Copyright 2014 John Wiley Sons, Inc. 1-1

Copyright © 2014 John Wiley & Sons, Inc. 1-1

Chapter 1: The Financial Manager and the Firm

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Easy

• The financial manager is responsible for making decisions that are in the best interest of the firm's

owners.

• True
• False

Ans: A

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Easy

• A patent is a productive asset for a technology-based firm.
• True
• False

Ans: A

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Medium

• Intangible assets generate most of a manufacturing firm's cash flows.
• True
• False

Ans: B

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Easy

• The most fundamental way that a business can grow in size is the reinvestment of cash flows or

earnings.

• True
• False

Ans: A

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Medium

• When a firm goes bankrupt, it will always be liquidated.
• True
• False

Ans: B

(Essentials of Corporate Finance 1e Robert Parrino, David Thomas) (Test Bank all Chapters) 1 / 4

Essentials of Corporate Finance Test Bank Copyright © 2014 John Wiley & Sons, Inc. 1-2

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Medium

• Capital assets are generally short term in nature.
• True
• False

Ans: B

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Medium

• A good capital budgeting decision is one in which the benefits are worth more to the firm than the

cost of the asset.

• True
• False

Ans: A

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Medium

• Financing decisions determine how firms raise cash to pay for their investments.
• True
• False

Ans: A

Format: True/False

Learning Objective: LO 1

Level of Difficulty: Easy

• The dollar difference between current assets and total liabilities is called net working capital.
• True
• False

Ans: B

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Easy

• A sole proprietorship is an owner's only business.
• True
• False

Ans: B

• / 4

Essentials of Corporate Finance Test Bank Copyright © 2014 John Wiley & Sons, Inc. 1-3

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Medium

• Corporations hold the majority of all business assets and generate the majority of business

revenues and profits in the United States.

• True
• False

Ans: A

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Medium

• Unlimited liability means that the owner of a firm is responsible for paying all the firm's bills.
• True
• False

Ans: A

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Medium

• The process of transferring ownership of a sole proprietorship is relatively easy compared to a

public corporation.

• True
• False

Ans: B

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Medium

• General partners in a business have limited liability with regard to their firm's obligations.
• True
• False

Ans: B

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Easy

• Corporations do not have their income subject to double taxation.
• True
• False

Ans: B

• / 4

Essentials of Corporate Finance Test Bank Copyright © 2014 John Wiley & Sons, Inc. 1-4

Format: True/False

Learning Objective: LO 2

Level of Difficulty: Easy

• Privately held corporations are allowed to have stockholders.
• True
• False

Ans: A

Format: True/False

Learning Objective: LO 3

Level of Difficulty: Easy

• The treasurer of a corporation usually reports to the CFO of the firm.
• True
• False

Ans: A

Format: True/False

Learning Objective: LO 3

Level of Difficulty: Easy

• The external auditors of the firm report their findings directly to the CFO of the firm.
• True
• False

Ans: B

Format: True/False

Learning Objective: LO 4

Level of Difficulty: Easy

• Maximizing revenue should be the goal of the firm.
• True
• False

Ans: B

Format: True/False

Learning Objective: LO 5

Level of Difficulty: Easy

• An agency problem can arise when the agent of the firm is the sole owner of the firm.
• True
• False

Ans: B

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