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
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
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
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
