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Name: Class: Date:
01: An Overview of Managerial Finance
Test Bank for CFIN, 6th Edition, Scott Besley, Eugene

Brigham
Full chapter at: https://testbankbell.com/product/test-bank-for-cfin-
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1. Which of the following statements is correct? Assume everything else equal.
a. Riskier assets always have higher market values.
b. Riskier assets are more valuable than (preferred to) less risky assets.
c. The sooner cash is received, the more valuable it is.
d. Investors generally prefer short-term, high-risk assets investments.
e. Investors generally receive higher returns on investments with low risk than investments with high risk.
ANSWER: c
FEEDBACK: a. Incorrect. Finance is concerned with decisions about money. Financial
decisions deal with how money is raised and used by businesses,
governments, and individuals. See 1-1: What is Finance?
b. Incorrect. Finance is concerned with decisions about money. Financial
c. Correct. Assuming everything else equal, one of the concepts to consider to
make sound financial decisions is that the sooner cash is received, the more
valuable it is. See 1-1: What is Finance?
d. Incorrect. Finance is concerned with decisions about money. Financial
e. Incorrect. Finance is concerned with decisions about money. Financial
POINTS: 1
DIFFICULTY: Easy
REFERENCES: What is Finance?
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
LEARNING OBJECTIVES: CFIN6.BESL.19.01.01 - Explain what finance entails and why everyone should have an
understanding of basic financial concepts.
ACCREDITING STANDARDS: Analytic
KEYWORDS: Bloom’s Understand
OTHER: Investments|Finance
DATE CREATED: 12/12/2017 11:18 PM
DATE MODIFIED: 12/21/2017 12:41 AM
2. The success of financial institutions depends on _____.

a. the understanding of the factors that cause interest rates and other returns in the financial markets to rise and
fall
b. the environmentally responsible behavior of the shareholders of corporations
Copyright Cengage Learning. Powered by Cognero. Page 1
Name: Class: Date:
c. the expectations of long-term investors in the company

d. the awareness of the shareholders regarding the regulations that affect public corporations
e. the prior knowledge of the decisions that public corporations make concerning their cash flows
ANSWER: a
FEEDBACK: a. Correct. The success of a financial institution requires an understanding of
factors that cause interest rates and other returns in the financial markets to
rise and fall, regulations that affect such institutions, and various types of
financial instruments, such as mortgages, automobile loans, and certificates
of deposit, that financial institutions offer. See 1-1: What is Finance?
b. Incorrect. The success of a financial institution requires an understanding of
regulations that affect such institutions, and various types of financial
instruments, such as mortgages, automobile loans, and certificates of deposit,
that financial institutions offer. See 1-1: What is Finance?
c. Incorrect. The success of financial institutions requires an understanding of
d. Incorrect. The success of financial institutions requires an understanding of
e. Incorrect. The success of financial institutions requires an understanding of
POINTS: 1
DIFFICULTY: Easy
OTHER: Financial institutions|Finance|Finance markets
DATE CREATED: 12/12/2017 11:23 PM
3. Which of the following is true of the investment function of finance?

a. The investment function focuses on socially responsible actions taken by corporations.
b. The investment function focuses on the values, risks, and returns associated with financial assets such as
stocks and bonds.
c. The investment function focuses on the optimal mix of securities based on the environment-friendly behavior
of the corporations.
d. The investment function focuses on regulations applicable to a public corporation.
e. The investment function focuses on additional information about the procedures used to construct and report
financial statements.
Name: Class: Date:
ANSWER: b
FEEDBACK: a. Incorrect. The investment function of finance focuses on the decisions made
by businesses and individuals as they choose securities for their investment
portfolios. See 1-1: What is Finance?
b. Correct. The investment function of finance focuses on determining the
values, risks, and returns associated with such financial assets as stocks and
bonds. See 1-1: What is Finance?
c. Incorrect. The investment function of finance focuses on the decisions made
d. Incorrect. The investment function of finance focuses on the decisions made
e. Incorrect. The investment function of finance focuses on the decisions made
POINTS: 1
DIFFICULTY: Easy
OTHER: Finance|Investments
DATE CREATED: 12/12/2017 11:28 PM
4. Identify a true statement about the financial services provided by organizations.

a. Financial services organizations invest only in environmentally responsible public corporations.
b. Financial services include services provided by banks and insurance companies only.
c. Financial services organizations make investment decisions based solely on the socially responsible behavior
of corporates.
d. Financial services organizations provide comparative cash flow positions of competing corporations to
investors to help them with investment decisions.
e. Financial services organizations help individuals and companies determine how to invest money to achieve
their financial goals.
ANSWER: e
FEEDBACK: a. Incorrect. Financial services refer to functions provided by organizations that
deal with the management of money. See 1-1: What is Finance?
b. Incorrect. Financial services refer to functions provided by organizations that
c. Incorrect. Financial services refer to functions provided by organizations that
d. Incorrect. Financial services refer to functions provided by organizations that
Name: Class: Date:
e. Correct. Persons working in financial services organizations help individuals

and companies determine how to invest money to achieve their financial
goals. See 1-1: What is Finance?
POINTS: 1
DIFFICULTY: Easy
OTHER: Financial services
DATE CREATED: 12/12/2017 11:31 PM
5. Financial services refer to functions provided by organizations that _____.

a. deal with the most efficient management of the human resources
b. ensure that regulations of the Sarbanes-Oxley Act are followed by public corporations
c. recommend the most environment friendly method of operations to a corporation
d. recommend the types of securities to be issued to finance plant expansions
e. deal with the management of money
ANSWER: e
determine how to invest money to help individuals and companies achieve
their financial goals. See 1-1: What is Finance?
b. Incorrect. Financial services refer to functions provided by organizations that
e. Correct. Financial services refer to functions provided by organizations that
deal with the management of money. Persons who work in these
organizations, help individuals and companies determine how to invest
money to achieve their financial goals. See 1-1: What is Finance?
POINTS: 1
DIFFICULTY: Easy
Name: Class: Date:

DATE CREATED: 12/12/2017 11:35 PM
6. Which of the following functions deals with the management of money?

