a. True b. False Stock market transactions Answer: a Diff: E 11 . One of the functions of specialists on the NYSE is to facilitate trading by keeping an inventory of shares of the stocks in which they specialize. In addition, they change the bid and ask prices of the securities to keep supply and demand in balance. a. True
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This note was uploaded on 04/19/2008 for the course FIN 332 taught by Professor Dasilva during the Fall '08 term at CSU Fullerton.

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FM11_Ch_01_Test_Bank - CHAPTER 1 AN OVERVIEW OF CORPORATE...

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