@ Pages and References: p35
a. T
*b. F
4. Most of the tools used by decision-makers in the corporate world are based upon the central
assumption of profit maximization
@ Pages and References: p35
*a. T
b. F
5. Profit maximization is an unambiguous performance goal for a firm.
@ Pages and References: p38
a. T
*b. F
6. Economic profit is a better indicator of firms’ performance than accounting profit because economic
profit takes into account the normal expected return to capital
@ Pages and References: p 38
*a. T
b. F
7. Profit can only be measured in relation to a specified time period.
@ Pages and References: p39
*a. T
b. F
8. The maximization of profit over the life of the firm equates to the maximization of the firm’s value
@ Pages and References: p39
*a. T
b. F
9. In practice, valuing firms by discounting economic profits leads to the same result as by discounting the
firm’s net cash flows
,@ Pages and References: p40
*a. T
b. F
10. Shareholder value is the value of a firm’s equity; enterprise value is the value of its debt.
@ Pages and References: p40
a. T
*b. F
11. A firm’s stock market capitalization offers the best available indicator of the net present value of its
future free cash flows.
@ Pages and References: p41
*a. T
b. F
13. Estimating a firm’s future cash flows is an easy task
@ Pages and References: p41
a. T
*b. F
14. The DuPont formula offers a useful stating point for diagnosing firm performance by disaggregating
return on invested capital into sales turnover and capital margin.
@ Pages and References: p43
a. T
*b. F
15. Short term maximization of profit will always lead to long term profit maximization and, therefore, to
the maximization of a firm’s value
@ Pages and References: pp40-41
a. T
*b. F
16. The balanced scorecard method developed by Kaplan and Norton provides an integrated
, framework for balancing financial and strategic goals.
@ Pages and References: p47
*a. T
b. F
17. The balanced scorecard is primarily a tool for reconciling stakeholder interests.
@ Pages and References: p47
a. T
*b. F
18. Most successful firms were founded by entrepreneurs whose primary goal was to become wealthy.
@ Pages and References: p35
a. T
*b. F
19. If a firm is to achieve superior profit performance it is often better for management to focus on the
drivers of profitability—such as innovation or customer satisfaction—rather than on profitability itself.
@ Pages and References: p48
*a. T
b. F
20. According to Milton Friedman, the social purpose of a business is to make profit.
@ Pages and References: p49
*a. T
b. F
21. Empirical research shows that firms that are committed to values and ethical principles tend to be less
profitable over the long run than those committed to the pursuit of profit.
@ Pages and References: p50
a. T
*b. F
a. T
*b. F
4. Most of the tools used by decision-makers in the corporate world are based upon the central
assumption of profit maximization
@ Pages and References: p35
*a. T
b. F
5. Profit maximization is an unambiguous performance goal for a firm.
@ Pages and References: p38
a. T
*b. F
6. Economic profit is a better indicator of firms’ performance than accounting profit because economic
profit takes into account the normal expected return to capital
@ Pages and References: p 38
*a. T
b. F
7. Profit can only be measured in relation to a specified time period.
@ Pages and References: p39
*a. T
b. F
8. The maximization of profit over the life of the firm equates to the maximization of the firm’s value
@ Pages and References: p39
*a. T
b. F
9. In practice, valuing firms by discounting economic profits leads to the same result as by discounting the
firm’s net cash flows
,@ Pages and References: p40
*a. T
b. F
10. Shareholder value is the value of a firm’s equity; enterprise value is the value of its debt.
@ Pages and References: p40
a. T
*b. F
11. A firm’s stock market capitalization offers the best available indicator of the net present value of its
future free cash flows.
@ Pages and References: p41
*a. T
b. F
13. Estimating a firm’s future cash flows is an easy task
@ Pages and References: p41
a. T
*b. F
14. The DuPont formula offers a useful stating point for diagnosing firm performance by disaggregating
return on invested capital into sales turnover and capital margin.
@ Pages and References: p43
a. T
*b. F
15. Short term maximization of profit will always lead to long term profit maximization and, therefore, to
the maximization of a firm’s value
@ Pages and References: pp40-41
a. T
*b. F
16. The balanced scorecard method developed by Kaplan and Norton provides an integrated
, framework for balancing financial and strategic goals.
@ Pages and References: p47
*a. T
b. F
17. The balanced scorecard is primarily a tool for reconciling stakeholder interests.
@ Pages and References: p47
a. T
*b. F
18. Most successful firms were founded by entrepreneurs whose primary goal was to become wealthy.
@ Pages and References: p35
a. T
*b. F
19. If a firm is to achieve superior profit performance it is often better for management to focus on the
drivers of profitability—such as innovation or customer satisfaction—rather than on profitability itself.
@ Pages and References: p48
*a. T
b. F
20. According to Milton Friedman, the social purpose of a business is to make profit.
@ Pages and References: p49
*a. T
b. F
21. Empirical research shows that firms that are committed to values and ethical principles tend to be less
profitable over the long run than those committed to the pursuit of profit.
@ Pages and References: p50
a. T
*b. F
