Test Bank Foundations of Finance, 10th Edition By Arthur Keown, John Martin, J. Petty All Chapters Covered and Answers Provided

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Test Bank
Foundations of Finance, 10th Edition
By Arthur Keown, John Martin, J. Petty


All Chapters Covered and Answers Provided




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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




Keywords: Shareholder Wealth, Goal of the Firm Learning Obj.: L.O. 1.1
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AACSB: Reflective Thinking
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5) It is important to evaluate a corporate manager's financial decision by measuring the
effect the decision
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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
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Keywords: Goal of the Firm Learning Obj.: L.O. 1.1 AACSB: Reflective Thinking
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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




13) The primary goal of a publicly owned corporation is to

A) maximize dividends per share

B) maximize shareholder wealth

C) maximize earnings per share after taxes

D) minimize shareholder risk Answer B

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