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Chapter 01 - Introduction to Corporate Finance
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Chapter 01
Introduction to Corporate Finance
Multiple Choice Questions
1. The person generally directly responsible for overseeing the tax management, cost
accounting, financial accounting, and information system functions is the:
A. treasurer.
B. director.
C. controller.
D. chairman of the board.
E. chief executive officer.
2. The person generally directly responsible for overseeing the cash and credit functions,
financial planning, and capital expenditures is the:
A. treasurer.
B. director.
C. controller.
E. chief operations officer.
3. The process of planning and managing a firm's long-term investments is called:

A. working capital management.
B. financial depreciation.
C. agency cost analysis.
D. capital budgeting.
E. capital structure.
1-1
4. The mixture of debt and equity used by a firm to finance its operations is called:
C. cost analysis.
1-2
5. The management of a firm's short-term assets and liabilities is called:

B. debt management.
C. equity management.
6. A business owned by a single individual is called a:

A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
7. A business formed by two or more individuals who each have unlimited liability for
business debts is called a:
A. corporation.
8. The division of profits and losses among the members of a partnership is formalized in the:
A. indemnity clause.
B. indenture contract.
C. statement of purpose.
D. partnership agreement.
E. group charter.
1-3
9. A business created as a distinct legal entity composed of one or more individuals or entities
is called a:
A. corporation.
E. unlimited liability company.
10. The corporate document that sets forth the business purpose of a firm is the:
A. indenture contract.
B. state tax agreement.
C. corporate bylaws.
D. debt charter.
E. articles of incorporation.
11. The rules by which corporations govern themselves are called:

A. indenture provisions.
B. indemnity provisions.
C. charter agreements.
D. bylaws.
12. A business entity operated and taxed like a partnership, but with limited liability for the
owners, is called a:
A. limited liability company.
B. general partnership.
C. limited proprietorship.
D. sole proprietorship.
E. corporation.
1-4
13. The primary goal of financial management is to:

A. maximize current dividends per share of the existing stock.
B. maximize the current value per share of the existing stock.
C. avoid financial distress.
D. minimize operational costs and maximize firm efficiency.
E. maintain steady growth in both sales and net earnings.
14. A conflict of interest between the stockholders and management of a firm is called:
A. stockholders' liability.
B. corporate breakdown.
C. the agency problem.
D. corporate activism.
E. legal liability.
15. Agency costs refer to:

A. the total dividends paid to stockholders over the lifetime of a firm.
B. the costs that result from default and bankruptcy of a firm.
C. corporate income subject to double taxation.
D. the costs of any conflicts of interest between stockholders and management.
E. the total interest paid to creditors over the lifetime of the firm.
16. A stakeholder is:

A. any person or entity that owns shares of stock of a corporation.
B. any person or entity that has voting rights based on stock ownership of a corporation.
C. a person who initially started a firm and currently has management control over the cash
flows of the firm due to his/her current ownership of company stock.
D. a creditor to whom the firm currently owes money and who consequently has a claim on
the cash flows of the firm.
E. any person or entity other than a stockholder or creditor who potentially has a claim on the
cash flows of the firm.
1-5
17. The Sarbanes Oxley Act of 2002 is intended to:

A. protect financial managers from investors.
B. not have any effect on foreign companies.
C. reduce corporate revenues.
D. protect investors from corporate abuses.
E. decrease audit costs for U.S. firms.
18. The treasurer and the controller of a corporation generally report to the:
A. board of directors.
B. chairman of the board.
C. chief executive officer.
D. president.
E. chief financial officer.
19. Which one of the following statements is correct concerning the organizational structure
of a corporation?
A. The vice president of finance reports to the chairman of the board.
B. The chief executive officer reports to the board of directors.
C. The controller reports to the president.
D. The treasurer reports to the chief executive officer.
E. The chief operations officer reports to the vice president of production.
20. Which one of the following is a capital budgeting decision?

A. determining how much debt should be borrowed from a particular lender
B. deciding whether or not to open a new store
C. deciding when to repay a long-term debt
D. determining how much inventory to keep on hand
E. determining how much money should be kept in the checking account
1-6
21. The Sarbanes Oxley Act was enacted in:

A. 1952.
B. 1967.
C. 1998.
D. 2002.
E. 2006.
22. Since the implementation of Sarbanes-Oxley, the cost of going public in the United States
has:
A. increased.
B. decreased.
C. remained about the same.
D. been erratic, but over time has decreased.
E. It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to the
firm.
23. Working capital management includes decisions concerning which of the following?
I. accounts payable
II. long-term debt
III. accounts receivable
IV. inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and III only
E. I, III, and IV only
24. Working capital management:

A. ensures that sufficient equipment is available to produce the amount of product desired on
a daily basis.
B. ensures that long-term debt is acquired at the lowest possible cost.
C. ensures that dividends are paid to all stockholders on an annual basis.
D. balances the amount of company debt to the amount of available equity.
E. is concerned with the upper portion of the balance sheet.
1-7
25. Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is the least common form of business ownership.
B. The profits of a sole proprietorship are taxed twice.
C. The owners of a sole proprietorship share profits as established by the partnership
agreement.
D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay
company debts.
E. A sole proprietorship is often structured as a limited liability company.
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.
27. Which one of the following best describes the primary advantage of being a limited
partner rather than a general partner?
A. entitlement to a larger portion of the partnership's income
B. ability to manage the day-to-day affairs of the business
C. no potential financial loss
D. greater management responsibility
E. liability for firm debts limited to the capital invested
28. A general partner:

A. has less legal liability than a limited partner.
B. has more management responsibility than a limited partner.
C. faces double taxation whereas a limited partner does not.
D. cannot lose more than the amount of his/her equity investment.
E. is the term applied only to corporations which invest in partnerships.
1-8
29. A partnership:
A. is taxed the same as a corporation.
B. agreement defines whether the business income will be taxed like a partnership or a
corporation.
C. terminates at the death of any general partner.
D. has less of an ability to raise capital than a proprietorship.
E. allows for easy transfer of interest from one general partner to another.
30. Which of the following are disadvantages of a partnership?

