Test Bank - Foundations of Finance: The Logic and Practice of Financial Management 10th Edition ( Keown, 2019) All Chapters

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Chapter 1 An Introduction to the Foundations of Financial Management
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Learning Objective 1.1 jj jj




1) Financial management deals with the maintenance and creation of economic value or
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wealth. Answer: TRUE
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Diff: 1 Page Ref: 3
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Keywords: FinancialManagement LearningObj.: L.O.1.1
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AACSB: Reflective Thinking
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2) Each financial decision made bya corporate manager can be evaluated by its direct
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impact on the corporation's stock price.
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Answer: FALSE Diff: 1
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Keywords: Goal of the Firm Learning Obj.: L.O. 1.1 AACSB: Reflective Thinking
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3) The fundamental goal of a business is to maximizethe retained earnings available to the
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corporation's shareholders.
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Answer: FALSE Diff: 1
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Keywords: Goal of the Firm Learning Obj.: L.O. 1.1 AACSB: Reflective Thinking
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,4) Shareholder wealth maximization means maximizing the price of the existing common
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stock. Answer: TRUE
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Diff: 1 Page Ref: 3
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Keywords: Shareholder Wealth, Goal of the Firm LearningObj.: L.O. 1.1 AACSB:
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Reflective Thinking
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5) It is important to evaluate a corporate manager's financial decision bymeasuring the
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effect the decision
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should have on the corporation's stock price if everything else were held constant. Answer:
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TRUE
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Diff: 2 Page Ref: 4
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Keywords: Goal of the Firm, Maximize Shareholder Wealth Learning Obj.: L.O. 1.1 AACSB:
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Reflective Thinking
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6) Corporate managers should accept investment projects that maximize profits in the short
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run because of the time value of money.
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Answer: FALSE Diff: 2 jj jj jj Page Ref: 4 j jj




Keywords: Goal of the Firm, Profits, Time Value of Money Learning Obj.: L.O. 1.1 AACSB:
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Reflective Thinking
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, 7) The goal of the firm's financial managers should be the maximization of the total value of
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jj the firm's stock.
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Answer: TRUE Diff: 1 jj jj jj Page Ref: 3 j jj




Keywords: Goal of the Firm Learning Obj.: L.O. 1.1 AACSB: Reflective Thinking
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8) The payment of a dividend to current shareholders will have no impact on a corporation's
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share price because the cash paid is not available to future potential shareholders who may
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j j want to buy the corporation's stock.
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Answer: FALSE Diff: 1 jj jj jj Page Ref: 4 j jj




Keywords: Goal of the Firm Learning Obj.: L.O. 1.1 AACSB: Reflective Thinking
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9) One problem with maximization of shareholder wealth as a goal is that it ignores risk
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jj taken by the firm's financial decisions.
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Answer: FALSE Diff: 1 jj jj jj Page Ref: 4 j jj




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
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Diff: 1 Page Ref: 4 Keywords: Goal of the Firm Learning Obj.: L.O. 1.1 AACSB: Reflective
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jj Thinking