Question 1

Shareholder wealth maximization means
A)maximizing earnings per share.
B)maximizing dividends per share.
C)maximizing the price of existing common stock.
D)maximizing stockholders equity.

Accepted Answer

Shareholder wealth maximization means maximizing the price of existing common stock, as this reflects the overall value of the company and benefits shareholders. Maximizing earnings per share or dividends per share may not necessarily result in an increase in the stock price, and maximizing stockholders equity does not necessarily reflect the actual value of the company.

Question 2

The fundamental goal of a business is to maximize the retained earnings available to the corporation's shareholders.

Accepted Answer

The fundamental goal of a business is to maximize shareholder value, which is broader than just maximizing retained earnings. It involves increasing the overall value of the company through various means, including profitability, growth, and strategic decisions that may not always result in increased retained earnings.

Question 3

Financial management deals with the maintenance and creation of economic value or wealth.

Accepted Answer

Financial management involves strategies and techniques aimed at maximizing the value of a company or individual's financial resources, thereby creating wealth or economic value.

Question 4

The primary goal of a publicly owned corporation is to ________.
A)maximize dividends per share
B)maximize shareholder wealth
C)maximize earnings per share after taxes
D)minimize shareholder risk

Accepted Answer

The primary goal of a publicly owned corporation is to maximize shareholder wealth. This is achieved by increasing the value of the company and the return on investment for shareholders. While maximizing dividends per share and earnings per share after taxes are important objectives, they are not the primary goal. Minimizing shareholder risk is also important, but it is not the primary goal as shareholders understand that investing in the stock market comes with a certain level of risk.

Question 5

Corporate managers should accept investment projects that maximize profits in the short run because of the time value of money.

Accepted Answer

It is not always advisable for corporate managers to accept investment projects that maximize short-term profits. They should consider the long-term profitability and sustainability of the project. Additionally, prioritizing short-term profits may result in sacrificing ethical considerations and long-term goals.

Question 6

The payment of a dividend to current shareholders will have no impact on a corporation's share price because the cash paid is not available to future potential shareholders who may want to buy the corporation's stock.

Accepted Answer

The payment of a dividend can have an impact on a corporation's share price. It may increase demand for the stock, leading to an increase in price, as investors may see the dividend payment as a sign of financial strength and stability. However, it can also decrease the share price if investors are disappointed with the size of the dividend payment or if they were expecting the company to reinvest the money in growth opportunities instead.

Question 7

One of the causes of the recent financial crisis in the United States has been excessive risk taking due to underestimation of risk.How does this relate to financial leverage? Can overestimation of risk also be detrimental?

Accepted Answer

The answer of One of the causes of the recent...

Question 8

The goal of the firm should be
A)maximization of profits (net income per share).
B)maximization of shareholder wealth.
C)maximization of market share.
D)maximization of sales.

Accepted Answer

Maximization of shareholder wealth is the most appropriate goal for the firm as it focuses on creating long-term value for shareholders through generating higher returns on their investment. This approach is in line with the interests of the owners and investors of the company and ensures the sustainability of the business in the long run. Other goals, such as maximization of profits or sales, may lead to short-term gains but do not necessarily lead to sustained success or value creation over time. Additionally, maximizing market share may lead to higher revenues and profits in the short run but may not necessarily be profitable for the company in the long term if it comes at a high cost.

Question 9

Shareholder wealth maximization means maximizing the price of the existing common stock.

Accepted Answer

Shareholder wealth maximization focuses on increasing the financial value of a company for its shareholders, and one way to measure that is through the stock price. Therefore, maximizing the price of the existing common stock is a part of shareholder wealth maximization.

Question 10

Which of the following is the most important goal that a corporation should strive for?
A)maximize current profits
B)maximize market share
C)maximize revenue
D)maximize shareholder wealth

Accepted Answer

Maximizing shareholder wealth is the most important goal that a corporation should strive for because it creates value for shareholders who have a financial stake in the company. This goal aligns with the long-term financial success of the company as well. While maximizing profits, market share, and revenue are all important, they are means to achieving the ultimate goal of maximizing shareholder wealth.

Question 11

The goal of the firm's financial managers should be the maximization of the total value of the firm's stock.

Accepted Answer

The primary goal of financial managers is to maximize shareholder wealth, which is measured by the total value of the firm's stock.