I. limited life of the firm
II. personal liability for firm debt
III. greater ability to raise capital than a sole proprietorship
IV. lack of ability to transfer partnership interest
A. I and II only
B. III and IV only
C. II and III only
D. I, II, and IV only
31. Which of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
A. I and II only
B. III and IV only
C. I, II, and III only
D. II, III, and IV only
32. Which one of the following statements is correct concerning corporations?

A. The largest firms are usually corporations.
B. The majority of firms are corporations.
C. The stockholders are usually the managers of a corporation.
D. The ability of a corporation to raise capital is quite limited.
E. The income of a corporation is taxed as personal income of the stockholders.
1-9
33. Which one of the following statements is correct?

A. Both partnerships and corporations incur double taxation.
B. Both sole proprietorships and partnerships are taxed in a similar fashion.
C. Partnerships are the most complicated type of business to form.
D. Both partnerships and corporations have limited liability for general partners and
shareholders.
E. All types of business formations have limited lives.
34. The articles of incorporation:

A. can be used to remove company management.
B. are amended annually by the company stockholders.
C. set forth the number of shares of stock that can be issued.
D. set forth the rules by which the corporation regulates its existence.
E. can set forth the conditions under which the firm can avoid double taxation.
35. The bylaws:

A. establish the name of the corporation.
B. are rules which apply only to limited liability companies.
C. set forth the purpose of the firm.
D. mandate the procedure for electing corporate directors.
E. set forth the procedure by which the stockholders elect the senior managers of the firm.
36. The owners of a limited liability company prefer:

A. being taxed like a corporation.
B. having liability exposure similar to that of a sole proprietor.
C. being taxed personally on all business income.
D. having liability exposure similar to that of a general partner.
E. being taxed like a corporation with liability like a partnership.
1-10
37. Which one of the following business types is best suited to raising large amounts of
capital?
A. sole proprietorship
B. limited liability company
C. corporation
D. general partnership
E. limited partnership
38. Which type of business organization has all the respective rights and privileges of a legal
person?
B. general partnership
C. limited partnership
D. corporation
E. limited liability company
39. Financial managers should strive to maximize the current value per share of the existing
stock because:
A. doing so guarantees the company will grow in size at the maximum possible rate.
B. doing so increases the salaries of all the employees.
C. the current stockholders are the owners of the corporation.
D. doing so means the firm is growing in size faster than its competitors.
E. the managers often receive shares of stock as part of their compensation.
40. The decisions made by financial managers should all be ones which increase the:
A. size of the firm.
B. growth rate of the firm.
C. marketability of the managers.
D. market value of the existing owners' equity.
E. financial distress of the firm.
1-11
41. Which one of the following actions by a financial manager creates an agency problem?
A. refusing to borrow money when doing so will create losses for the firm
B. refusing to lower selling prices if doing so will reduce the net profits
C. agreeing to expand the company at the expense of stockholders' value
D. agreeing to pay bonuses based on the book value of the company stock
E. increasing current costs in order to increase the market value of the stockholders' equity
42. Which of the following help convince managers to work in the best interest of the
stockholders?
I. compensation based on the value of the stock
II. stock option plans
III. threat of a proxy fight
IV. threat of conversion to a partnership
A. I and II only
B. II and III only
C. I, II and III only
D. I and III only
E. I, II, III, and IV
43. Which form of business structure faces the greatest agency problems?
D. corporation
44. A proxy fight occurs when:

A. the board solicits renewal of current members.
B. a group solicits proxies to replace the board of directors.
C. a competitor offers to sell their ownership in the firm.
D. the firm files for bankruptcy.
E. the firm is declared insolvent.
1-12
45. Which one of the following parties is considered a stakeholder of a firm?

A. employee
B. short-term creditor
C. long-term creditor
D. preferred stockholder
E. common stockholder
46. Which of the following are key requirements of the Sarbanes-Oxley Act?
I. Officers of the corporation must review and sign annual reports.
II. Officers of the corporation must now own more than 5% of the firm's stock.
III. Annual reports must list deficiencies in internal controls
IV. Annual reports must be filed with the SEC within 30 days of year end.
A. I only
B. II only
C. I and III only
D. II and III only
E. II and IV only
47. Insider trading is:

A. legal.
B. illegal.
C. impossible to have in our efficient market.
D. discouraged, but legal.
E. list only the securities of the largest firms.
48. Sole proprietorships are predominantly started because:

A. they are easily and cheaply setup.
B. the proprietorship life is limited to the business owner's life.
C. all business taxes are paid as individual tax.
D. All of the above.
E. None of the above.
1-13
49. Managers are encouraged to act in shareholders' interests by:

A. shareholder election of a board of directors who select management.
B. the threat of a takeover by another firm.
C. compensation contracts that tie compensation to corporate success.
D. Both A and B.
E. All of the above.
50. The Securities Exchange Act of 1934 focuses on:

A. all stock transactions.
B. sales of existing securities.
C. issuance of new securities.
D. insider trading.
E. Federal Deposit Insurance Corporation (FDIC) insurance.
51. The basic regulatory framework in the United States was provided by:
A. the Securities Act of 1933.
B. the Securities Exchange Act of 1934.
C. the monetary system.
D. A and B.
E. All of the above.
52. The Securities Act of 1933 focuses on:

A. all stock transactions.
B. sales of existing securities.
C. issuance of new securities.
D. insider trading.
E. Federal Deposit Insurance Corporation (FDIC) insurance.
53. In a limited partnership:

A. each limited partner's liability is limited to his net worth.
B. each limited partner's liability is limited to the amount he put into the partnership.
C. each limited partner's liability is limited to his annual salary.
D. there is no limitation on liability; only a limitation on what the partner can earn.
E. None of the above.
1-14
54. Accounting profits and cash flows are:

A. generally the same since they reflect current laws and accounting standards.
B. generally the same since accounting profits reflect when the cash flows are received.
C. generally not the same since GAAP allows for revenue recognition separate from the
receipt of cash flows.
D. generally not the same because cash inflows occur before revenue recognition.
E. Both c and d.
Essay Questions
55. List and briefly describe the three basic questions addressed by a financial manager.
56. What advantages does the corporate form of organization have over sole proprietorships
or partnerships?
57. If the corporate form of business organization has so many advantages over the sole
proprietorship, why is it so common for small businesses to initially be formed as sole
proprietorships?
1-15
58. What should be the goal of the financial manager of a corporation? Why?
59. Do you think agency problems arise in sole proprietorships and/or partnerships?
60. Assume for a moment that the stockholders in a corporation have unlimited liability for
corporate debts. If so, what impact would this have on the functioning of primary and
secondary markets for common stock?
61. Suppose you own 100 shares of IBM stock which you intend to sell today. Since you will
sell it in the secondary market, IBM will receive no direct cash flows as a consequence of
your sale. Why, then, should IBM's management care about the price you get for your
shares?
1-16
62. One thing lenders sometimes require when loaning money to a small corporation is an
assignment of the common stock as collateral on the loan. Then, if the business fails to repay
its loan, the ownership of the stock certificates can be transferred directly to the lender. Why
might a lender want such an assignment? What advantage of the corporate form of
organization comes into play here?
63. Why might a corporation wish to list its shares on a national exchange such as the NYSE
as opposed to a regional exchange or NASDAQ?
1-17
Chapter 01 Introduction to Corporate Finance Answer Key
Multiple Choice Questions
1. The person generally directly responsible for overseeing the tax management, cost
accounting, financial accounting, and information system functions is the:
A. treasurer.
B. director.
C. controller.
E. chief executive officer.
Difficulty level: Easy

Topic: CONTROLLER
Type: DEFINITIONS
2. The person generally directly responsible for overseeing the cash and credit functions,
financial planning, and capital expenditures is the:
A. treasurer.
B. director.
C. controller.
E. chief operations officer.

Topic: TREASURER
Type: DEFINITIONS
1-18
3. The process of planning and managing a firm's long-term investments is called:

C. agency cost analysis.

Topic: CAPITAL BUDGETING
Type: DEFINITIONS
4. The mixture of debt and equity used by a firm to finance its operations is called:
C. cost analysis.

Topic: CAPITAL STRUCTURE
Type: DEFINITIONS
5. The management of a firm's short-term assets and liabilities is called:

B. debt management.
C. equity management.

Topic: WORKING CAPITAL MANAGEMENT
Type: DEFINITIONS
1-19
6. A business owned by a single individual is called a:

A. corporation.

Topic: SOLE PROPRIETORSHIP
Type: DEFINITIONS
7. A business formed by two or more individuals who each have unlimited liability for
business debts is called a:
A. corporation.

Topic: GENERAL PARTNERSHIP
Type: DEFINITIONS
8. The division of profits and losses among the members of a partnership is formalized in the:
A. indemnity clause.
B. indenture contract.
C. statement of purpose.
D. partnership agreement.
E. group charter.

Topic: PARTNERSHIP AGREEMENT
Type: DEFINITIONS
1-20
9. A business created as a distinct legal entity composed of one or more individuals or entities
is called a:
A. corporation.
E. unlimited liability company.

Topic: CORPORATION
Type: DEFINITIONS
10. The corporate document that sets forth the business purpose of a firm is the:
A. indenture contract.
B. state tax agreement.
C. corporate bylaws.
D. debt charter.

Topic: ARTICLES OF INCORPORATION
Type: DEFINITIONS
11. The rules by which corporations govern themselves are called:

A. indenture provisions.
B. indemnity provisions.
C. charter agreements.
D. bylaws.

Topic: BYLAWS
Type: DEFINITIONS
1-21
12. A business entity operated and taxed like a partnership, but with limited liability for the
owners, is called a:
A. limited liability company.
B. general partnership.
C. limited proprietorship.
D. sole proprietorship.
E. corporation.

Topic: LIMITED LIABILITY COMPANY
Type: DEFINITIONS
13. The primary goal of financial management is to:

A. maximize current dividends per share of the existing stock.
B. maximize the current value per share of the existing stock.
C. avoid financial distress.
D. minimize operational costs and maximize firm efficiency.
E. maintain steady growth in both sales and net earnings.

Topic: FINANCIAL MANAGEMENT GOAL
Type: DEFINITIONS
14. A conflict of interest between the stockholders and management of a firm is called:
A. stockholders' liability.
B. corporate breakdown.
C. the agency problem.
D. corporate activism.
E. legal liability.

Topic: AGENCY PROBLEM
Type: DEFINITIONS
1-22
15. Agency costs refer to:

A. the total dividends paid to stockholders over the lifetime of a firm.
B. the costs that result from default and bankruptcy of a firm.
C. corporate income subject to double taxation.
D. the costs of any conflicts of interest between stockholders and management.
E. the total interest paid to creditors over the lifetime of the firm.

Topic: AGENCY COSTS
Type: DEFINITIONS
16. A stakeholder is:

A. any person or entity that owns shares of stock of a corporation.
B. any person or entity that has voting rights based on stock ownership of a corporation.
C. a person who initially started a firm and currently has management control over the cash
flows of the firm due to his/her current ownership of company stock.
D. a creditor to whom the firm currently owes money and who consequently has a claim on
the cash flows of the firm.
E. any person or entity other than a stockholder or creditor who potentially has a claim on the
cash flows of the firm.

Topic: STAKEHOLDERS
Type: DEFINITIONS
17. The Sarbanes Oxley Act of 2002 is intended to:

A. protect financial managers from investors.
B. not have any effect on foreign companies.
C. reduce corporate revenues.
D. protect investors from corporate abuses.
E. decrease audit costs for U.S. firms.

Topic: SARBANES OXLEY
Type: CONCEPTS
1-23
18. The treasurer and the controller of a corporation generally report to the:
A. board of directors.
B. chairman of the board.
C. chief executive officer.
D. president.
E. chief financial officer.