a. Marketing
b. Human resources
c. Financial services
d. Information systems
e. Research and development
ANSWER: c
FEEDBACK: a. Incorrect. The management of money function helps individuals and
companies achieve their goals such as home purchase, retirement, financial
stability and sustainability, budgeting. See 1-1: What is Finance?
b. Incorrect. The management of money function helps individuals and
c. Correct. Financial services refer to functions provided by organizations that
d. Incorrect. The management of money function helps individuals and
e. Incorrect. The management of money function helps individuals and
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/12/2017 11:38 PM
7. Which of the following is true of financial services provided by persons working in banks, insurance companies, and
brokerage firms?
a. Persons working in banks, insurance companies, and brokerage firms help corporations to decide the types of
securities to be issued to finance plant expansion.
b. Persons working in banks, insurance companies, and brokerage firms help individuals and companies
determine how to invest money to achieve their financial goals.
Name: Class: Date:
c. Persons working in banks, insurance companies, and brokerage firms help corporations fulfill the regulations
required by the Sarbanes-Oxley Act.
d. Persons working in banks, insurance companies, and brokerage firms help public corporations follow
environment-friendly practices.
e. Persons working in banks, insurance companies, and brokerage firms help corporations in framing their
bylaws.
ANSWER: b
b. Correct. Persons working in banks, insurance companies, and brokerage
firms help individuals and companies determine how to invest money to
achieve their financial goals. See 1-1: What is Finance?
e. Incorrect. Financial services refer to functions provided by organizations that
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/12/2017 11:41 PM
8. Which of the following is true of financial institutions?

a. Financial institutions are the regulators of interest rates and other returns in financial markets.
b. Managers of financial institutions should have an understanding of factors that cause interest rates and other
returns in the financial markets to rise and fall.
c. Financial institutions are accountable and responsible in reporting financial information for publicly-traded
corporations.
d. Financial institutions are required by the Sarbanes-Oxley Act to disclose the environment-friendly measures
taken by investment corporations.
e. Financial institutions require public corporations to adopt socially responsible work practices.
ANSWER: b
FEEDBACK: a. Incorrect. The success of financial institutions requires an understanding of

Name: Class: Date:
b. Correct. The success of financial institutions requires an understanding of

POINTS: 1
DIFFICULTY: Easy
OTHER: Financial institutions|Financial markets
DATE CREATED: 12/12/2017 11:47 PM
9. The investment function of finance helps in _____.

a. making decisions regarding the dividends paid by a corporation
b. determining the expenses to be incurred to ensure that the behavior of an investment corporation is socially
acceptable
c. determining the values, risks, and returns associated with such financial assets as stocks and bonds
d. ensuring that 50 percent of all investments in a portfolio are in environment-friendly corporations
e. ensuring that the corporations payout maximum dividends per share
ANSWER: c
FEEDBACK: a. Incorrect. The investment function of finance determines the optimal mix of
securities that should be held in a portfolio of investments, such as a
retirement fund. See 1-1: What is Finance?
b. Incorrect. The investment function of finance determines the optimal mix of
c. Correct. The investment function of finance determines the values, risks, and
returns associated with such financial assets as stocks and bonds. See 1-1:
What is Finance?

Name: Class: Date:
d. Incorrect. The investment function of finance determines the optimal mix of

e. Incorrect. The investment function of finance determines the optimal mix of
POINTS: 1
DIFFICULTY: Easy
OTHER: Investments
DATE CREATED: 12/12/2017 11:50 PM
10. The success of financial institutions requires an understanding of _____.

a. regulations regarding the maximization of wealth applicable to the corporations
b. regulations that affect these financial institutions
c. the environment-friendly manufacturing methods adopted by various corporations
d. the socially responsible behavior required to be demonstrated by these institutions
e. their accountability in reporting the financial information for a publicly-traded company
ANSWER: b
FEEDBACK: a. Incorrect. The success of financial institutions requires an understanding of
rise and fall. See 1-1: What is Finance?
b. Correct. The success of financial institutions requires an understanding of
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:

OTHER: Financial institutions
DATE CREATED: 12/12/2017 11:53 PM
11. The treasurer of a company is a key subordinate of the _____.

a. controller
b. financial vice president
c. chief executive officer
d. credit manager
e. director of capital budgeting
ANSWER: b
FEEDBACK: a. Incorrect. In most firms, the treasurer has direct responsibility for managing
the firm's cash and marketable securities. See 1-1: What is Finance?
b. Correct. The financial vice president's key subordinates are the treasurer and
the controller. See 1-1: What is Finance?
c. Incorrect. In most firms, the treasurer has direct responsibility for managing
d. Incorrect. In most firms, the treasurer has direct responsibility for managing
e. Incorrect. In most firms, the treasurer has direct responsibility for managing
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom’s Remember
OTHER: Organizational structure
DATE CREATED: 12/12/2017 11:56 PM
12. The credit manager is supervised by the _____.

a. treasurer
b. inventory manager
c. director of capital budgeting

Name: Class: Date:
d. vice president of finance

e. controller
ANSWER: a
FEEDBACK: a. Correct. The treasurer supervises the credit manager, the inventory manager,
and the director of capital budgeting, who analyzes decisions related to
investments in fixed assets. See 1-1: What is Finance?
b. Incorrect. The financial vice president's key subordinates are the treasurer
and the controller. In most firms, the treasurer has direct responsibility for
managing the firm's cash and marketable securities. The controller is
responsible for the activities of the accounting and tax departments. See 1-1:
What is Finance?
c. Incorrect. The financial vice president's key subordinates are the treasurer
What is Finance?
d. Incorrect. The financial vice president's key subordinates are the treasurer
What is Finance?
e. Incorrect. The financial vice president's key subordinates are the treasurer
What is Finance?
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:00 AM
13. The accounting and tax departments are the responsibility of the _____.
a. treasurer
b. inventory manager
c. director of capital budgeting
d. vice president of finance
e. controller
ANSWER: e

