Test Bank for Foundations of Finance 10e 10th Edition by Arthur J. Keown, John D. Martin; J. William Petty

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

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,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




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, 6) Corporate/managers/should/accept/investment/projects/that/maximize/profits/in/the/short/run/because/o
f/the/time/value/of/money.
Answer:/FALSE/Dif
f:/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/st
ock.
Answer:/ TRUE/Diff
:/1 Page/Ref:/3
Keywords:/Goal/of/the/Firm/L
earning/Obj.:/L.O./1.1/AACS
B:/ Reflective/Thinking


8) The/payment/of/a/dividend/to/current/shareholders/will/have/no/impact/on/a/corporation's/share/price/b
ecause/the/cash/paid/is/not/available/to/future/potential/shareholders/who/may/want/to/buy/the/corporatio
n's/stock.
Answer:/FALSE/Dif
f:/1 Page/Ref:/4
Keywords:/Goal/of/the/Firm/L
earning/Obj.:/L.O./1.1/AACS
B:/ Reflective/Thinking


9) One/problem/with/maximization/of/shareholder/wealth/as/a/goal/is/that/it/ignores/risk/taken/by/the/fi
rm's/financial/decisions.
Answer:/FALSE/Dif
f:/1 Page/Ref:/4
Keywords:/Goal/of/the/Firm/L
earning/Obj.:/L.O./1.1/AACS
B:/ Reflective/Thinking


/angelinas




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