Topic: ORGANIZATIONAL STRUCTURE
Type: CONCEPTS
19. Which one of the following statements is correct concerning the organizational structure
of a corporation?
A. The vice president of finance reports to the chairman of the board.
B. The chief executive officer reports to the board of directors.
C. The controller reports to the president.
D. The treasurer reports to the chief executive officer.
E. The chief operations officer reports to the vice president of production.
Difficulty level: Medium

Topic: ORGANIZATIONAL STRUCTURE
Type: CONCEPTS
20. Which one of the following is a capital budgeting decision?

A. determining how much debt should be borrowed from a particular lender
B. deciding whether or not to open a new store
C. deciding when to repay a long-term debt
D. determining how much inventory to keep on hand
E. determining how much money should be kept in the checking account

Topic: CAPITAL BUDGETING
Type: CONCEPTS
1-24
21. The Sarbanes Oxley Act was enacted in:

A. 1952.
B. 1967.
C. 1998.
D. 2002.
E. 2006.

Topic: SARBANES OXLEY
Type: CONCEPTS
22. Since the implementation of Sarbanes-Oxley, the cost of going public in the United States
has:
A. increased.
B. decreased.
C. remained about the same.
D. been erratic, but over time has decreased.
E. It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to the
firm.

Topic: SARBANES-OXLEY
Type: CONCEPTS
23. Working capital management includes decisions concerning which of the following?
I. accounts payable
II. long-term debt
III. accounts receivable
IV. inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and III only

Type: CONCEPTS
1-25
24. Working capital management:

A. ensures that sufficient equipment is available to produce the amount of product desired on
a daily basis.
B. ensures that long-term debt is acquired at the lowest possible cost.
C. ensures that dividends are paid to all stockholders on an annual basis.
D. balances the amount of company debt to the amount of available equity.
E. is concerned with the upper portion of the balance sheet.

Type: CONCEPTS
A. A sole proprietorship is the least common form of business ownership.
B. The profits of a sole proprietorship are taxed twice.
C. The owners of a sole proprietorship share profits as established by the partnership
agreement.
D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay
company debts.
E. A sole proprietorship is often structured as a limited liability company.

Type: CONCEPTS
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.

Type: CONCEPTS
1-26
27. Which one of the following best describes the primary advantage of being a limited
partner rather than a general partner?
A. entitlement to a larger portion of the partnership's income
B. ability to manage the day-to-day affairs of the business
C. no potential financial loss
D. greater management responsibility
E. liability for firm debts limited to the capital invested

Topic: PARTNERSHIP
Type: CONCEPTS
28. A general partner:

A. has less legal liability than a limited partner.
B. has more management responsibility than a limited partner.
C. faces double taxation whereas a limited partner does not.
D. cannot lose more than the amount of his/her equity investment.
E. is the term applied only to corporations which invest in partnerships.

Topic: PARTNERSHIP
Type: CONCEPTS
29. A partnership:
A. is taxed the same as a corporation.
B. agreement defines whether the business income will be taxed like a partnership or a
corporation.
C. terminates at the death of any general partner.
D. has less of an ability to raise capital than a proprietorship.
E. allows for easy transfer of interest from one general partner to another.

Topic: PARTNERSHIP
Type: CONCEPTS
1-27
30. Which of the following are disadvantages of a partnership?

I. limited life of the firm
II. personal liability for firm debt
III. greater ability to raise capital than a sole proprietorship
IV. lack of ability to transfer partnership interest
A. I and II only
B. III and IV only
C. II and III only
D. I, II, and IV only

Topic: PARTNERSHIP
Type: CONCEPTS
31. Which of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
A. I and II only
B. III and IV only
C. I, II, and III only
D. II, III, and IV only

Topic: CORPORATION
Type: CONCEPTS
32. Which one of the following statements is correct concerning corporations?

A. The largest firms are usually corporations.
B. The majority of firms are corporations.
C. The stockholders are usually the managers of a corporation.
D. The ability of a corporation to raise capital is quite limited.
E. The income of a corporation is taxed as personal income of the stockholders.

Topic: CORPORATION
Type: CONCEPTS
1-28
33. Which one of the following statements is correct?

A. Both partnerships and corporations incur double taxation.
B. Both sole proprietorships and partnerships are taxed in a similar fashion.
C. Partnerships are the most complicated type of business to form.
D. Both partnerships and corporations have limited liability for general partners and
shareholders.
E. All types of business formations have limited lives.

Topic: BUSINESS TYPES
Type: CONCEPTS
34. The articles of incorporation:

A. can be used to remove company management.
B. are amended annually by the company stockholders.
C. set forth the number of shares of stock that can be issued.
D. set forth the rules by which the corporation regulates its existence.
E. can set forth the conditions under which the firm can avoid double taxation.

Topic: ARTICLES OF INCORPORATION
Type: CONCEPTS
35. The bylaws:

A. establish the name of the corporation.
B. are rules which apply only to limited liability companies.
C. set forth the purpose of the firm.
D. mandate the procedure for electing corporate directors.
E. set forth the procedure by which the stockholders elect the senior managers of the firm.

Topic: BYLAWS
Type: CONCEPTS
1-29
36. The owners of a limited liability company prefer:

A. being taxed like a corporation.
B. having liability exposure similar to that of a sole proprietor.
C. being taxed personally on all business income.
D. having liability exposure similar to that of a general partner.
E. being taxed like a corporation with liability like a partnership.