Name: Class: Date:
FEEDBACK: a. Incorrect. Although organizational structures vary from company to company,

the chief financial officer (CFO), who often has the title of vice president of
finance, generally reports to the president. The financial vice president's key
subordinates are the treasurer and the controller. See 1-1: What is Finance?
b. Incorrect. Although organizational structures vary from company to company,
c. Incorrect. Although organizational structures vary from company to company,
d. Incorrect. Although organizational structures vary from company to company,
e. Correct. The financial vice president's key subordinates are the treasurer and
the controller. The controller is responsible for the activities of the accounting
and tax departments. See 1-1: What is Finance?
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:03 AM
14. Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference
between proprietorship and partnership business forms is that _____.
a. a partnership has more owners than a proprietorship
b. the combined personal liability associated with a partnership is significantly less than the combined personal
liability associated with a proprietorship
c. a partnership is generally easier to form than a proprietorship
d. the annual growth rate of a proprietorship is limited by law, whereas the growth rate of a partnership is always
potentially unlimited
e. many more businesses are formed as partnerships than proprietorships
ANSWER: a
FEEDBACK: a. Correct. A partnership is the same as a proprietorship, except that it has two
or more owners. See 1-2: Alternative Forms of Business Organization
b. Incorrect. Starting a proprietorship is generally as easy as just beginning
business operations. Partnerships can operate under different degrees of
formality, ranging from informal, oral understandings to formal agreements

Name: Class: Date:
filed with the secretary of the state in which the partnership does business.
See 1-2: Alternative Forms of Business Organization
c. Incorrect. Starting a proprietorship is generally as easy as just beginning
d. Incorrect. Starting a proprietorship is generally as easy as just beginning
e. Incorrect. Starting a proprietorship is generally as easy as just beginning
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: Alternative Forms of Business Organization
LEARNING OBJECTIVES: CFIN6.BESL.19.01.02 - Identify different forms of business organization as well as the
advantages and disadvantages of each.
OTHER: Business ownership forms|Sole proprietorships|Partnerships
DATE CREATED: 12/13/2017 12:06 AM
15. Which of the following represents a difference between an S corporation and a limited liability company (LLC)?
a. An S corporation can have more than one type of stock outstanding, whereas an LLC can have only one type
of stock outstanding.
b. An S corporation can choose to be taxed as a corporation or as a partnership, whereas an LLC is taxed as a
corporation only.
c. An S corporation is subject to unlimited personal liability of the owners, whereas an LLC is subject to limited
personal liability.
d. An S corporation has no more than 100 stockholders, whereas an LLC can have more than 100 owners
(members).
e. An S corporation's business income is subject to double taxation, whereas an LLC's business income is taxed
only once.
ANSWER: d
FEEDBACK: a. Incorrect. A limited liability company (LLC) combines the features of a
corporation and a partnership. A domestic corporation that meets the number
of stockholders condition and types of stock outstanding can elect to file taxes
as an S corporation. See 1-2: Alternative Forms of Business Organization
b. Incorrect. A limited liability company (LLC) combines the features of a
Name: Class: Date:
c. Incorrect. A limited liability company (LLC) combines the features of a
d. Correct. One of the major differences between an S corporation and an LLC
is that an LLC can have more than 100 stockholders (members) and more
than one type of stock (membership interest). See 1-2: Alternative Forms of
Business Organization
e. Incorrect. A limited liability company (LLC) combines the features of a
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability companies|S corporations
DATE CREATED: 12/13/2017 12:10 AM
16. Which of the following statements is true of corporate bylaws?

a. Corporate bylaws are a set of rules drawn up by the state to enable managers to run the firm in accordance
with state laws.
b. Procedures for electing corporate directors are contained in corporate bylaws.
c. Procedures that govern changes in corporate bylaws are contained in the corporate charter.
d. To open their doors and start their operations, corporations are legally required only to file their bylaws with
the appropriate agency in the state where they incorporate.
e. The declaration of the activities that a firm will pursue and the number of directors are included in the
corporate bylaws.
ANSWER: b
FEEDBACK: a. Incorrect. Setting up a corporation is more complex and time-consuming than
setting up a proprietorship or a partnership. When a corporation is created, a
corporate charter and a set of rules must be drawn up by the founder(s). See
1-2: Alternative Forms of Business Organization
b. Correct. Bylaws are a set of rules drawn up by the founders of a corporation
that indicates how the company is to be governed and includes procedures
for electing directors, rights of stockholders, and how to change the bylaws
when necessary. See 1-2: Alternative Forms of Business Organization
c. Incorrect. Setting up a corporation is more complex and time-consuming than

Name: Class: Date:
d. Incorrect. Setting up a corporation is more complex and time-consuming than
e. Incorrect. Setting up a corporation is more complex and time-consuming than
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations
DATE CREATED: 12/13/2017 12:20 AM
17. Which of the following statements is correct?

a. A hostile takeover is the primary method of transferring ownership interest in a corporation.
b. The corporation is a legal entity created by the state and is a direct extension of the legal status of its owners
and managers, that is, the owners and managers are the corporation.
c. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business
organization.
d. In part due to limited liability and ease of ownership transfer, corporations have less trouble raising money in
financial markets than other organizational forms.
e. Although stockholders of the corporation are insulated by limited legal liability, the legal status of the
corporation does not protect the firm's managers in the same way.
ANSWER: d
FEEDBACK: a. Incorrect. Even though the corporate form of business offers significant
advantages over proprietorships and partnerships, setting up a corporation is
more complex and time-consuming than a proprietorship or a partnership.
Corporations must file periodic state and federal reports that are not required
of other forms of businesses. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. Even though the corporate form of business offers significant
Organization
c. Incorrect. Even though the corporate form of business offers significant
Name: Class: Date:

Organization
d. Correct. Limited liability, easy transferability of ownership interest, and
unlimited life make it much easier for corporations than for proprietorships or
partnerships to raise money in the financial markets. See 1-2: Alternative
Forms of Business Organization
e. Incorrect. Even though the corporate form of business offers significant
Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations
DATE CREATED: 12/13/2017 12:24 AM

a. In a partnership, liability for other partners' misdeeds includes but is limited to the amount a particular partner
has invested in the business.
b. Partnerships must be formed according to specific rules, which include the filing of a formal written
agreement with state authorities where the partnership does business.
c. A fast growth company would be more likely to set up a partnership for its business organization than would a
slow-growth company.
d. Under partnership law, if any partner is unable to meet his or her pro rata claim in the event the partnership
goes bankrupt, the remaining partners must make good on the unsatisfied claims.
e. A major disadvantage of a partnership as a form of business organization is the high cost and practical
difficulty of its formation.
ANSWER: d
FEEDBACK: a. Incorrect. A partnership has two or more owners. Partnerships can operate
under different degrees of formality. The advantages of a partnership are the
same as those of a proprietorship, except that most partnerships have more
sources available for raising funds. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. A partnership has two or more owners. Partnerships can operate

Name: Class: Date:
Organization
c. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
d. Correct. Under partnership law, each partner is liable for the debts of the
business. Therefore, if any partner is unable to meet his or her pro rata claim
in the event the partnership goes bankrupt, the remaining partners must make
good on the unsatisfied claims, drawing on their personal assets if necessary.
e. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: Partnerships
DATE CREATED: 12/13/2017 12:27 AM

a. A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not
offer their owners limited liability, whereas proprietorships do.
b. An advantage of the corporate form for many businesses is the fact that the corporate tax rate always exceeds
the personal tax rate, which is the rate at which proprietorships and partnerships are taxed.
c. There are more partnerships and proprietorships than corporations in the United States, but corporations
produce more goods and services than do other forms of business.
d. Because partnerships and proprietorships enjoy the benefits of limited liability, easy transferability of
ownership interest, unlimited life, and favorable tax status relative to the situation for corporations, most large
businesses choose to be set up as partnerships and proprietorships.
e. Because lawyers have the incorporation process so automated (e.g., word processors for drawing up the
necessary papers), it is less expensive to form a corporation than to form a proprietorship or partnership.
ANSWER: c
FEEDBACK: a. Incorrect. A proprietorship is an unincorporated business owned by one
individual. A partnership is the same as a proprietorship, except that it has
two or more owners. A corporation is separate and distinct from its owners
and managers. See 1-2: Alternative Forms of Business Organization

Name: Class: Date:
b. Incorrect. A proprietorship is an unincorporated business owned by one

c. Correct. In the United States 70–75 percent of businesses are operated as
proprietorships, 9–12 percent are partnerships, and the remaining 15–20
percent are corporations. Based on the dollar value of sales, however,
approximately 82 percent of all business is conducted by corporations, while
the remaining 18 percent is generated by proprietorships (3–4 percent) and
partnerships (14–15 percent). See 1-2: Alternative Forms of Business
Organization
d. Incorrect. A proprietorship is an unincorporated business owned by one
e. Incorrect. A proprietorship is an unincorporated business owned by one
POINTS: 1
DIFFICULTY: Easy
OTHER: Sole proprietorships|Partnerships|Corporations
DATE CREATED: 12/13/2017 12:30 AM
20. Which of the following statements about the corporate form of business organization is correct?
a. A corporation has the legal authority to act like a person when conducting business.
b. In the United States, corporations generate a lower percentage of total annual sales than either partnerships or
proprietorships.
c. Corporations generally are smaller than either partnerships or proprietorships.
d. One of the most important features of the corporate form of business organization is that stockholders have
unlimited liability.
e. Corporations can operate under different degrees of formality, ranging from informal, oral understandings to
formal agreements filed with the secretary of the state in which the corporations do business.
ANSWER: a
FEEDBACK: a. Correct. A corporation is a legal entity created by a state, which means that a
corporation has the legal authority to act like a person when conducting
business. See 1-2: Alternative Forms of Business Organization
b. Incorrect. Setting up a corporation is more complex and time-consuming than
a proprietorship or a partnership. When a corporation is created, a corporate

Name: Class: Date:
charter and a set of rules must be drawn up by the founder(s). See 1-2:
Alternative Forms of Business Organization
c. Incorrect. Setting up a corporation is more complex and time-consuming than
d. Incorrect. Setting up a corporation is more complex and time-consuming than
e. Incorrect. Setting up a corporation is more complex and time-consuming than
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations
DATE CREATED: 12/13/2017 12:34 AM
21. In the United States, the most common form of business is the _____, and the form of business that generates most of
the sales and profits is the _____.
a. corporation; corporation
b. corporation; proprietorship
c. proprietorship; partnership
d. proprietorship; corporation
e. corporation; partnership
ANSWER: d
FEEDBACK: a. Incorrect. A proprietorship is an unincorporated business owned by one
individual. A partnership has two or more owners. A corporation is a legal
entity created by a state, which means that a corporation has the legal
authority to act like a person when conducting business. See 1-2: Alternative
b. Incorrect. A proprietorship is an unincorporated business owned by one
c. Incorrect. A proprietorship is an unincorporated business owned by one
Name: Class: Date:
d. Correct. In the United States, 70–75 percent of businesses are operated as
proprietorships, 9–12 percent are partnerships, and the remaining 15–20
percent are corporations. Based on the dollar value of sales, however,
approximately 82 percent of all business is conducted by corporations, while
the remaining 18 percent is generated by proprietorships (3–4 percent) and
partnerships (14–15 percent). See 1-2: Alternative Forms of Business
Organization
e. Incorrect. A proprietorship is an unincorporated business owned by one
POINTS: 1
DIFFICULTY: Easy
OTHER: Partnerships|Sole proprietorships|Corporations
DATE CREATED: 12/13/2017 12:36 AM
22. Which of the following is a disadvantage of the corporate form of business?

