Foundations of Financial Management, 17e (Block)
Chapter 1 The Goals and Activities of Financial Management
1) As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Inflation is assumed to be a temporary problem that does not affect financial decisions.
Answer: FALSE
Difficulty: 1 Easy
Topic: Financial management decisions
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) Financial capital is composed of long-term plant and equipment, as well as other tangible
investments.
Answer: FALSE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) Real capital is composed of long-term plant and equipment.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
1
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) During the 1930s, financial practice revolved around such topics as the preservation of capital,
maintenance of liquidity, the reorganization of financially troubled corporations, and bankruptcy.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) Recently, the emphasis of financial management has been on the relationship between risk and
return.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.; 01-03 The relationship of risk to return is a central focus of finance.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) The first Nobel Prizes given to finance professors were for their contributions to capital
structure theory and portfolio theories of risk and return.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
2
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) How investors handle risk is an important topic that usually only economists observe.
Answer: FALSE
Explanation: Behavioral finance is something that the finance industry puts heavy emphasis on.
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Mortgage-
backedcsecuritiescwerecdevaluedcbycaccountingcstandardscbecausecofcthechighccreditcratingsc(AA
A).
Answer:c c FALSE
Explanation:c Thesecsecuritiescwerecdevaluedcbecausecborrowerscdefaultedconctheircloanscandcdi
dn'tchavecthecfinancialcmeansctocbackcupctheircloanscincothercways.
Difficulty:c1cEasy
Topic:c c Introductionctoccorporatecfinance
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
Rememberc AACS
B: cReflectivecThinking
Accessibility: KeyboardcNavigation
11) "Creditcdefaultcswaps"careconecofcseveralctoolscthatcCongresscandcthecPresidentcofcthecUnite
dcStateschavecjointlycdevelopedctoceasecthecfinancialccrisiscthatcbegancinc2008.
Answer:c FALSEcDif
ficulty:c1cEasy
Topic:c c Introductionctoccorporatecfinance
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
UnderstandcAACS
B: cAnalyticalcThinking
Accessibility: KeyboardcNavigation
3
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, 12) ThecDodd-
FrankcActcwasccreatedcbycCongresscalongcwithcitscgoalscandcregulatorycresponsibilit
y,cbutcitciscfacilitatedcbycvariouscagencies.
Answer:c TRUEcDiff
iculty:c1cEasy
Topic:c c Introductionctoccorporatecfinance
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
Rememberc AACS
B: cReflectivecThinking
Accessibility: KeyboardcNavigation
13) ThecDodd-
FrankcActccontainscthecVolckercRule,cwhichcencouragescfinancialcinstitutionsctocallowcforcmo
recspeculativecinvestmentscforcaveragecinvestors.
Answer:c FALSEcDif
ficulty:c2cMedium
Topic:c c Ethics,cgovernance,candcregulation
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
UnderstandcAACS
B: cAnalyticalcThinking
Accessibility: KeyboardcNavigation
14) ThecDodd-
FrankcAct'scoversightcallowingcregulationcofcbankingcfeescandcavailablecproductschascbeenccon
sideredcascnotcbeingcincthecbestcinterestscofcacfreecmarket.
Answer:c TRUEcDiff
iculty:c2cMedium
Topic:c c Ethics,cgovernance,candcregulation
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
UnderstandcAACS
B: cAnalyticalcThinking
Accessibility: KeyboardcNavigation
15) ThecInternetcimpactsce-
commercecbyccreatingcacmechanismcforcimprovedccommunicationscbetweencacbusiness,citscc
4
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 1 The Goals and Activities of Financial Management
1) As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Inflation is assumed to be a temporary problem that does not affect financial decisions.
Answer: FALSE
Difficulty: 1 Easy
Topic: Financial management decisions
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) Financial capital is composed of long-term plant and equipment, as well as other tangible
investments.
Answer: FALSE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) Real capital is composed of long-term plant and equipment.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
1
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) During the 1930s, financial practice revolved around such topics as the preservation of capital,
maintenance of liquidity, the reorganization of financially troubled corporations, and bankruptcy.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) Recently, the emphasis of financial management has been on the relationship between risk and
return.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.; 01-03 The relationship of risk to return is a central focus of finance.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) The first Nobel Prizes given to finance professors were for their contributions to capital
structure theory and portfolio theories of risk and return.
Answer: TRUE
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
2
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) How investors handle risk is an important topic that usually only economists observe.
Answer: FALSE
Explanation: Behavioral finance is something that the finance industry puts heavy emphasis on.
Difficulty: 1 Easy
Topic: Introduction to corporate finance
Learning Objective: 01-01 The field of finance integrates concepts from economics, accounting,
and a number of other areas.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Mortgage-
backedcsecuritiescwerecdevaluedcbycaccountingcstandardscbecausecofcthechighccreditcratingsc(AA
A).
Answer:c c FALSE
Explanation:c Thesecsecuritiescwerecdevaluedcbecausecborrowerscdefaultedconctheircloanscandcdi
dn'tchavecthecfinancialcmeansctocbackcupctheircloanscincothercways.
Difficulty:c1cEasy
Topic:c c Introductionctoccorporatecfinance
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
Rememberc AACS
B: cReflectivecThinking
Accessibility: KeyboardcNavigation
11) "Creditcdefaultcswaps"careconecofcseveralctoolscthatcCongresscandcthecPresidentcofcthecUnite
dcStateschavecjointlycdevelopedctoceasecthecfinancialccrisiscthatcbegancinc2008.
Answer:c FALSEcDif
ficulty:c1cEasy
Topic:c c Introductionctoccorporatecfinance
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
UnderstandcAACS
B: cAnalyticalcThinking
Accessibility: KeyboardcNavigation
3
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, 12) ThecDodd-
FrankcActcwasccreatedcbycCongresscalongcwithcitscgoalscandcregulatorycresponsibilit
y,cbutcitciscfacilitatedcbycvariouscagencies.
Answer:c TRUEcDiff
iculty:c1cEasy
Topic:c c Introductionctoccorporatecfinance
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
Rememberc AACS
B: cReflectivecThinking
Accessibility: KeyboardcNavigation
13) ThecDodd-
FrankcActccontainscthecVolckercRule,cwhichcencouragescfinancialcinstitutionsctocallowcforcmo
recspeculativecinvestmentscforcaveragecinvestors.
Answer:c FALSEcDif
ficulty:c2cMedium
Topic:c c Ethics,cgovernance,candcregulation
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
UnderstandcAACS
B: cAnalyticalcThinking
Accessibility: KeyboardcNavigation
14) ThecDodd-
FrankcAct'scoversightcallowingcregulationcofcbankingcfeescandcavailablecproductschascbeenccon
sideredcascnotcbeingcincthecbestcinterestscofcacfreecmarket.
Answer:c TRUEcDiff
iculty:c2cMedium
Topic:c c Ethics,cgovernance,candcregulation
LearningcObjective: 01-
01cThecfieldcofcfinancecintegratescconceptscfromceconomics,caccounting,candcacnumbercofcotherc
areas.
Bloom's:
UnderstandcAACS
B: cAnalyticalcThinking
Accessibility: KeyboardcNavigation
15) ThecInternetcimpactsce-
commercecbyccreatingcacmechanismcforcimprovedccommunicationscbetweencacbusiness,citscc
4
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