Topic: LIMITED LIABILITY COMPANY
Type: CONCEPTS
37. Which one of the following business types is best suited to raising large amounts of
capital?
B. limited liability company
C. corporation
D. general partnership
E. limited partnership

Topic: CORPORATION
Type: CONCEPTS
38. Which type of business organization has all the respective rights and privileges of a legal
person?
D. corporation

Topic: CORPORATION
Type: CONCEPTS
1-30
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was but slightly guarded, and that by making a wide détour in the
rear of our lines the chances were good for them to add a few rations
of fresh beef to the bacon and corn-meal diet of the Rebel army, a
strong force of cavalry under Wade Hampton made the attempt,
capturing twenty-five hundred beeves and four hundred prisoners,
and getting off with them before our cavalry could intervene. The
beeves were a blessing to them, far more precious and valuable
than as many Union prisoners would have been; for they already had
more prisoners than they could or would feed. As for us, I do not
remember that fresh meat was any the scarcer on account of this
raid, for the North, with its abundance, was bountifully supplying the
government with whatever was needed, and the loss of a few
hundred cattle could scarcely cause even a temporary
inconvenience. Had the army been on the march, away from its base
of supplies, the loss might have been felt more severely.
Whenever the army made a move its supply of fresh meat went
along too. Who had charge of it? Men were detailed for the business
from the various regiments, who acted both as butchers and drovers,
and were excused from all other duty. When a halt was made for the
night, some of the steers would be slaughtered, and the meat
furnished to the troops upon presentation of the proper requisitions
by quartermasters. The butcher killed his victims with a rifle. The
killing was not always done at night. It often took place in the
morning or forenoon, and the men received their rations in time to
cook for dinner.
The manner in which these cattle were taken along was rather
interesting. One might very naturally suppose that they would be
driven along the road just as they are driven in any neighborhood;
but such was not exactly the case. The troops and trains must use
the roads, and so the cattle must needs travel elsewhere, which they
did. Every herd had a steer that was used both as a pack animal and
a leader. As a pack animal he bore the equipments and cooking
utensils of the drovers. He was as docile as an old cow or horse, and
could be led or called fully as readily. By day he was preceded in his
lead by the herdsman in charge, on horseback, while other
herdsmen brought up the rear. It was necessary to keep the herd
along with the troops for two reasons—safety and convenience; and,
as they could not use the road, they skirted the fields and woods,
only a short remove from the highways, and picked their way as best
they could.
LEADING THE HERD.
By night one of the herdsmen went ahead of the herd on foot,

making a gentle hallooing sound which the sagacious steer on lead
steadily followed, and was in turn faithfully followed by the rest of the
herd. The herdsman’s course lay sometimes through the open, but
often through the woods, which made the hallooing sound necessary
as a guide to keep the herd from straying. They kept nearer the road
at night than in the day, partly for safety’s sake, and partly to take
advantage of the light from huge camp-fires which detachments of
cavalry, that preceded the army, kindled at intervals to light the way,
making them nearer together in woods and swamps than elsewhere.
Even then these drovers often had a thorny and difficult path to
travel in picking their way through underbrush and brambles.
THE LAST STEER.
Such a herd got its living off the country in the summer, but not in
the winter. It was a sad sight to see these animals, which followed
the army so patiently, sacrificed one after the other until but a half-
dozen were left. When the number had been reduced to this extent,
they seemed to realize the fate in store for them, and it often took the
butcher some time before he could succeed in facing one long
enough to shoot him. His aim was at the curl of the hair between the
eyes, and they would avert their lowered heads whenever he raised
his rifle, until, at last, his quick eye brought them to the ground.
From the manner in which I have spoken of these herds, it may be
inferred that there was a common herd for the whole army; but such
was not the case. The same system prevailed here as elsewhere.
For example, when the army entered the Wilderness with three days’
rations of hard bread, and three days’ rations of meat in their
haversacks, the fresh meat to accompany the other three days’
rations, which they had stowed in their knapsacks, was driven along
in division herds. The remainder of the meat ration which they
required to last them for the sixteen days during which it was
expected the army would be away from a base of supplies was
driven as corps herds. In addition to these there was a general or
army herd to fall back upon when necessary to supply the corps
herds, but this was always at the base of supplies. Probably from
eight to ten thousand head of cattle accompanied the army across
the Rapidan, when it entered upon the Wilderness Campaign.
THE ARMY HORSE.

I have already stated that the horse was the sole reliance of the
artillery and cavalry, and have given the reasons why the mule was a
failure in either branch. I have also stated that the mule replaced
him, for the most part, in the wagon-trains, six mules being
substituted for four horses. I did not state that in the ambulance train
the horses were retained because they were the steadier. But I wish
now to refer more particularly to their conduct in action and on duty
generally.
First, then, I will come directly to the point by saying that the horse
was a hero in action. That horses under fire behaved far better than
men did under a similar exposure would naturally be expected, for
men knew what and whom to fear, whereas a horse, when hit by a
bullet, if he could get loose, was fully as likely to run towards the
enemy as from him. But not every horse would run or make a fuss
when wounded. It depended partly upon the horse and partly upon
the character and location of the wound. I have seen bullets buried in
the neck or rump of steady-nerved horses without causing them to
show more than a little temporary uneasiness. The best illustration of
the fortitude of horse-flesh that I ever witnessed occurred on the 25th
of August, 1864, at Ream’s Station on the Weldon Railroad. In this
battle the fifty-seven or eight horses belonging to my company stood
out in bold relief, a sightly target for the bullets of Rebel
sharpshooters, who, from a woods and cornfield in our front,
improved their opportunity to the full. Their object was to kill off our
horses, and then, by charging, take the guns, if possible.
GENERAL HANCOCK AT REAM’S STATION, VA., AUGUST 25, 1864.
It was painfully interesting to note the manner in which our brave