a. A corporation faces difficulty in attracting substantial amounts of funds.
b. The owners of a corporation are subject to unlimited personal liability for the business' debts.
c. Setting up a corporation is more complex and time-consuming than setting up a proprietorship or a
partnership.
d. A corporation is said to have limited life.
e. Ownership interests cannot be transferred as easily as proprietorship or partnership interests.
ANSWER: c
FEEDBACK: a. Incorrect. When a corporation is created, a corporate charter must be filed
with the secretary of the state in which the firm incorporates and a set of
rules, called bylaws, must be drawn by founders. In addition, a corporation is
required to file periodic state and federal reports that are not required of other
forms of businesses. See 1-2: Alternative Forms of Business Organization
b. Incorrect. When a corporation is created, a corporate charter must be filed
c. Correct. Setting up a corporation is more complex and time-consuming than
corporate charter and a set of rules must be drawn up by the founder(s). In
Name: Class: Date:
addition, corporations must file periodic state and federal reports that are not
required of other forms of businesses. See 1-2: Alternative Forms of Business
Organization
d. Incorrect. When a corporation is created, a corporate charter must be filed
e. Incorrect. When a corporation is created, a corporate charter must be filed
POINTS: 1
DIFFICULTY: Easy
OTHER: Corporations|Sole proprietorships|Partnerships
DATE CREATED: 12/13/2017 12:39 AM
23. Compared to corporations, what is the primary disadvantage of partnerships as a form of business organization?
a. The tax rates applied to partnerships are higher than the tax rates applied to corporations.
b. Any dividends paid to the owners of a partnership business are taxed twice, once at the partnership level and
once at the personal, or individual level.
c. Partnerships generally are more complex to form (start up) than corporations.
d. Partnerships have unlimited lives whereas corporations do not.
e. The owners of a partnership, that is, the partners, have unlimited liability when it comes to business
obligations whereas the owners of a corporation have limited liability.
ANSWER: e
FEEDBACK: a. Incorrect. A partnership has two or more owners. Partnerships can operate
under different degrees of formality, ranging from informal, oral
understandings to formal agreements filed with the secretary of the state in
which the partnership does business. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
c. Incorrect. A partnership has two or more owners. Partnerships can operate
Name: Class: Date:
Organization
d. Incorrect. A partnership has two or more owners. Partnerships can operate
Organization
e. Correct. Under partnership law, each partner is liable for the debts of the
business, whereas a corporation offers its owners limited liability. See 1-2:
POINTS: 1
DIFFICULTY: Easy
OTHER: Partnerships|Corporations
DATE CREATED: 12/13/2017 12:43 AM
24. Which of the following forms of business offers limited personal liability to owners as well as the choice to be taxed
as either a corporation or as a partnership?
a. Limited liability partnership
b. Limited liability company
c. Corporation
d. Proprietorship
e. Partnership
ANSWER: b
FEEDBACK: a. Incorrect. Alternative business forms that include some of the advantages,
and avoid some of the disadvantages of the major forms of business have
evolved over time. These alternative forms of business combine some
characteristics of proprietorships and partnerships with some characteristics
of corporations. See 1-2: Alternative Forms of Business Organization
b. Correct. A limited liability company (LLC) offers the limited personal liability
associated with a corporation, but the company can choose to be taxed as
either a corporation or as a partnership. See 1-2: Alternative Forms of
c. Incorrect. Alternative business forms that include some of the advantages,
d. Incorrect. Alternative business forms that include some of the advantages,
Name: Class: Date:

e. Incorrect. Alternative business forms that include some of the advantages,
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability companies|Corporations|Partnerships|Sole proprietorships
DATE CREATED: 12/13/2017 12:46 AM
25. Identify a true statement about a limited liability company (LLC).

a. A limited liability company can be taxed as a corporation only.
b. One of the owners of a limited liability company must be designated as a general partner with unlimited
personal financial liability.
c. A limited liability company can have no more than 100 stockholders.
d. Only one of the owners of a limited liability company can participate in the management of the business.
e. A limited liability company can have more than one type of stock (ownership interest) outstanding.
ANSWER: e
FEEDBACK: a. Incorrect. A limited liability company (LLC) is a relatively new business form
that combines the features of a corporation and a partnership. See 1-2:
b. Incorrect. A limited liability company (LLC) is a relatively new business form
c. Incorrect. A limited liability company (LLC) is a relatively new business form
d. Incorrect. A limited liability company (LLC) is a relatively new business form
e. Correct. An LLC can have more than 100 stockholders (members) and more
than one type of stock (membership interest). See 1-2: Alternative Forms of
POINTS: 1
DIFFICULTY: Easy

Name: Class: Date:

OTHER: Limited liability companies
DATE CREATED: 12/13/2017 12:49 AM
26. If a limited liability company (LLC) is taxed like a partnership, _____.

a. income passes through to the owners
b. income is taxed twice
c. the owners have unlimited tax liability
d. the shareholders pay taxes on dividends they receive after the company pays taxes on the money that is
distributed
e. dividends are taxed at the capital gain rate
ANSWER: a
FEEDBACK: a. Correct. If a limited liability company (LLC) is taxed like a partnership, income
passes through to the owners. See 1-2: Alternative Forms of Business
Organization
b. Incorrect. A limited liability company (LLC) is a relatively new business form
e. Incorrect. A limited liability company (LLC) is a relatively new business form
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:52 AM

Name: Class: Date:

27. Identify a true statement about a limited liability company (LLC).
a. A limited liability company (LLC) has a maximum of 100 stockholders (owners).
b. A limited liability company (LLC) offers the limited personal liability associated with a corporation.
c. A limited liability company (LLC) has only one type of stock (membership interest).
d. A limited liability company (LLC) is taxed as a partnership, which means the stockholders are subject to
double taxation.
e. A limited liability company (LLC) is liable for the negligence, irresponsibility, or similar acts committed by
any partner.
ANSWER: b
FEEDBACK: a. Incorrect. A limited liability company (LLC) is a relatively new business form
b. Correct. A limited liability company (LLC) offers the limited personal liability
associated with a corporation, but the company can choose to be taxed as
either a corporation or as a partnership. See 1-2: Alternative Forms of
e. Incorrect. A limited liability company (LLC) is a relatively new business form
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 12:54 AM
28. Which of the following is true of a general partner of a limited liability partnership (LLP)?
a. A general partner of a limited liability partnership (LLP) is fully personally liable for all business debts.
b. A general partner of a limited liability partnership (LLP) cannot participate in the management of the business.
c. A general partner of a limited liability partnership (LLP) is considered as an investor only.
d. A general partner of a limited liability partnership (LLP) is liable only to the extent of his/her investment in
the partnership.
e. A general partner of a limited liability partnership (LLP) is taxed for the limited partners' share of the
partnership's income.
Name: Class: Date:
ANSWER: a
FEEDBACK: a. Correct. In some states, an LLP can be established that permits persons to
invest in partnerships without exposure to the personal liability that general
partners face. With this type of LLP, at least one partner is designated a
general partner and the others are limited partners. The general partners
remain fully personally liable for all business debts. See 1-2: Alternative
b. Incorrect. In some states, an LLP can be established that permits persons to
invest in partnerships without exposure to the personal liability. See 1-2:
c. Incorrect. In some states, an LLP can be established that permits persons to
d. Incorrect. In some states, an LLP can be established that permits persons to
e. Incorrect. In some states, an LLP can be established that permits persons to
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability partnerships
DATE CREATED: 12/13/2017 12:57 AM
29. A limited partner in a limited liability partnership (LLP) is _____.

a. responsible for the general management of the business
b. liable for only the amount invested in the partnership
c. responsible for negligence, irresponsibility, or similar acts committed by any other partner
d. liable to pay tax on the general partner's share of partnership income
e. personally liable for the partnership debts
ANSWER: b
FEEDBACK: a. Incorrect. In some states, an LLP can be established that permits persons to
invest in partnerships without exposure to the personal liability. With this type
of LLP, at least one partner is designated a general partner and the others
are limited partners. See 1-2: Alternative Forms of Business Organization
b. Correct. In some states, an LLP can be established that permits persons to

Name: Class: Date:
d. Incorrect. In some states, an LLP can be established that permits persons to
POINTS: 1
DIFFICULTY: Easy
DATE CREATED: 12/13/2017 1:00 AM
30. Identify the correct statement about a limited liability partnership (LLP).
a. The controller of a limited liability partnership is responsible for the negligence and irresponsibility of the
general partners.
b. A limited partner of a limited liability partnership is responsible for the general management of the partnership
business.
c. A limited partner of a limited liability partnership is liable to pay tax on all the partnership income.
d. A general partner of a limited liability partnership is personally liable for all business debts.
e. A limited partner of a limited liability partnership is responsible for the negligence and irresponsibility of all
general partners.
ANSWER: d
FEEDBACK: a. Incorrect. In some states, an LLP can be established that permits persons to
b. Incorrect. In some states, an LLP can be established that permits persons to

Name: Class: Date:
d. Correct. In some states, an LLP can be established that permits persons to
POINTS: 1
DIFFICULTY: Easy
31. It is possible to limit the liability faced by some of the partners in a partnership form of business by establishing a
_____.
a. limited liability partnership (LLP)
b. general partnership
c. Proprietorship
d. concentrated partnership
e. limited accumulation partnership
ANSWER: a
FEEDBACK: a. Correct. Alternative business forms that include some of the advantages, and
avoid some of the disadvantages, of the three major forms of business have
evolved over time. It is possible to limit the liability faced by some of the
partners in a business by establishing a limited liability partnership (LLP). See
b. Incorrect. Alternative business forms that include some of the advantages,
and avoid some of the disadvantages, of the three major forms of business
have evolved over time. These alternative forms of business combine some
c. Incorrect. Alternative business forms that include some of the advantages,
Name: Class: Date:
d. Incorrect. Alternative business forms that include some of the advantages,

e. Incorrect. Alternative business forms that include some of the advantages,
POINTS: 1
DIFFICULTY: Easy
OTHER: Limited liability partnership|Partnerships|Sole proprietorships
32. Identify a true statement about an S corporation.

a. An S Corporation is required to have more than 100 stockholders.
b. An S Corporation is required to have more than one type of stock outstanding.
c. The income of an S Corporation passes through the company to the owners.
d. The income of an S Corporation is taxed twice, at the corporate level and the owner level.
e. The income of an S Corporation is taxed as capital gains to the owners.
ANSWER: c
FEEDBACK: a. Incorrect. If a corporation elects the S corporation status, then its income is
taxed the same as income earned by proprietorships and partnerships. See
b. Incorrect. If a corporation elects the S corporation status, then its income is
c. Correct. If a corporation elects the S corporation status, then its income
passes through the company to the owners so that it is taxed only once. See
d. Incorrect. If a corporation elects the S corporation status, then its income is
e. Incorrect. If a corporation elects the S corporation status, then its income is
POINTS: 1
DIFFICULTY: Easy
Name: Class: Date:

OTHER: S corporations
33. Which of the following is a feature of an S Corporation?

a. An S Corporation is required to have more than 100 stockholders.
b. An S Corporation is required to have more than one type of stock outstanding.
c. The income of an S Corporation is taxed as capital gains to the owners.
d. The income of an S Corporation is taxed twice, at the corporate level and the owner level.
e. The income of an S Corporation is taxed the same as income earned by proprietorships and partnerships.
ANSWER: e
FEEDBACK: a. Incorrect. If a corporation elects the S corporation status, then its income
passes through the company to the owners. See 1-2: Alternative Forms of
b. Incorrect. If a corporation elects the S corporation status, then its income
c. Incorrect. If a corporation elects the S corporation status, then its income
d. Incorrect. If a corporation elects the S corporation status, then its income
e. Correct. If a corporation elects the S corporation status, then its income is
taxed the same as income earned by proprietorships and partnerships. Its
income passes through the company to the owners so that it is taxed only
once. See 1-2: Alternative Forms of Business Organization
POINTS: 1
DIFFICULTY: Easy
OTHER: S corporations

