Test Bank for Foundations of Finance 10th Edition by Arthur J. Keown| Complete Chapters 1-17, Verified Solutions

Test Bank




Test Bank

,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

Stock. Answer: True

Diff: 1 Page Ref: 3

Angelinas

,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
Decision
Should Have On 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 Risk
Taken 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


Angelinas
10) The Goal Of Profit Maximization Ignores The Risk Of Financial

Decisions. Answer: False

Diff: 1 Page Ref: 4
Keywords: Goal Of The Firm
Learning Obj.: L.O. 1.1
Aacsb: Reflective Thinking


11) Only A Firm's Financial Decisions Affect Its Stock

Prices. Answer: False

Diff: 1 Page Ref: 4
Keywords: Determinants Of Stock Price
Learning Obj.: L.O. 1.1
Aacsb: Reflective Thinking


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
Diff: 2 Page Ref: 4
Keywords: Determinants Of Stock Price
Learning Obj.: L.O. 1.1
Aacsb: Reflective Thinking