Fundamentals of Corporate Finance 5th Edition Jonathan Berk Peter DeMarzo Test bank
Fundamentals of Corporate Finance
( Test Bank)
Fundamentals of Corporate Finance 5th Edition Jonathan Berk Peter DeMarzo Test bank
Edition:5th Edition
Author Name:
Jonathan Berk Peter DeMarzo
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Fundamentals of Corporate Finance, 5e (Berk/DeMarzo/Harford)
Chapter 1 Corporate Finance and the Financial Manager
1.1 Why Study Finance?
1) The Valuation Principle shows how to make the costs and benefits of a decision comparable
so that we can evaluate them properly.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
2) Financial decisions require that you weigh alternatives in strictly monetary terms.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
3) Which of the following best describes why the Valuation Principle is a key concept in making
financial decisions?
A) It shows how to assign monetary value to intangibles such as good health and well-being.
B) It allows fixed assets and liquid assets to be valued correctly.
C) It gives a good indication of the net worth of a person, item, or company and can be used to
estimate any changes in that net worth.
D) It shows how to make the costs and benefits of a decision comparable so that we can weigh
them properly.
Answer: D
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
1.2 The Four Types of Firms
1) Partnerships are the most common type of business firm in the world.
Answer: FALSE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
2) Corporations have come to dominate the business world through their ability to raise large
amounts of capital by sale of ownership shares to anonymous outside investors.
Answer: TRUE
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
2
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3) Which of the following types of firms does NOT have limited liability?
A) sole proprietorships
B) limited partnerships
C) corporations
D) none of the above
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
4) Over four-fifths of all U.S. business revenue is generated by which type of firm?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: D
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
5) What is the most common type of firm in the United States and the world?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: A
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skills
6) Which of the following is typically the major factor in limiting the growth of sole
proprietorships?
A) The organizational structure of such firms tends to become extremely complicated over time.
B) It is extremely difficult to transfer control of such firms to a new owner if the present owner
dies or wishes to sell the firm.
C) The amount of money that can be raised by such firms is limited by the fact that the single
owner must make good on all debts.
D) Investors have a great deal of control over the day-to-day running of such firms, leading to
confusion when conflicts in direction arise.
Answer: C
Diff: 1 Var: 1
Skill: Conceptual
AACSB Objective: Analytic Skill
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