Name: Class: Date:
34. The primary goal of a publicly-owned firm interested in serving its stockholders should be to _____.
a. minimize the debt used by a firm
b. maximize expected earnings per share (EPS)
c. minimize the chances of losses
d. maximize the stock price per share
e. maximize expected net income
ANSWER: d
FEEDBACK: a. Incorrect. Investors want to increase their wealth positions as much as
possible. Management's primary goal is stockholder wealth maximization.
See 1-3: What Goal(s) Should Businesses Pursue?
b. Incorrect. Investors want to increase their wealth positions as much as
c. Incorrect. Investors want to increase their wealth positions as much as
d. Correct. Management's primary goal is stockholder wealth maximization,
which translates into maximizing the value of the firm as measured by the
price of its common stock. See 1-3: What Goal(s) Should Businesses
Pursue?
e. Incorrect. Investors want to increase their wealth positions as much as
POINTS: 1
DIFFICULTY: Moderate
REFERENCES: What Goal(s) Should Businesses Pursue?
LEARNING OBJECTIVES: CFIN6.BESL.19.01.03 - Identify major goals that firms pursue and what a firm's primary
goal should be.
OTHER: Stockholders|Financial performance|Wealth maximization
35. Institutional investors can ensure that a corporation pursues goals that are in their best interest by _____.
a. binding the management with stockholder-sponsored proposals
b. ensuring that the management is working toward maximizing current earnings
c. compensating managers of the corporation on the basis of the firm's performance in the short run
d. implementing policies that encourage management to make decisions that maximize managers' wealth
e. monitoring its financial performance to ensure that managers pursue the goal of wealth maximization
ANSWER: e

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leikillinen Miina!" sanoi hän ihastuneena.
Hiljaa keinuili vene järven pinnalla, onnellista paria kantoi se.

Sydän oli taasen tavannut sydämmen; ne olivat olleet eroitettuna, ja
tuskalliselta tuntui se ero, luonto kun oli ne yhteen kasvattanut.
Ilta oli kulunut jo myöhäksi, kun uusi vene saapui rantaan ja

maalle nousivat onnelliset soutelijat; käsikädessä astuivat he, he
olisivat tahtoneet vaikka koko maailmalle sanoa, että rakastivat
toisiaan ja olivat onnelliset.
"Tänään on käynyt tytölle hyvin!" nauroi Pekka, nähdessään

tyttärensä iloisena ja vilkkaana.
"Oikein arvattu, niin onkin!" vastasi Miina.
Eräänä kauniina elokuun iltapäivänä soutaa Ruuhkajärvellä

moniaita veneitä. Etummaisessa niistä näemme entiset nuoret
tuttavamme. He palaavat pappilasta, jossa ovat vannoneet ikuista
uskollisuutta toisillensa ja saaneet papillisen siunauksen; nyt ovat
Kalle ja Miina laillinen aviopari. Morsiamen kasvot loistavat
onnellisuudesta, hänen kantaissaan helähtelevää morsiuskruunua;
ihastuttavan katseen loi hän onnelliseen ylkäänsä, joka vakavana
rinnalla istuu.
Samassa veneessä vastapäätä morsiusparia istuu nuori iloisen

näköinen herrasmies, sehän on ennen tuntemamme Alpert herra,
joka nyt seuraa pientä hääjoukkoa takamaille.
"Onpa hauskaa kun tanssitaankin illalla", puhuu Alpert, "mutta

enpä vielä kysynytkään, kukas tulee soittamaan?"
"Hm, Puumalan Antti!"

"Hyvä, Antti soittaa kauniisti, sen olen kuullut?" Kaksi muuta
venettä seurasi jo mainittua. Niissä oli morsiusparin sukulaisia ja
tuttavia, paraastaan nuorta väkeä ja hilpeällä mielellä kulki seurue
rantaa kohden.
Rannalla oli tuttavia vastassa ja siitä yksissä lähdettiin torpille,

jotka olivat koristetut lehtipuilla ja muilla viheriöillä kasveilla mitä
ihanimmaksi.
"Ohoo, täällähän ollaan kuin esivanhempaimme paratiisissa",

huudahti
Alpert herra, astuissaan Alamaan pihaan.
"Niin sitä nyt ollaan! mutta harvoin onkin häisiä päiviä", sanoi
Pekka, joka oli pihalla vastassa.
"Harvoin kyllä, mutta hyvä kun joskuskin!"
"Jaa, hyvä kyllä, ja vielä parempi että tekin tulitte niihin osaa
ottamaan, vaikka ei täällä ole paljoa tarjona!"
"Toivon sentään ettei hauskuudesta ole puutetta!"
"Eipä pitäisi", jatkoi Pekka vilkkaasti, "tämä on tanssitalo, johon

tullaan iltaa viettämään, käymme nyt ensiksi tuonne minun mökilleni,
siellä se on pelimannikin, vetää marssia, että korpi raikuu!"
Pihalla oli Mikkokin vieraita vastassa, sanoen heitä tervetulleiksi,

kävi hänkin joukkoon, ja niin lähdettiin morsiustaloon. Siellä oli
oivallinen hääpöytä laitettu, olikin nyt oikein varsinainen kokki
ruokien teossa, joita nuoret pojat pöydälle kantoivat.
Hääpöydässä toivotti Alpert herra onnea nuorelle pariskunnalle ja
lupasi häälahjaksi Kallelle Alamaan torpan nautinnon samoilla
ehdoilla kuin tähänkin asti.
"Onpas siinä lahjaa, pila vieköön", sanoi Pekka, "eipä Mikolla

olekaan enää juuri mökin maat!"
"Se on teidän työnne ja ansionne", sanoi Alpert, "ilman teitä ei

kukaties näillä takamailla olisi yhtä peltosarkaa, eikä niittulappua,
ilman teitä olisi tämä mitätön räme, sutten ja karhuin pesäpaikka.
Mutta rehellinen, uupumaton työ palkitsee tekijänsä, samalla
hyödyttäin koko kansaa ja isänmaata. Senpätähden lupaan
mielelläni nämät maat näille nuorille; ei se oikeastaan tulekkaan
heille miksikään lahjaksi, vaan oikeutettuna perintönä" ja, jatkoi hän
morsianta silmiin katsoen, "toinen torppa tulee Miinan myötäjäisinä,
tietysti vasta sitte, kun ei Pekka sitä enää tarvitse."
"Te olette jalo mies", sanoi Mikko, "nyt vasta voimmekin viettää
oikein iloisia häitä, koska tiedämme, että näitten toimeentulo on
turvattu vielä sittenkin, kun me vanhat olemme päivämme
päättäneet, ja kyllä kai niin kauan sovimme."
"Aivan hyvin", sanoi Pekka, "ystävyys on täällä ollut paras

