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1 Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Fundamentals of Corporate Finance, 10e (Brealey) Chapter 1 Goals and Governance of the Corporation
1) The liability of sole proprietors is limited to the amount of their investment in the company.
Answer: FALSE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Bloom's: Understand
AACSB: Communication
Accessibility: Keyboard Navigation
2) General partners have limited personal liability for business debts in a limited partnership.
Answer: FALSE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Bloom's: Understand
AACSB: Communication
Accessibility: Keyboard Navigation
3) The separation of ownership and management is one distinctive feature of corporations.
Answer: TRUE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
(Fundamentals of Corporate Finance, 10e Richard Brealey, Stewart Myers, Alan Marcus ) (Test Bank all Chapters) 1 / 4
2 Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.4) A major disadvantage of partnerships is that they have double taxation of profits.
Answer: FALSE
Difficulty: 1 Easy
Topic: Forms of business organization
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Bloom's: Understand
AACSB: Communication
Accessibility: Keyboard Navigation
5) Financial assets have value because they are claims on the firm's real assets and the cash that those assets will produce.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial management decisions
Learning Objective: 01-02 Distinguish between real and financial assets.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) Capital budgeting decisions are used to determine how to raise the cash necessary for investments.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial management decisions
Learning Objective: 01-01 Give examples of the investment and financing decisions that financial managers make.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) A successful investment is one that increases the value of the firm.
Answer: TRUE
Difficulty: 2 Medium
Topic: Goal of financial management
Learning Objective: 01-01 Give examples of the investment and financing decisions that financial managers make.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
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3 Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.8) Facebook's decision to spend $700 million to acquire Instagram is an investment decision.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial management decisions
Learning Objective: 01-01 Give examples of the investment and financing decisions that financial managers make.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Boards of directors are generally appointed by the firm's senior officers.
Answer: FALSE
Difficulty: 1 Easy
Topic: Management organization and roles
Learning Objective: 01-03 Cite some of the advantages and disadvantages of organizing a business as a corporation.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Financial analysts are involved in monitoring the risk associated with investment projects and financing decisions.
Answer: TRUE
Difficulty: 2 Medium
Topic: Management organization and roles
Learning Objective: 01-04 Describe the responsibilities of the CFO, treasurer; and controller.
Bloom's: Remember
AACSB: Communication
Accessibility: Keyboard Navigation
11) The primary goal of any company should be to maximize current period profits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Goal of financial management
Learning Objective: 01-05 Explain why maximizing market value is the natural financial goal of the corporation.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
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4 Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.12) Maximizing profits is the same as maximizing the value of the firm.
Answer: FALSE
Difficulty: 2 Medium
Topic: Goal of financial management
Learning Objective: 01-05 Explain why maximizing market value is the natural financial goal of the corporation.
Bloom's: Analyze
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
13) The Dodd-Frank financial reform law in 2010 granted shareholders a binding vote on executive compensation.
Answer: FALSE
Difficulty: 1 Easy
Topic: Ethics, governance, and regulation
Learning Objective: 01-06 Understand what is meant by "agency problems" and cite some of the ways that corporate governance helps mitigate agency problems.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
14) Sole proprietorships face the same agency problems as those associated with corporations.
Answer: FALSE
Difficulty: 1 Easy
Topic: Agency costs and problems
Learning Objective: 01-06 Understand what is meant by "agency problems" and cite some of the ways that corporate governance helps mitigate agency problems.
Bloom's: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
15) Real assets can be intangible assets.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial management decisions
Learning Objective: 01-02 Distinguish between real and financial assets.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
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