,Chapter 01 - The Goals and Functions of Financial Management
Chapter 01
The Goals and Functions of Financial Management
Multiple Choice Questions
1. What is the primary goal of financial management?
A. Increased earnings
B. Maximizing cash flow
C. Maximizing shareholder wealth
D. Minimizing risk of the firm
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price.
Topic: 01-06 Goals of Financial Management
2. Proper risk-return management means that:
A. the firm should take as few risks as possible.
B. consistent with the objectives of the firm, an appropriate trade-off between risk and return
should be determined.
C. the firm should earn the highest return possible.
D. the firm should value future profits more highly than current profits.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price.
Topic: 01-07 Maximizing Shareholder Wealth
1-1
,Chapter 01 - The Goals and Functions of Financial Management
3. Which of the following is not a major area of concern and emphasis in modern financial
management and in this text?
A. Inflation and its effect on profits
B. Stable short-term interest rates
C. Changing international environment
D. Increased reliance on debt
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-02 Identify the analysis and decision-making nature of finance while considering return and risk.
Topic: 01-05 A Discipline Used by Financial Managers
4. Which of the following is not a major area of concern and emphasis in modern financial
management and in this text?
A. Marginal analysis
B. Risk-return trade-off
C. Commodity trading
D. Changing financial institutions
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-02 Identify the analysis and decision-making nature of finance while considering return and risk.
Topic: 01-05 A Discipline Used by Financial Managers
5. Some of the effects of high inflation are:
A. the gold standard was eliminated.
B. purchasing power increased.
C. interest rates fall.
D. Phantom profits and undervalued assets.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-06 Outline the role of financial markets in allocating capital; determining value; and establishing yields.
Topic: 01-17 Allocation of Capital
1-2
, Chapter 01 - The Goals and Functions of Financial Management
6. In the past, the study of finance has included:
A. operational efficiency.
B. employee relationships.
C. legal cases.
D. mergers and acquisitions.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-01 Illustrate how finance builds on the disciplines of accounting and economics.
Topic: 01-02 Evolution of Finance as a Discipline
7. A financial manager's goal of maximizing current or short-term earnings may not be
appropriate because:
A. it considers the timing of the benefits.
B. increased earnings may be accompanied by acceptably higher levels of risk.
C. share ownership is widely dispersed.
D. earnings are subjective; they can be defined in various ways such as accounting or
economic earnings.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-03 Examine the primary goal of finance as the maximization of shareholder wealth as measured by share price.
Topic: 01-06 Goals of Financial Management
8. One of the major disadvantages of a sole proprietorship is:
A. that there is unlimited liability to the owner.
B. the simplicity of decision making.
C. low organizational costs.
D. low operating costs.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 01-05 Identify financial manager functions connected to the efficient raising and investing of funds.
Topic: 01-13 Functions of Financial Management
1-3
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