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CFIN 5th Edition by Besley - Test Bank
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,1. The finance function is relatively independent of most other corporate functions. Marketing decisions, for example, might affect the firm's
need for funds but are not affected by conditions in financial markets
or other financing issues.
a. True
*b. False
2. Two key limitations of the proprietorship form of business involve p
otential difficulty in raising the necessary capital and the presence o
f unlimited personal liability for business debts.
*a. True
b. False
3. The disadvantages associated with a proprietorship are similar to th
ose under a partnership. One exception to this is the formal nature of
the partnership agreement and the commitment of the partners' personal
assets. As a result, partnerships do not have difficulty raising large
amounts of capital.
a. True
*b. False
4. A proprietorship is an unincorporated business owned by one individu
al and the owner benefits from the limited liability for business, whic
h limits his losses to what he has invested in the company.
a. True
*b. False
5. The corporate charter is a document filed with the secretary of the
state in which the firm is incorporated that provides information about
the company, including its name, address, directors, and amount of capi
tal stock.
*a. True
b. False
6. In general, the role of the financial manager is to plan for the acq
uisition and use of funds so as to maximize the value of the firm.
*a. True
b. False
,7. The financial manager must execute his or her duties independent of
the cash flow activities of the firm in order to properly maximize the
value of the firm.
a. True
*b. False
8. A hostile takeover involves an attempt by one group of stockholders
to solicit votes from other stockholders in order to put a new manageme
nt team into place and is usually motivated by low stock price.
a. True
*b. False
9. The proper goal of the financial manager should be to maximize the f
irm's expected profit, because this will add the most wealth to each of
the individual shareholders (owners) of the firm.
a. True
*b. False
10. The decision framework of the financial managers that seek that com
bination of assets, liabilities, and capital which will generate the la
rgest expected projected income over the relevant time horizon is most
useful for carrying out the firm's objective.
a. True
*b. False
11. The riskiness inherent in a firm's earnings per share (EPS) depends
on both the types of projects the firm takes on and the manner in which
the projects are financed.
*a. True
b. False
12. If a firm raises its product prices beyond reasonable levels, it wi
ll simply lose its market share.
*a. True
b. False
13. If a firm's managers want to maximize stock price, it is in their b
est interests to operate efficient, low-cost plants, develop new and sa
fe products that consumers want, and maintain good relationships with c
, ustomers, suppliers, creditors, and the communities in which they opera
te.
*a. True
b. False
14. A financial manager's task is to make decisions concerning the acqu
isition and use of funds for the greatest benefit of the firm.
*a. True
b. False
15. Incentive compensation plans are used to attract and retain top man
agerial talent as well as to align the interests of management with sha
reholders.
*a. True
b. False
16. In a competitive marketplace, if managers deviate too far from maki
ng decisions that are consistent with stockholder wealth maximization,
they risk being disciplined by the market. Part of this discipline invo
lves the threat of being taken over by groups who are more aligned with
stockholder interests.
*a. True
b. False
17. Having the manager's compensation tied to the company's performance
increases the agency problem that corporations face.
a. True
*b. False
18. Managers of firms using accounting manipulations to inflate current
earnings are likely to generate long-term benefits to the shareholders
of the firm.
a. True
*b. False
19. In a competitive marketplace "good ethics" is a wonderful idea but
an impractical standard. There are simply too few benefits to be gained
from maintaining high business ethics.
a. True
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