Chapter 1 Corporate Finance and the Financial Manager
1.1 Why Study Finance
1) The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can
evaluate them properly.
Answer: TRUE
Explanation:
Diff: 1 Type: TF
Skill: Conceptual
Objective: 1.1 Grasp the importance of financial information in both your personal and business lives
2) Which of the following best describes why the Valuation Principle is a key concept in making financial
decisions?
A) It shows how to assign monetary value to intangibles such as good health and well-being.
B) It allows fixed assets and liquid assets to be valued correctly.
C) It gives a good indication of the net worth of a person, item, or company and can be used to estimate any
changes in that net worth.
D) It shows how to make the costs and benefits of a decision comparable so that we can weigh them
properly.
E) It allows us to produce accurate financial statements.
Answer: D
Explanation: A)
B)
C)
D)
E)
Diff: 1 Type: MC
Skill: Conceptual
Objective: 1.1 Grasp the importance of financial information in both your personal and business lives
3) Both personal financial decisions and business financial decisions can best be made by applying the:
A) Internal Ranking Criteria.
B) Best Alternatives Matrix.
C) Valuation Principle.
D) Financial Comparison Analysis.
E) Law of One Price.
Answer: C
Explanation: A)
B)
C)
D)
E)
Diff: 1 Type: MC
Skill: Conceptual
Objective: 1.1 Grasp the importance of financial information in both your personal and business lives
Page 1
1.1 Why Study Finance
1) The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can
evaluate them properly.
Answer: TRUE
Explanation:
Diff: 1 Type: TF
Skill: Conceptual
Objective: 1.1 Grasp the importance of financial information in both your personal and business lives
2) Which of the following best describes why the Valuation Principle is a key concept in making financial
decisions?
A) It shows how to assign monetary value to intangibles such as good health and well-being.
B) It allows fixed assets and liquid assets to be valued correctly.
C) It gives a good indication of the net worth of a person, item, or company and can be used to estimate any
changes in that net worth.
D) It shows how to make the costs and benefits of a decision comparable so that we can weigh them
properly.
E) It allows us to produce accurate financial statements.
Answer: D
Explanation: A)
B)
C)
D)
E)
Diff: 1 Type: MC
Skill: Conceptual
Objective: 1.1 Grasp the importance of financial information in both your personal and business lives
3) Both personal financial decisions and business financial decisions can best be made by applying the:
A) Internal Ranking Criteria.
B) Best Alternatives Matrix.
C) Valuation Principle.
D) Financial Comparison Analysis.
E) Law of One Price.
Answer: C
Explanation: A)
B)
C)
D)
E)
Diff: 1 Type: MC
Skill: Conceptual
Objective: 1.1 Grasp the importance of financial information in both your personal and business lives
Page 1
