Financial management deals with the maintenance and creation of economic value or wealth.
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Financial management deals with the maintenance and creation of economic value or wealth.
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Financial management deals with the maintenance and creation of economic value or wealth.
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Foundations of Finance, 7e (Keown/Martin/Petty)
Chapter 1 An Introduction to the Foundations of Financial Management
1.1 Learning Objective 1
1) Financial management deals with the maintenance and creation of economic value or wealth.
Answer:
Keywords: Financial Management
AACSB: ...
financial management deals with the maintenance and creation of economic value or wealth
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Financial management deals with the maintenance and creation of economic value or wealth.
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Foundations of Finance, 7e (Keown/Martin/Petty)
Chapter 1 An Introduction to the Foundations of Financial Management
1.1 Learning Objective 1
1) Financial management deals with the maintenance and creation of economic value or wealth.
Answer: TRUE
Keywords: Financial Management
AACSB: Reflective thinking skills
2) Each financial decision made by a corporate manager can be evaluated by its direct impact on
the corporation's stock price.
Answer: FALSE
Keywords: Goal of the Firm
AACSB: Reflective thinking skills
3) The fundamental goal of a business is to maximize the retained earnings available to the
corporation's shareholders.
Answer: FALSE
Keywords: Goal of the Firm
AACSB: Reflective thinking skills
4) Shareholder wealth maximization means maximizing the price of the existing common stock.
Answer: TRUE
Keywords: Shareholder Wealth, Goal of the Firm
AACSB: Reflective thinking skills
5) It is important to evaluate a corporate manager's financial decision by measuring the effect the
decision should have on the corporation's stock price if everything else were held constant.
Answer: TRUE
Keywords: Goal of the firm, Shareholder Wealth Maximization
AACSB: Reflective thinking skills
6) Corporate managers should accept investment projects that maximize profits int he short run
because of the time value of money.
Answer: FALSE
Keywords: Goal of the Firm, Profits, Time Value of Money
AACSB: Reflective thinking skills
7) The goal of the firm's financial managers should be the maximization of the total value of the
firm's stock.
Answer: TRUE
Keywords: Goal of the Firm
AACSB: Reflective thinking skills
1
,8) The payment of a dividend to current shareholders will have no impact on a corporation's
share price because the cash paid is not available to future potential shareholders who may want
to buy the corporation's stock.
Answer: FALSE
Keywords: Goal of the Firm
AACSB: Reflective thinking skills
9) One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by
the firm's financial decisions.
Answer: FALSE
Keywords: Goal of the Firm
AACSB: Reflective thinking skills
10) The goal of profit maximization ignores the risk of financial decisions
Answer: TRUE
Keywords: Goal of the Firm
AACSB: Reflective thinking skills
11) Only a firm's financial decisions affect its stock prices.
Answer: FALSE
Keywords: Determinants of Stock Price
AACSB: Reflective thinking skills
12) Shareholders react to poor investment or dividend decisions by causing the total value of the
firm's stock to fall, and they react to good decisions by bidding the price of the stock up.
Answer: TRUE
Keywords: Determinants of Stock Price
AACSB: Reflective thinking skills
13) The primary goal of a publicly owned corporation is to ________.
A) maximize dividends per share
B) maximize shareholder wealth
C) maximize earnings per share after taxes
D) minimize shareholder risk
Answer: B
Keywords: Goal of the Firm, Corporation
AACSB: Reflective thinking skills
14) Maximization of shareholder wealth
A) represents a zero sum game in which one corporation gains at the expense of others.
B) provides benefits to society as scarce resources are directed to their most productive use.
C) is not a practical goal since it cannot be measured effectively.
D) is achieved only if cash flows exceed accounting profits.
Answer: A
Keywords: Goal of the Firm, Maximize Shareholder Wealth
AACSB: Reflective thinking skills
2
, 15) A financial manager is considering two projects, A and B. A is expected to add $2 million to
profits this year while B is expected to add $2 million to profits this year while B is expected to
add $1 million to profits this year. Which of the following statements is most correct?
A) The manager should select project A because it maximizes profits.
B) The manager should select the project that maximizes long-term profits, not just one year of
profits.
C) The manager should select project A or he is irrational.
D) The manager should select the project that causes the stock price to increase the most, which
could be A or B.
Answer: D
Keywords: Goal of the Firm
AACSB: Analytic skills
16) Shareholder wealth maximization means
A) maximizing earnings per share.
B) maximizing dividends per share.
C) maximizing the price of existing common stock.
D) maximizing stockholders equity.
Answer: C
Keywords: Goal of the firm, Shareholder Wealth Maximization
AACSB: Reflective thinking skills
17) The goal of the firm should be
A) maximization of profits (net income per share).
B) maximization of shareholder wealth.
C) maximization of market share.
D) maximization of sales.
Answer: B
Keywords: Goal of the Firm, Maximize Shareholder Wealth
AACSB: Reflective thinking skills
18) Which of the following goals of the firm are synonymous (equivalent) to the maximization
of shareholder wealth?
A) profit maximization
B) risk minimization
C) maximization of the total market value of the firm's common stock
D) none of the above
Answer: C
Keywords: Goal of the Firm, Maximize Shareholder Wealth
AACSB: Reflective thinking skills
3
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