Question 12

Only a firm's financial decisions affect its stock prices.

Accepted Answer

While a firm's financial decisions may play a role in influencing stock prices, there are various other factors such as market trends, industry developments, news events, and changes in interest rates that can also impact stock prices.

Question 13

Maximization of shareholder wealth
A)represents a zero sum game in which one corporation gains at the expense of others.
B)provides benefits to society as scarce resources are directed to their most productive use.
C)is not a practical goal since it cannot be measured effectively.
D)is achieved only if cash flows exceed accounting profits.

Accepted Answer

The answer of Maximization of shareholder wealth
A)represents a zero sum...

Question 14

Shareholders react to poor investment or dividend decisions by causing the total value of the firm's stock to fall,and they react to good decisions by bidding the price of the stock up.

Accepted Answer

Shareholders react to the financial performance and decisions of the company by buying or selling its stock, which affects the stock price. Poor investment or dividend decisions can lead to a decline in the stock price, while good decisions can result in an increase in the stock price.

Question 15

Which of the following goals of the firm are synonymous (equivalent)to the maximization of shareholder wealth?
A)profit maximization
B)risk minimization
C)maximization of the total market value of the firm's common stock
D)none of the above

Accepted Answer

Maximization of the total market value of the firm's common stock is equivalent to the maximization of shareholder wealth as it takes into account the current stock price and the number of outstanding shares, reflecting the present value of expected future cash flows to shareholders. Profit maximization and risk minimization are not necessarily equivalent to the maximization of shareholder wealth, as they may not consider the timing and uncertainty of future cash flows or the impact on the stock price.

Question 16

The goal of profit maximization ignores the risk of financial decisions

Accepted Answer

The goal of profit maximization focuses solely on maximizing profits, without considering the risk and uncertainty associated with financial decisions. This approach may lead to short-term gains but can also result in significant losses and long-term damage to the company's financial health.

Question 17

One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

Accepted Answer

Maximization of shareholder wealth as a goal does consider risk, as the value of a firm's stock reflects both the expected returns and the risk associated with achieving those returns. Financial decisions that increase risk without adequate expected returns can decrease stock value, contrary to the goal of maximizing shareholder wealth.

Question 18

It is important to evaluate a corporate manager's financial decision by measuring the effect the decision should have on the corporation's stock price if everything else were held constant.

Accepted Answer

The ultimate goal of any financial decision made by a corporate manager is to maximize the value of the firm for its shareholders. Therefore, evaluating the effect of the decision on the stock price is a crucial measure of its success. However, it's important to note that other factors, such as market conditions or changes in the industry, may also affect the stock price.

Question 19

A financial manager is considering two projects,A and B.A is expected to add $2 million to profits this year while B is expected to add $2 million to profits this year while B is expected to add $1 million to profits this year.Which of the following statements is MOST correct?
A)The manager should select project A because it maximizes profits.
B)The manager should select the project that maximizes long-term profits,not just one year of profits.
C)The manager should select project A or he is irrational.
D)The manager should select the project that causes the stock price to increase the most,which could be A or B.

Accepted Answer

The answer of A financial manager is considering two projects,A...

Question 20

Each financial decision made by a corporate manager can be evaluated by its direct impact on the corporation's stock price.

Accepted Answer

While a financial decision may have some impact on the stock price, there are many other factors that influence stock prices including overall market trends, investor sentiment, and macroeconomic factors. Additionally, not all financial decisions are focused on maximizing the stock price - some may prioritize long-term growth or other strategic objectives.

Quiz 1: An Introduction to the Foundations of Financial Management

Shareholder wealth maximization means

The fundamental goal of a business is to maximize the retained earnings available to the corporation's shareholders.

Financial management deals with the maintenance and creation of economic value or wealth.

The primary goal of a publicly owned corporation is to ________.

Corporate managers should accept investment projects that maximize profits in the short run because of the time value of money.

The payment of a dividend to current shareholders will have no impact on a corporation's share price because the cash paid is not available to future potential shareholders who may want to buy the corporation's stock.

One of the causes of the recent financial crisis in the United States has been excessive risk taking due to underestimation of risk.How does this relate to financial leverage? Can overestimation of risk also be detrimental?

The goal of the firm should be

Shareholder wealth maximization means maximizing the price of the existing common stock.

Which of the following is the most important goal that a corporation should strive for?