Chapter 1

True / False Questions 1. Inflation is assumed to be a temporary problem that does not affect financial decisions.
FALSE

2. Financial Capital is composed of long-term plant and equipment, as well as other tangible investments.
FALSE

3. Real Capital is composed of long-term plant and equipment.
TRUE

4. During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations and bankruptcy.
TRUE

5. In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.
TRUE

6. Recently, the emphasis of financial management has been on the relationship between risk and return.
TRUE

7. The most common partnership arrangement carries limited liability to the partners.
FALSE

8. In terms of revenues and profits, the corporation is by far the most important form of business organization in the United States.
TRUE

9. Dividends paid to corporate stockholders have already been taxed once as corporate income.
TRUE

10. One advantage of the corporate form of organization is that income received by stockholders is not taxable since the corporation already paid taxes on the income distributed.
FALSE

11. A corporation must have more than 75 stockholders to qualify for Subchapter S designation.
FALSE

12. Profits of a Subchapter S corporation are taxed at corporate tax rates.
FALSE

13. Corporate governance issues have become less important to the financial community during the first decade of the new millennium.
FALSE

14. Agency Theory examines the relationship between companies and their customers.
FALSE

15. A major focus of the Sarbanes Oxley Act is to make sure that publicly traded companies accurately present their assets, liabilities and