limber-horses—those which drew the guns—succumbed to the
bullets of the enemy. They stood harnessed in teams of six. A
peculiar dull thud indicated that the bullet had penetrated some
fleshy part of the animal, sounding much as a pebble does when
thrown into the mud. The result of such wounds was to make the
horse start for a moment or so, but finally he would settle down as if
it was something to be endured without making a fuss, and thus he
would remain until struck again. I remember having had my eye on
one horse at the very moment when a bullet entered his neck, but
the wound had no other effect upon him than to make him shake his
head as if pestered by a fly. Some of the horses would go down
when hit by the first bullet and after lying quiet awhile would struggle
to their feet again only to receive additional wounds. Just before the
close of this battle, while our gallant General Hancock was riding
along endeavoring by his own personal fearlessness to rally his
retreating troops, his horse received a bullet in the neck, from the
effects of which he fell forward, dismounting the general, and
appearing as if dead. Believing such to be the case, Hancock
mounted another horse; but within five minutes the fallen brute
arose, shook himself, was at once remounted by the general, and
survived the war many years.
When a bullet struck the bone of a horse’s leg in the lower part, it
made a hollow snapping sound and took him off his feet. I saw one
pole-horse shot thus, fracturing the bone. Down he went at once, but
all encumbered as he was with harness and limber, he soon
scrambled up and stood on three legs until a bullet hit him vitally. It
seemed sad to see a single horse left standing, with his five
companions all lying dead or dying around him, himself the object of
a concentrated fire until the fatal shot finally laid him low. I saw one
such brute struck by the seventh bullet before he fell for the last time.
Several received as many as five bullets, and it was thought by
some that they would average that number apiece. They were
certainly very thoroughly riddled, and long before the serious fighting
of the day occurred but two of the thirty-one nearest the enemy
remained standing. These two had been struck but not vitally, and
survived some time longer. We took but four of our fifty-seven horses
from that ill-starred fray.
REAL “HORSE SENSE.”
But, aside from their wonderful heroism,—for I can find no better

name for it,—they exhibited in many ways that sagacity for which the
animal is famous. I have already referred to the readiness with which
they responded to many of the bugle-calls used on drill. In the
cavalry service they knew their places as well as did their riders, and
it was a frequent occurrence to see a horse, when his rider had been
dismounted by some means, resume his place in line or column
without him, seemingly not wishing to be left behind. This quality was
often illustrated when a poor, crippled, or generally used-up beast,
which had been turned out to die, would attempt to hobble along in
his misery and join a column as it passed.
Captain W. S. Davis, a member of General Griffin’s staff of the
Fifth Corps, rode a horse which had the very singular but horse-
sensible habit of sitting down on his haunches, like a dog, after his
rider had dismounted. One morning he was missing, and nothing
was seen of him for months; but one night, after the corps had
encamped, some of the men, who knew the horse, in looking off
towards the horizon, saw against the sky a silhouette of a horse
sitting down. It was at once declared to be the missing brute, and
Captain Davis, on being informed, recovered his eccentric but highly
prized animal.
CHAPTER XVIII.
BREAKING CAMP.—ON THE MARCH.
“And now comes ‘boots and saddles!’ Oh! there’s hurrying to and
fro,
And saddling up in busy haste—for what, we do not know.
Sometimes ’twas but a false alarm, sometimes it meant a fight;
Sometimes it came in daytime, and sometimes it came at night.”
The subject of this chapter is a very suggestive one to the old

soldier. It covers a whole realm of experience which it would be
nearly impossible to exhaust. But there is much in this as in other
experiences which was common to all long-term veterans, and to
this common experience more especially I shall address my
attention.
From the descriptions which I have already given of the various
kinds of shelter used by the soldiers it will be readily understood that
they got the most comfortably settled in their winter-quarters, and
that in a small way each hut became a miniature homestead, and for
the time being possessed, to a certain extent, all the attractions of
home. The bunk, the stools, and other furniture, the army bric-à-
brac, whether captured or of home production, which adorned the
rough tenement within and without, all came to have a value by
association in the soldier’s thought, a value which was not fully
computed till campaigning impended—that usually direful day, when
marching orders came and the boys folded their tents and marched
away. This sketch will relate something of army life as it was lived
after marching orders were received.
When the general commanding an army had decided upon a plan
of campaign, and the proper time came to put it in operation, he at
once issued his orders to his subordinate commanders to have their
commands ready to take their place in column at a given hour on a
given day. These orders came down through the various corps,
division, brigade, regimental, or battery headquarters to the rank and
file, whose instructions given them on line would be to the effect that
at the stated hour they were to be ready to start with three days’
rations in their haversacks (this was the usual quantity), the infantry
to have forty rounds of ammunition in their cartridge-boxes. This
latter quantity was very often exceeded. The Army of the Potomac
went into the Wilderness having from eighty to a hundred rounds of
ammunition to a man, stowed away in knapsacks, haversacks, or
pockets, according to the space afforded, and six days’ rations
similarly disposed of. When Hooker started on the Chancellorsville
Campaign, eleven days’ rations were issued to the troops.
Sometimes marching orders came when least expected. I
remember to have heard the long roll sounded one Saturday
forenoon in the camp of the infantry that lay near us in the fall of ’63;
it was October 10. Our guns were unlimbered for action just outside
of camp where we had been lying several days utterly unsuspicious
of danger. It was quite a surprise to us; and such Lee intended it to
be, he having set out to put himself between our army and
Washington. We were not attacked, but started to the rear a few
hours afterwards.
Before the opening of the spring campaign a reasonable notice
was generally given. There was one orderly from each brigade
headquarters who almost infallibly brought marching orders. The
men knew the nature of the tidings which he cantered up to
regimental headquarters with under his belt. Very often they would
good-naturedly rail at him as he rode into and out of camp, thus
indicating their dislike of his errand; but the wise ones went directly
to quarters and began to pack up.
PACKING UP.
When it was officially announced to the men on line at night that

marching orders were received, and that at such an hour next
morning tents would be struck and the men in place, equipped and
provided as already stated, those men who had not already decided
the question retired to their huts and took an account of stock in
order to decide what to take and what to leave. As a soldier would
lay out two articles on the bunk, of equally tender associations, one
could seem to hear him murmur, with Gay,
“How happy could I be with either

