Contemporary Financial Management, Moyer - Exam Preparation Test Bank (Downloadable Doc)

Chapter 1

The Role and Objective of Financial Management



MULTIPLE CHOICE


1. The primary objective of the firm is:

a. Shareholder wealth maximization

b. Social responsibility

c. Long run survival

d. Profit maximization



ANS: A OBJ: TYPE: Fact TOP: A Foundation Concept


2. The limitations of the profit maximization goal include:

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



ANS: D OBJ: TYPE: Fact

TOP: Maximization of shareholder wealth: Managerial strategies


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

a. Future value

b. Compound value

c. Percentage value

d. Present value

,ANS: D OBJ: TYPE: Fact TOP: A Foundation Concept


4. Shareholder returns can take the form of

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



ANS: D OBJ: TYPE: Fact TOP: A Foundation Concept


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

a. Book value

b. Market value

c. Historic value

d. Compound value



ANS: B OBJ: TYPE: Fact TOP: A Foundation Concept


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

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



ANS: B OBJ: TYPE: Fact TOP: A Foundation Concept

, 7. The two most important disciplines on which financial management relies are

a. accounting and production

b. accounting and marketing

c. economics and marketing

d. accounting and economics



ANS: D OBJ: TYPE: Fact TOP: Financial management and other
disciplines


8. The most widely accepted objective of the firm is to

a. minimize risk

b. maximize profits

c. maximize shareholder wealth

d. maximize earnings per share



ANS: C OBJ: TYPE: Fact TOP: A Foundation Concept


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

a. greater, greater

b. greater, lower

c. lower, lower

d. lower, greater



ANS: B OBJ: TYPE: Fact TOP: Risk


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

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



ANS: A OBJ: TYPE: Fact TOP: A Foundation Concept


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

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



ANS: B OBJ: TYPE: Fact TOP: Divergent objectives


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

a. "golden parachute" contracts

b. excellent pay

c. executive perks

d. job security



ANS: A OBJ: TYPE: Fact TOP: Divergent objectives


13. _____ arise from the divergent objectives between owners and managers.

a. Shareholder relationships

b. Stakeholder problems

c. Creditor problems