Chapter 01 Student Name _________________________ Student ID ____________

________ 1. Corporate finance addresses the issues of which long-term projects should be undertaken and how those
projects should be financed.
a. True b. False

________ 2. Capital budgeting is the process of managing a firms:

a. short-term assets and liabilities.
b. long-term investments.
c. mix of debt and equity financing.
d. working capital.

________ 3. The owner of a sole proprietorship:

a. has unlimited liability for the business debts.
b. has selected the form of ownership that is the most regulated of all business forms.
c. has created an organization with unlimited life.
d. suffers from double taxation.

________ 4. Which one of the following statements concerning partnerships is correct?

a. A general partner has limited liability for the business debts.
b. A limited partner actively participates in running the partnership on a daily basis.
c. If one partner wishes to leave a general partnership a new partnership agreement is needed.
d. A general partnership has an unlimited life while a limited partnership has a limited life.

________ 5. Which one of the following statements concerning corporations is correct?

a. The rules describing how a corporation regulates its own existence are set forth in the articles of
incorporation.
b. The procedures to be followed for electing corporate directors are included in the bylaws.
c. Stockholders have unlimited liability for the business debts.
d. The income earned by a corporation is taxed as personal income of the corporate owners.

________ 6. In some cases, the IRS will treat a limited liability company as a corporation.
a. True b. False

________ 7. An ownership interest in which one of the following organizations is easiest to sell?
a. sole proprietorship
b. general partnership
c. limited partnership
d. corporation

________ 8. The goal of financial management is to maximize the current:

a. net income of the firm.
b. earnings per share.
c. resources of the firm.
d. value of the existing stock.

________ 9. Financial managers are concerned with which of the following aspects of future cash flows?
I. timing
II. risk
III. size
a. I and III only
b. II and III only
c. I and II only
d. I, II, and III

________ 10. Which one of the following statements concerning financial markets is correct?
a. Newly issued shares of stock are sold in the secondary markets.
b. The New York Stock Exchange is a dealer market.
c. Auction markets primarily match sellers with buyers.
d. Any corporation can list its stock on the New York Stock Exchange.
Chapter 01 Answers

1. a
2. b
3. a
4. c
5. b
6. a
7. d
8. d
9. d
10. c