Were t’other dear charmer away.”
as he endeavored to choose between them, knowing too well that

both could not be taken. The “survival of the fittest” was the question,
which received deeper and tenderer consideration here in one
evening than Darwin has ever given it in the same time. Then, there
was the overcoat and the woollen blanket which should be left?
Perhaps he finally decided to try taking both along for a while. He will
leave the dress-coat and wear the blouse. He has two changes of
flannels. He will throw away those he has on, don a clean set and
take a change with him. These flannels, by the way, if they were
what he drew from the government stores, were often as rough to
the skin as coarse sand-paper, which they somewhat resembled in
color.
From the head of his bunk he takes a collection of old letters which
have accumulated during the winter. These he looks over one by one
and commits to the flames with a sigh. Many of them are letters from
home; some are from acquaintances. Possibly he read the Waverly
Magazine, and may have carried on a correspondence with one or
more of the many young women who advertised in it for a “soldier
correspondent, who must not be over twenty,” with all the virtues
namable. There was no man in my company—from old Graylocks, of
nearly sixty, down to the callow “chicken” of seventeen—but what felt
qualified to fill such a bill, “just for the fun of it, you know.” The young
woman was generally “eighteen, of prepossessing appearance, good
education, and would exchange photographs if desired.”
An occasional letter from such a quarter would provoke a smile as
the soldier glanced at its source and contents before committing it to
the yawn of his army fireplace. This rather unpleasant task
completed, he continues his researches and work of destruction. He
tucks his little collection of photographs, which perhaps he has
encased in rubber or leather, into an inside pocket, and disposes
other small keepsakes about his person. If he intends to take his
effects in a knapsack, he will at the start have put by more to carry
than if he simply takes his blankets (rubber and woollen) rolled and
slung over his shoulder. Late in the war this latter was the most
common plan, as the same weight could be borne with less fatigue in
that manner than in a knapsack, slung on the back.
I have assumed it to be evening or late afternoon when marching
orders arrived, and have thus far related what the average soldier
was wont to do immediately afterwards. There was a night ahead
and the soldiers were wont to “make a night of it.” As a rule, there
was little sleep to be had, the enforcement of the usual rules of camp
being relaxed on such an occasion. Aside from the labor of personal
packing and destroying, the rations were to be distributed, and each
company had to fall into line, march to the cook-house, and receive
their three or more days’ allowance of hardtack, pork, coffee, and
sugar, all of which they must stow away, as compactly as possible, in
the haversack or elsewhere if they wanted them. In the artillery,
besides securing the rations, sacks of grain—usually oats—must be
taken from the grain-pile and strapped on to the ammunition-chests
for the horses; the axles must be greased, good spare horses
selected to supply the vacancies in any teams where the horses
were unfit for duty; the tents of regimental headquarters must be
struck, likewise the cook-tents, and these, with officers’ baggage,
must be put into the wagons which are to join the trains;—in brief,
everything must be prepared for the march of the morrow.
After this routine of preparation was completed, camp-fires were
lighted, and about them would gather the happy-go-lucky boys of the
rank and file, whose merry din would speedily stir the blood of the
men who had hoped for a few hours’ sleep before starting out on the
morrow, to come out of their huts and join the jovial round; and soon
they were as happy as the happiest, even if more reticent. As the fire
died down and the soldiers drew closer about it, some comrade
would go to his hut, and, with an armful of its furniture, the stools,
closets, and tables I have spoken of, reillumine and enliven the
scene and drive back the circle of bystanders again. The
conversation, which, with the going down of the fire, was likely to
take on a somewhat sober aspect, would again assume a more
cheerful strain. For a time conjectures on the plan of the coming
campaign would be exchanged. Volumes of wisdom concerning what
ought to be done changed hands at these camp-fires, mingled with
much “I told you so” about the last battle. Alexanders simply
swarmed, so numerous were those who could solve the Gordian
knot of success at sight. It must interest those strategists now, as
they read history, to see how little they really knew of what was
taking place.
WAITING FOR MARCHING ORDERS.
When this slight matter of the proper thing for the army to do was
disposed of, some one would start a song, and then for an hour at
least “John Brown’s Body,” “Marching Along,” “Red, White, and
Blue,” “Rally ’round the Flag,” and other popular and familiar songs
would ring out on the clear evening air, following along in quick
succession, and sung with great earnestness and enthusiasm as the
chorus was increased by additions from neighboring camp-fires, until
tired Nature began to assert herself, when one by one the company
would withdraw, each going to his hut for two or three hours’ rest, if
possible, to partially prepare him for the toils of the morrow. Ah! is
not that an all-wise provision of Providence which keeps the future a
sealed book, placing it before us leaf by leaf only, as the present?
For some of these very men, it may have been, whose voices rang
out so merrily at that camp-fire, would lie cold and pale ere the week
should close, in the solemn stillness of death.
But morning dawned all too soon for those who gave up most of
the night to hilarity, and all were summoned forth at the call of the
bugle or the drum, and at a time agreed upon The General was
sounded.
The above is the General of infantry. That of the artillery was less
often used and entirely different.
At this signal, every tent in a regiment was struck. It was quite an
interesting sight to see several acres of canvas disappear in a
moment, where before it had been the prominent feature in the
landscape. As a fact, I believe the General was little used in the
latter part of the war. For about two years, when the troops were
sheltered by the Sibley, Wedge, and Wall tents, it was necessary to
have them struck at an early hour, in order that they might be packed
away in the wagon-train. But after the Shelter tent came into use,
and each man was his own wagon, the General was seldom heard
unless at the end of a long encampment; for, when marching orders
came, each man understood that he must be ready at the hour
appointed, even if his regiment waited another day before it left
camp.
PLATE VI.
McIndoe Bros., Printers, Boston.
No more provoking incident of army life happened, I believe, than

