Brigham - Financial Management 13th Test Bank (Chapter-1)

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CHAPTER 1
AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT

Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines.

True/False

Easy:

| (1.2) Firm organization F M| Answer: b| EASY| .| The form of organization for a business is not an important issue, as this decision has very little effect on the income and wealth of the firm's owners.| | | | | | | | | | |

| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.2) Firm organization F M | Answer: b| EASY| .| The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not.| | | | | | | | | | |

| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.2) Partnership F M| Answer: a| EASY| .| There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size.| | | | | | | | | | |

| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.2) ProprietorshipF M| Answer: a| EASY|
.| Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.| | | | | | | | | | |

| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |

| (1.2) Limited liabilityF M| Answer: a| EASY|
.| One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.| | | | | | | | | | |
| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.3) Value maximizationF M| Answer: b| EASY|
.| If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.| | | | | | | | | | |
| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.4) Financial intermediariesF M| Answer: a| EASY|
.| If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.| | | | | | | | | | |

| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.8) Financial marketsF H| Answer: b| EASY|
.| If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.| | | | | | | | | | |
| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.8) Financial marketsF H| Answer: a| EASY|
.| Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors. This is a primary market transaction.| | | | | | | | | | |

| a.| True| | | | | | | |
| b.| False| | | | | | | |
| | | | | | | | | |
| (1.11) Stock market transactionsF H| Answer: a| EASY| .| One of the functions of NYSE specialists is to facilitate trading by keeping an inventory of shares of the stocks in...
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