Principles of Managerial Finance, 15e (Zutter)
Chapter 1 The Role of Managerial Finance
1.1 Finance and the firm.
1) A firm is a business organization that sells goods and services.
Answer: TRUE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
2) In finance we say that the goal of the firm ought to be to maximize profits.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Other things being equal, it is better to receive money sooner rather than later.
Answer: TRUE
Diff: 1
Topic: Managing the Firm
Learning Obj.: LG 4
,Learning Outcome: F-01
AACSB: Analytical Thinking
4) Financial managers evaluating decision alternatives or potential actions must consider
________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
5) If a firm earns a profit, it will necessarily also generate a positive cash flow.
Answer: FALSE
Diff: 2
Topic: Managing the Firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
,6) If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning
the highest possible returns on its investments.
Answer: FALSE
Diff: 2
Topic: Managing the Firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
7) Which of the following is an example of a firm's stakeholder?
A) suppliers
B) Federal Reserve
C) media
D) competitors
Answer: A
Diff: 1
Topic: What About Stakeholders?
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
8) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset
costs $35,000 and is expected to provide earnings over a three-year period as described below.
, Based on the wealth maximization goal, the financial manager would choose ________.
A) Asset 1
B) Asset 2
C) Asset 3
D) Asset 4
Answer: A
Diff: 2
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
9) In the most recent year, two different companies generated the same earnings per share. The
stocks of these two companies should trade at the same price.
Answer: FALSE
Diff: 2
Topic: Managing the Firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
10) One reason that firms exist is that most investors are risk averse, so they are not willing to
make the kinds of risky investments that firms typically undertake.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Chapter 1 The Role of Managerial Finance
1.1 Finance and the firm.
1) A firm is a business organization that sells goods and services.
Answer: TRUE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
2) In finance we say that the goal of the firm ought to be to maximize profits.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking
3) Other things being equal, it is better to receive money sooner rather than later.
Answer: TRUE
Diff: 1
Topic: Managing the Firm
Learning Obj.: LG 4
,Learning Outcome: F-01
AACSB: Analytical Thinking
4) Financial managers evaluating decision alternatives or potential actions must consider
________.
A) only risk
B) only return
C) either risk or return
D) risk, return, and the impact on share price
Answer: D
Diff: 1
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
5) If a firm earns a profit, it will necessarily also generate a positive cash flow.
Answer: FALSE
Diff: 2
Topic: Managing the Firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
,6) If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning
the highest possible returns on its investments.
Answer: FALSE
Diff: 2
Topic: Managing the Firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
7) Which of the following is an example of a firm's stakeholder?
A) suppliers
B) Federal Reserve
C) media
D) competitors
Answer: A
Diff: 1
Topic: What About Stakeholders?
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Analytical Thinking
8) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset
costs $35,000 and is expected to provide earnings over a three-year period as described below.
, Based on the wealth maximization goal, the financial manager would choose ________.
A) Asset 1
B) Asset 2
C) Asset 3
D) Asset 4
Answer: A
Diff: 2
Topic: Maximize Shareholder Wealth
Learning Obj.: LG 3
Learning Outcome: F-01
AACSB: Reflective Thinking
9) In the most recent year, two different companies generated the same earnings per share. The
stocks of these two companies should trade at the same price.
Answer: FALSE
Diff: 2
Topic: Managing the Firm
Learning Obj.: LG 4
Learning Outcome: F-01
AACSB: Analytical Thinking
10) One reason that firms exist is that most investors are risk averse, so they are not willing to
make the kinds of risky investments that firms typically undertake.
Answer: FALSE
Diff: 1
Topic: Finance and the firm
Learning Obj.: LG 1