for a regiment to wait in camp long after the hour appointed to
march. But such was the rule rather than the exception. Many a
man’s hearth-stone was then desolate, for if the hour of departure
was set for the morning, when morning came and the stockade was
vacated, it often suffered demolition to increase the heat of the
camp-fires, as previously noted. But as hour after hour wore on, and
men still found themselves in camp with nothing to do and plenty of
help, they began to wish that they had not been so hasty in breaking
up housekeeping and tearing down their shanties, else they might
resort to them and make their wait a little more endurable. Especially
did they repent if rain came on as they lingered, or if night again
overtook them there with their huts untenable, for it would have been
the work of only a moment to re-cover them with the Shelter tents.
Such waits and their consequences were severe tests to the
patience of the men, and sometimes seemed to work more injury to
their morals than the average army chaplain could repair in days.
But there is an end to all things earthly, this being no exception.
The colors of corps headquarters borne at the heels of the corps
commander, and followed by his staff, are at last seen moving into
the road. The bugler of the division having the lead sounds the call
Attention.
This call is the Attention of infantry at which the men, already in
column, take their places, officers mount, and all await the next call,
which is
At this signal the regiments take “right shoulder shift,” and the
march begins. Let the reader, in imagination, take post by the
roadside as the column goes by. Take a look at corps headquarters.
The commander is a major-general. His staff comprises an assistant
adjutant-general, an assistant inspector-general, a topographical
engineer, a commissary of musters, a commissary of subsistence, a
judge-advocate, several aides-de-camp—and perhaps other officers,
of varying rank. Those mentioned usually ranked from colonel to
captain. In the Union army, major-generals might command either a
division, a corps, or an army, but in the Confederate service each
army of importance was commanded by a lieutenant-general. Take a
look at the corps headquarters flag. Feb. 7, 1863, General Hooker
decreed the flags of corps headquarters to be a blue swallow-tail
field bearing a white Maltese cross, having in the centre the number
of the corps; but, so far as I can learn, this decree was never
enforced in a single instance. Mr. James Beale, in his exceedingly
valuable and unique volume, “The Union Flags at Gettysburg,”
shows a nondescript cross on some of the headquarters flags, which
some quartermaster may have intended as a compliance with
Hooker’s order; but though true copies of originals they are
monstrosities, which never could have had existence in a well
ordered brain, and which have no warrant in heraldry or general
orders as far as can be ascertained. When the army entered upon
the Wilderness Campaign, each corps headquarters floated a blue
swallow-tailed flag bearing its own particular emblem in white, in the
centre of which was the figure designating the corps, in red.
Here comes the First Division. At the head rides its general
commanding and staff. Behind him is the color-bearer, carrying the
division flag. If you are familiar with the corps badges, you will not
need to ask what corps or division it is. The men’s caps tell the story,
but the flags are equally plain-spoken.
This flag is the first division color. It is rectangular in shape. The
corps emblem is red in a white field; the second has the emblem
white in a blue field; the third has the emblem blue in a white field.
The divisions had the lead of the corps on the march by turns,
changing each day.
But here comes another headquarters. The color-bearer carries a
triangular flag. That is a brigade flag. May 12, 1863, General Hooker
issued an order prescribing division flags of the pattern I have
described, and also designated what the brigade flags should be.
They were to be, first of all, triangular in shape; the brigades of the
first division should bear the corps symbol in red in the centre of a
white field, but, to distinguish them, the first brigade should have no
other mark; the second should have a blue stripe next the staff, and
the third a blue border four and one-half inches wide around the flag.
The brigades of the second division had the corps symbol in white
in the centre of a blue field, with a red stripe next the staff to
designate the second brigade, and a red border the third.
The third division had its brigades similarly designated, with the
symbol blue, the field white, and the stripes red.
Whenever there was a fourth brigade, it was designated by a
triangular block of color in each corner of the flag.
The chief quartermaster of the corps and the chief of artillery had
each his appropriate flag, as designated in the color-plate, but the
arrangement of the colors in the flag of the chief quartermasters
differed in different corps.
This scheme of Hooker’s, for distinguishing corps, division, and
brigade headquarters remained unchanged till the end of the war.
The brigades took turns in having the lead—or, as military men
say, the right—of the division, and regiments had the right of
brigades by turns.
There goes army headquarters yonder—the commanding general,
with his numerous staff—making for the head of the column. His flag
is the simple star-spangled banner. The stars and stripes were a
common flag for army headquarters. It was General Meade’s
headquarters flag till Grant came to the Army of the Potomac, who
also used it for that purpose. This made it necessary for Meade to
change, which he did, finally adopting a lilac-colored swallow-tail
flag, about the size of the corps headquarters flags, having in the
field a wreath enclosing an eagle, in gold.
You can easily count the regiments in column by their United
States colors. A few of them, you will notice, have a battle-flag,
bearing the names of the engagements in which they have
participated. Some regiments used the national colors for a battle-
flag, some the state colors. I think the volunteers did not adopt the
idea early in the war. Originally battles were only inscribed on flags
by authority of the secretary of war, that is, in the regular army. But
the volunteers seemed to be a law unto themselves, and, while
many flags in existence to-day bear names of battles inscribed by

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Multiple Choice Questions

3. The process of planning and managing a firm's long-term investments is called:

5. The management of a firm's short-term assets and liabilities is called:

6. A business owned by a single individual is called a:

11. The rules by which corporations govern themselves are called:

13. The primary goal of financial management is to:

15. Agency costs refer to:

16. A stakeholder is:

17. The Sarbanes Oxley Act of 2002 is intended to:

20. Which one of the following is a capital budgeting decision?

21. The Sarbanes Oxley Act was enacted in:

24. Working capital management:

28. A general partner:

30. Which of the following are disadvantages of a partnership?

32. Which one of the following statements is correct concerning corporations?

33. Which one of the following statements is correct?

34. The articles of incorporation:

35. The bylaws:

36. The owners of a limited liability company prefer:

44. A proxy fight occurs when:

45. Which one of the following parties is considered a stakeholder of a firm?

47. Insider trading is:

48. Sole proprietorships are predominantly started because:

49. Managers are encouraged to act in shareholders' interests by:

50. The Securities Exchange Act of 1934 focuses on:

52. The Securities Act of 1933 focuses on:

53. In a limited partnership:

54. Accounting profits and cash flows are:

Chapter 01 Introduction to Corporate Finance Answer Key

Multiple Choice Questions

Difficulty level: Easy

Difficulty level: Easy

3. The process of planning and managing a firm's long-term investments is called:

Difficulty level: Easy

Difficulty level: Easy

5. The management of a firm's short-term assets and liabilities is called:

Difficulty level: Easy

6. A business owned by a single individual is called a:

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

Difficulty level: Easy

11. The rules by which corporations govern themselves are called:

Difficulty level: Easy

Difficulty level: Easy

13. The primary goal of financial management is to:

Difficulty level: Easy