The Role And Objective Of Financial Management

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Question 1
Free
Multiple Choice

The primary objective of the firm is:

Choose correct answer/s
A

Shareholder wealth maximization

B

Social responsibility

C

Long run survival

D

Profit maximization

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Question 2
Free
Multiple Choice

The limitations of the profit maximization goal include:

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A

It lacks a time dimension (i.e., it is static)

B

It fails to consider risk

C

The definition of profit is ambiguous

D

All the above are limitations

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Question 3
Free
Multiple Choice

The shareholder wealth maximization goal states that management should seek to maximize the ____ of the expected future returns to the owners of the firm.

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A

Future value

B

Compound value

C

Percentage value

D

Present value

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Question 4
Free
Multiple Choice

Shareholder returns can take the form of

Choose correct answer/s
A

Periodic dividend payments

B

Proceeds from the sale of the stock

C

Periodic interest payments

D

Periodic dividend payments and proceeds from the sale of the stock

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Question 5
Free
Multiple Choice

Shareholder wealth is measured by the ____ of the shareholders' common stock holdings.

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A

Book value

B

Market value

C

Historic value

D

Compound value

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Question 6
Multiple Choice

The objective of maximizing shareholder wealth, as measured by the market value of the firm's stock

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A
does not consider the timing of the benefits received
B
provides a way to consider the risk of the returns being offered
C
benefits only certain stockholders
D
neither considers the timing of the benefits received nor benefits only certain stockholders
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Question 7
Multiple Choice

The two most important disciplines on which financial management relies are

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A
accounting and production
B
accounting and marketing
C
economics and marketing
D
accounting and economics
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Question 8
Multiple Choice

The most widely accepted objective of the firm is to

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A
minimize risk
B
maximize profits
C
maximize shareholder wealth
D
maximize earnings per share
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Question 9
Multiple Choice

The ____ the risk of receiving future cash flows, the ____ will be the present value of those cash flows.

Choose correct answer/s
A
greater, greater
B
greater, lower
C
lower, lower
D
lower, greater
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Question 10
Multiple Choice

A major advantage of using the maximization of shareholder wealth as the primary goal of the firm is that this goal considers

Choose correct answer/s
A
the timing and the risk of the expected benefits to be received
B
the investor's consumption utility
C
the value of closely held partnerships
D
all the above
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Question 11
Multiple Choice

The primary reason for the divergence between the shareholder wealth maximization goal and the actual goals pursued by management has been attributed to

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A
separation of social responsibility and stakeholders' concerns
B
separation of ownership and control
C
separation of personal welfare and long-run profit goals
D
the granting of "golden parachute" contracts
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Question 12
Multiple Choice

Giving top management ____ is one method that ensures managers will act in the interest of shareholders in merger decisions.

Choose correct answer/s
A
"golden parachute" contracts
B
excellent pay
C
executive perks
D
job security
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Question 13
Multiple Choice

____ arise from the divergent objectives between owners and managers.

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A
Shareholder relationships
B
Stakeholder problems
C
Creditor problems
D
Agency problems
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Question 14
Multiple Choice

Agency costs include all of the following except:

Choose correct answer/s
A
expenditures to monitor management's actions
B
providing stock as part of management's compensation
C
flotation costs
D
bonding expenditures
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Question 15
Multiple Choice

A potential agency conflict can arise between stockholders and creditors because owners may

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A
increase the risk of a firm's investments
B
decrease the amount of debt outstanding
C
decrease the risk of a firm's investments
D
increase the firm's net worth
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Question 16
Multiple Choice

When KKR acquired RJR Nabisco, the ____ in the debt ratio, resulted in a(n) ____ in the value of the firm's outstanding bonds.

Choose correct answer/s
A
decrease, increase
B
increase, increase
C
decrease, decline
D
increase, decline
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Question 17
Multiple Choice

Agency problems may give rise to costs that ____ the market value of firms.

Choose correct answer/s
A
increase
B
decrease
C
do not affect
D
are not important to
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Question 18
Multiple Choice

All of the following are problems with the microeconomic profit maximization model except:

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A
the absence of a time dimension
B
offers financial managers insights to a wide range of problems
C
does not consider the risk of alternative decisions
D
the problem of defining profits
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Question 19
Multiple Choice

____ are largely outside of the direct control of managers.

Choose correct answer/s
A
investment strategies
B
economic environment factors
C
major policy decisions
D
dividend policies
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Question 20
Multiple Choice

The success of a firm is linked to its stakeholders. This group includes:

Choose correct answer/s
A
community neighbors
B
suppliers
C
employees
D
all the above
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