Test Bank Foundations of Finance 10th Edition Keown Martin Petty A+

Foundations of Finance, 10e(Keown/Martin/Petty)
Chapter 1 An Introduction to the Foundations of Financial Management



Learning Objective 1.1



1) Financial management deals with the maintenance and creation of economic value or wealth.
Answer: TRUE
Diff: 1 Page Ref: 3
Keywords: Financial Management
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



2) Each financial decision made by a corporate manager can be evaluated by its direct impact on the
corporation's stoc𝑘 price.
Answer: FALSE
Diff: 1 Page Ref: 4
Keywords: Goal of the Firm
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



3) The fundamental goal of a business is to maximize the retained earnings available to the corporation's
shareholders.
Answer: FALSE
Diff: 1 Page Ref: 3
Keywords: Goal of the Firm
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



4) Shareholder wealth maximization means maximizing the price of the existing common stoc 𝑘.
Answer: TRUE

,Diff: 1 Page Ref: 3
Keywords: Shareholder Wealth, Goal of the Firm
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



5) It is important to evaluate a corporate manager's financial decision by measuring the effect the
decisionshould haveon the corporation's stoc𝑘 price if everything else were held constant.
Answer: TRUE
Diff: 2 Page Ref: 4
Keywords: Goal of the Firm, Maximize Shareholder Wealth
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing

,
, 6) Corporate managers should accept investment projects that maximize profits in the short run because
of the time value of money.
Answer: FALSE
Diff: 2 Page Ref: 4
Keywords: Goal of the Firm, Profits, Time Value of Money
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



7) The goal of the firm's financial managers should be the maximization of the total value of the firm's
stoc𝑘.
Answer: TRUE
Diff: 1 Page Ref: 3
Keywords: Goal of the Firm
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



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
Diff: 1 Page Ref: 4
Keywords: Goal of the Firm
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing



9) One problem with maximization of shareholder wealth as a goal is that it ignores ris 𝑘 ta 𝑘en by the
firm's financial decisions.
Answer: FALSE
Diff: 1 Page Ref: 4
Keywords: Goal of the Firm
Learning Obj.: L.O. 1.1
AACSB: Reflective Thin𝑘ing