Test Bank For Corporate Finance 7th Canadian Edition By Ross, Westerfield

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Edition: 7th Edition

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Resource Type: Test bank

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Test Bank For Corporate Finance 7th Canadian Edition By Ross, Westerfield

Chapter 01 Introduction to Corporate Finance

1. The balance sheet is made up of what five key components:

A. fixed assets, current liabilities, long term debt, tangible current assets and shareholders equity.

 

B. intangible fixed assets, current liabilities, long term debt, net income and current assets.

 

C. fixed assets, long term debt, current assets, current liabilities and shareholders equity.

 

D. current assets, fixed assets, long term debt, shareholders equity and retained earnings.

 

2. In terms of the balance sheet model of the firm, the value of the firm in financial markets is equal to:

A. tangible fixed assets plus intangible fixed assets.

 

B. sales minus costs.

 

C. cash inflow minus cash outflow.

 

D. the value of the debt plus the value of the equity.

 

E. the value of the debt minus the value of the equity.

 

3. Inventory is a component of:

A. current assets.

 

B. current liabilities.

 

C. equity.

 

D. fixed assets.

 

4. Using the balance sheet model of the firm, finance may be thought of as analysis of three primary subject areas. Which of the following groups correctly lists these three areas?

A. Capital budgeting, capital structure, net working capital.

 

B. Capital budgeting, capital structure, security marketing.

 

C. Capital budgeting, net working capital, tax analysis.

 

D. Capital budgeting, tax analysis, security marketing.

 

E. Net working capital, tax analysis, security marketing.

 

5. Which of the following is not considered one of the basic questions of corporate finance?

A. What long-lived assets should the firm invest?

 

B. How much inventory should the firm hold?

 

C. How can the firm raise cash for required capital expenditures?

 

D. How should the short-term operating cash flows be managed?

 

6. The need to manage net working capital arises because:

A. financial management is naturally broken into those areas.

 

B. shareholders want to ensure they receive dividend payments.

 

C. there is a mismatch between the timing of cash inflows and cash outflows.

 

D. the sum of current assets and current liabilities usually is zero.

 

E. the capital structure pie is limited in size.

 

7. In the managerial structure of the corporation the two officers and their responsibilities that report directly to the Chief Financial Officer are:

A. the credit manager who handles accounts receivable and the tax manager who minimizes tax payments.

 

B. the personnel manager who manages salaries and compensation and the production operations manager who manages facility operations.

 

C. the treasurer who is responsible handling cash flow and making financial decisions and the tax manager who minimizes tax payments.

 

D. the controller who manages the accounting function and the treasurer who is responsible handling cash flow and making financial decisions.

 

8. Value is created and recognized over time if:

A. cash raised is invested in the investment activities of the firm.

 

B. funds are raised in the capital markets.

 

C. cash paid to investors, shareholders and bondholders, is greater than cash raised in the financial markets.

 

D. management pursues activities to reduce taxes to zero.

 

9. Time preference refers to the fact that:

A. corporations match current assets with current liabilities to minimize the chance of bankruptcy.

 

B. corporations match both current and long-term assets with current and long-term liabilities to minimize the change of bankruptcy.

 

C. investors prefer current cash flows to future cash flows.

 

D. investors seek to time cash flows to minimize tax liabilities.

 

10. A corporate security can be viewed as a contingent claim on the firm. This means that:

A. debt holders will receive their payoff from the firm based on their fixed claim or the firm cash flows if less than the fixed claim.

 

B. debt holders will receive the maximum of the firm cash flows or the fixed claim.

 

C. no payoff will be made unless the firms makes more than the fixed claim of the debt.

 

D. no debt payoff will be made if there is an equity payoff.

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