9. 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.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-01 What is Corporate Finance?
10. 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.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-01 What is Corporate Finance?
11. 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.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-02 The Balance-Sheet Model of the Firm
12. If a firm has debt outstanding the contingent claim of an equity shareholder is:
A. equal to the payment to the debtholders
B. equal to the firm cash flows minus the fixed debt payment if the residual cash flows are positive
C. equal to the firm cash flows minus the fixed debt payment whether positive or negative
D. equal to the debt payment plus the residual cash flow of the firm.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-02 The Balance-Sheet Model of the Firm
13. The Simple Corporation has outstanding obligation to the Complex Corporation of $250. It is year-end and the total cash flow of Simple from all sources is $325. The contingent payoff to the debtholders and the equity shareholders is:
A. $250; $325.
B. $75; $250.
C. $250; $75.
D. $325; $250.
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: Medium
Topic: 01-02 The Balance-Sheet Model of the Firm
14. The general partner(s) in a general partnership agree to share work, costs and profits and losses. Each partner:
A. has liability only up to the amount of their investment.
B. has liability for the debts of the partnership.
C. has liability only if it is formally documented.
D. never has any liability but the limited partners do.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Topic: 01-03 Capital Structure
15. In a general partnership, the general partners have _____ liability and have _____ control over day-to-day operations.
A. limited; no
B. unlimited; total
C. limited; total
D. unlimited; no
E. no; total
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Topic: 01-03 Capital Structure
16. The ultimate control of a corporation lies in the hands of the corporate:
A. board of directors.
B. shareholders
C. CEO of the firm
D. chairman of the board
E. government
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Topic: 01-03 Capital Structure
17. 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
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Topic: 01-03 Capital Structure
18. The cheapest business entity to form is typically the: