CHAPTER 1: THE ROLE AND OBJECTIVE OF FINANCIAL
MANAGEMENT
1. The primary objective of the firm is:
a. Shareholder wealth maximization
b. Social responsibility
c. Long run survival
d. Profit maximization
ANSWER: a
2. The shareholder wealth maximization goal states that management should seek
to maximize the of the e
a. Future value
b. Compound value
c. Percentage value
d. Present value
ANSWER: d
3. Financial managers can take a variety of actions to influence the market value of a
company's stock. All of the following are classifications of actions taken EXCEPT:
a. investing decisions
b. financing decisions
c. dividend decisions
d. tax implication decisions
ANSWER: d
4. Shareholder wealth is measured by the of the shareholders' common stock
holdings.
, a. Book value
b. Market value
c. Historic value
d. Compound value
ANSWER: b
5. The limitations of the profit maximization goal include:
a. It lacks a time dimension (i.e., it is static)
b. It fails to consider risk
c. The definition of profit is ambiguous
d. All the above are limitations
ANSWER: d
,6. The objective of maximizing shareholder wealth, as measured by the market value of
the firm's stock
a. does not consider the timing of the benefits received
b. provides a way to consider the risk of the returns being offered
c. benefits only certain stockholders
d. neither considers the timing of the benefits received nor benefits only certain
stockholders
ANSWER: b
7. The two most important disciplines on which financial management relies are
a. accounting and production
b. accounting and marketing
c. economics and marketing
d. accounting and economics
ANSWER: d
8. The most widely accepted objective of the firm is to
a. minimize risk
b. maximize profits
c. maximize shareholder wealth
d. maximize earnings per share
ANSWER: c
9. When considering the risk of receiving cash flows, financial managers must be aware
that:
a. investors want higher returns for perceived greater risk.
b. investors want a lower valued firm to discourage future investors which might
dilute their existing control.
, c. investors expect dividends and capital gains regardless of the risks associated with
achieving them.
d. investors always want lower returns so that the risk is minimized.
ANSWER: a
10. A major advantage of using the maximization of shareholder wealth as the primary
goal of the firm is that this goal considers
a. the timing and the risk of the expected benefits to be received
b. the investor's consumption utility
c. the value of closely held partnerships
d. all the above
ANSWER: a
MANAGEMENT
1. The primary objective of the firm is:
a. Shareholder wealth maximization
b. Social responsibility
c. Long run survival
d. Profit maximization
ANSWER: a
2. The shareholder wealth maximization goal states that management should seek
to maximize the of the e
a. Future value
b. Compound value
c. Percentage value
d. Present value
ANSWER: d
3. Financial managers can take a variety of actions to influence the market value of a
company's stock. All of the following are classifications of actions taken EXCEPT:
a. investing decisions
b. financing decisions
c. dividend decisions
d. tax implication decisions
ANSWER: d
4. Shareholder wealth is measured by the of the shareholders' common stock
holdings.
, a. Book value
b. Market value
c. Historic value
d. Compound value
ANSWER: b
5. The limitations of the profit maximization goal include:
a. It lacks a time dimension (i.e., it is static)
b. It fails to consider risk
c. The definition of profit is ambiguous
d. All the above are limitations
ANSWER: d
,6. The objective of maximizing shareholder wealth, as measured by the market value of
the firm's stock
a. does not consider the timing of the benefits received
b. provides a way to consider the risk of the returns being offered
c. benefits only certain stockholders
d. neither considers the timing of the benefits received nor benefits only certain
stockholders
ANSWER: b
7. The two most important disciplines on which financial management relies are
a. accounting and production
b. accounting and marketing
c. economics and marketing
d. accounting and economics
ANSWER: d
8. The most widely accepted objective of the firm is to
a. minimize risk
b. maximize profits
c. maximize shareholder wealth
d. maximize earnings per share
ANSWER: c
9. When considering the risk of receiving cash flows, financial managers must be aware
that:
a. investors want higher returns for perceived greater risk.
b. investors want a lower valued firm to discourage future investors which might
dilute their existing control.
, c. investors expect dividends and capital gains regardless of the risks associated with
achieving them.
d. investors always want lower returns so that the risk is minimized.
ANSWER: a
10. A major advantage of using the maximization of shareholder wealth as the primary
goal of the firm is that this goal considers
a. the timing and the risk of the expected benefits to be received
b. the investor's consumption utility
c. the value of closely held partnerships
d. all the above
ANSWER: a