tukemme kovinakin aikoina, kestäneehän sitä eteenkinpäin!"
"Minä", sanoi Kalle Alpertille, "saan teitä kiittää sekä aineellisista

että henkisistä eduista. Jos ette nuoruudessani olisi ravintoa
hankkinut kaipaavalle hengelleni, kuka tietää mitä olisi minusta
tullut!"
"Vaan tuossa tuodaan paistia", sanoi Alpert, "isketäänpäs siihen ja

morsiusparin kunniaksi, hyvällä ruokahalulla!"
"Oikein hyvällä", sanoi Pekka, "ja iloisella mielellä, vaikka ollaankin
täällä metsän sydämmessä!"
Iloisella mielellä näytti jokainen olevan ja vilkkaasti haastellessa

kului ilta. Silloin rupesivat nuoret muistuttelemaan, että olisi tanssin
aika ja pelimanni etunenässä kulki hääjoukko Mikon laveaan tupaan,
viihdyttämään tanssi-intoaan.
Iloisina tanssivat nuoret, mutta kaikista iloisin oli Alpert herra, hän
tanssi, laski leikkiä ujosteleville tytöille, häntä huvitti nähdä kansansa
lapsia heidän teeskentelemättömässä yksinkertaisuudessaan.
Toisen päivän ikäpuolella läksivät vieraat kukin kotiaan vieden

hauskoja muistoja muassaan näistä kaikinpuolin niin iloisista häistä.
Syksypuoleen eräänä sunnuntai-iltana istui nuori pariskunta

Ruuhkajärven rannalla, katsellen, miten laineet loiskuivat rantaa
vasten. Äänetönnä istuivat he käsikädessä, näkyipä pari kirkasta
kyyneltä nuoren naisen silmissä, mutta ne eivät olleet surun, ei —
entisajan muistot saivat ne uhkumaan.
"Oi sinä tuttava järvi", huudahti Kalle, "kuinka monta kertaa

olenkaan pinnallasi soudellut, myrskyssä ja tyyneellä. Tuolla", sanoi
hän, "olen soudellut monta kertaa onnellisena, mutta myöskin
onnettomana, sydän särkymäisillään! Mutta onnettomuuteni olikin
vaan luultua, ei todellista; olen löytänyt rauhaa sydämmelleni ja
saanut omakseni sen, jota rakastin, jota rakastan enemmin kuin
omaa itseäni."
Miina painoi päänsä Kallen rinnoille, kuiskaten: "Oi Kalle, minä en

ansaitse niin suurta rakkautta, luontoni on paha, mutta minä koetan
tulla paremmaksi!"
"Ole sinä vaan semmoinen kuin olet, semmoisena olen sinua
rakastanut ja rakastan, semmoisena olet sinä elämäni ihana
päivänpaiste ja sydämeni paras ilo!" sanoi Kalle hymyillen.
Loppu.
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Test Bank for CFIN 3, 3rd Edition : Besley

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Solution Manual for Corporate Finance: A Focused

Test Bank for Intermediate Financial Management, 13th

Test Bank for Intermediate Financial Management, 11th

Test Bank for Fundamentals of Financial Management,

01: An Overview of Managerial Finance

Test Bank for CFIN, 6th Edition, Scott Besley, Eugene

2. The success of financial institutions depends on _____.

01: An Overview of Managerial Finance

c. the expectations of long-term investors in the company

3. Which of the following is true of the investment function of finance?

01: An Overview of Managerial Finance

4. Identify a true statement about the financial services provided by organizations.

01: An Overview of Managerial Finance

e. Correct. Persons working in financial services organizations help individuals

5. Financial services refer to functions provided by organizations that _____.

01: An Overview of Managerial Finance

ACCREDITING STANDARDS: Analytic

6. Which of the following functions deals with the management of money?

01: An Overview of Managerial Finance

8. Which of the following is true of financial institutions?

Copyright Cengage Learning. Powered by Cognero. Page 6

01: An Overview of Managerial Finance

b. Correct. The success of financial institutions requires an understanding of

9. The investment function of finance helps in _____.

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01: An Overview of Managerial Finance

d. Incorrect. The investment function of finance determines the optimal mix of

10. The success of financial institutions requires an understanding of _____.

Copyright Cengage Learning. Powered by Cognero. Page 8

01: An Overview of Managerial Finance

QUESTION TYPE: Multiple Choice

11. The treasurer of a company is a key subordinate of the _____.

12. The credit manager is supervised by the _____.

Copyright Cengage Learning. Powered by Cognero. Page 9

01: An Overview of Managerial Finance

d. vice president of finance

Copyright Cengage Learning. Powered by Cognero. Page 10

01: An Overview of Managerial Finance

FEEDBACK: a. Incorrect. Although organizational structures vary from company to company,

Copyright Cengage Learning. Powered by Cognero. Page 11

01: An Overview of Managerial Finance

01: An Overview of Managerial Finance

16. Which of the following statements is true of corporate bylaws?

Copyright Cengage Learning. Powered by Cognero. Page 13

01: An Overview of Managerial Finance

17. Which of the following statements is correct?

01: An Overview of Managerial Finance

more complex and time-consuming than a proprietorship or a partnership.

18. Which of the following statements is correct?

Copyright Cengage Learning. Powered by Cognero. Page 15

01: An Overview of Managerial Finance

19. Which of the following statements is correct?

Copyright Cengage Learning. Powered by Cognero. Page 16

01: An Overview of Managerial Finance

b. Incorrect. A proprietorship is an unincorporated business owned by one

Copyright Cengage Learning. Powered by Cognero. Page 17

01: An Overview of Managerial Finance

01: An Overview of Managerial Finance