Copyright 2019 McGraw-Hill Education. All rights reserved.

1 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 1 Introduction to Corporate Finance

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

• board of directors.
• chairman of the board.
• chief executive officer.
• president.
• chief financial officer.

Answer: E

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Management organization and roles

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) Which one of the following statements correctly depicts the common chain of command in a corporation?

• The information systems manager reports to the treasurer.
• The credit manager reports to the treasurer.
• The controller reports to the chief executive officer.
• The tax manager reports to the treasurer.
• The capital expenditures manager reports to the controller.

Answer: B

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Management organization and roles

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

(Corporate Finance, 12e Stephen Ross, Randolph Westerfield, Jeffrey Jaffe) (Test bank all Chapters) 1 / 4

2 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.3) Which one of the following is a capital budgeting decision?

• Determining how much debt should be borrowed from a particular lender
• Deciding whether or not a new production facility should be built
• Deciding when to repay a long-term debt
• Determining how much inventory to keep on hand
• Deciding how much credit to grant to a particular customer

Answer: B

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Capital budgeting

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

4) Which one of these is a correct definition?

• Net working capital equals current assets plus current liabilities.
• Current liabilities are debts that must be repaid in 18 months or less.
• Current assets are assets with short lives, such as accounts receivable.
• Long-term debt is defined as a residual claim on a firm's assets.
• Tangible assets are fixed assets such as patents.

Answer: C

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Introduction to corporate finance

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

5) The corporate controller is generally responsible for which one of these functions?

• Capital expenditures
• Cash management
• Tax reporting
• Financial planning
• Credit management

Answer: C

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Management organization and roles

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

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3 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.6) The corporate treasurer oversees which one of these areas?

• Financial planning
• Cost accounting
• Tax reporting
• Information systems
• Financial accounting

Answer: A

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Management organization and roles

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7) A firm's capital structure refers to the firm's:

• mixture of various types of production equipment.
• investment selections for its excess cash reserves.
• combination of cash and cash equivalents.
• combination of accounts appearing on the left side of its balance sheet.
• proportions of financing from current and long-term debt and equity.

Answer: E

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Capital structure

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

8) Short-term finance deals with:

• the timing of cash flows.
• acquiring and selling fixed assets.
• financing long-term projects.
• capital budgeting.
• issuing additional shares of common stock.

Answer: A

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Cash management - general

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

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4 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.9) Which one of these accounts is included in net working capital?

• Copyright
• Manufacturing equipment
• Common stock
• Long-term debt
• Inventory

Answer: E

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Net working capital

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

10) The process of planning and managing a firm's long-term assets is called:

• working capital management.
• cash management.
• cost accounting management.
• capital budgeting.
• capital structure management.

Answer: D

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Capital budgeting

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

11) Any debt that must be repaid within the next year is recorded on the balance sheet as:

• a current liability.
• long-term debt.
• an intangible asset.
• accounts receivable.
• a current asset.

Answer: A

Difficulty: 1 Easy

Section: 1.1 What is Corporate Finance?

Topic: Balance sheet

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

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