Exam 1: An Introduction to the Foundations of Financial Management

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

In a limited partnership at least one general partner must exist; that general partner has unlimited liability.

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

When evaluating an investment project,which of the following best describes the financial information needed by the decision maker?

Beginning in 2007 the United States experienced its most severe financial crisis since the Great Depression of the 1930s.

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

Documents uncovered after the Exxon Valdez oil spill in Alaska revealed that Exxon could have used double-hulled oil tankers that would have prevented the spill,but the cost of refitting their fleet of single-hulled tankers was considered too high.Exxon determined that the cost of cleaning up an oil spill would be less than the cost of refitting the ships,thus increasing shareholder value.Several years after the oil spill,however,Exxon was fined billions of dollars for the spill.How do the costs of the clean up and the fines pertain to a discussion of maximizing shareholder value and ethical responsibility?

The goal of the firm should be

Cash flows and profits are synonymous; in other words,higher cash flows equal higher profits.

Assume that an investor is offered a choice of a risk-free government bond or a high-risk corporate stock.Further assume that the expected return is the same for both.According to one of the axioms of finance,which investment would be chosen?

Which of the statements below are true?

Due to unstable world markets,most large U.S.corporations do almost all of their business in the United States.

Short-term United States Treasury Bills are widely used as proxies for risk-free assets,yet the returns on these T-bills are consistently greater than zero.Is this consistent with the concept of a risk-return tradeoff?

The opportunity cost of any choice you make is the highest-valued alternative that you had to give up when you made the choice.

The sole proprietorship is for all practical purposes the absence of any formal legal business structure.

The risk-return tradeoff is seen in many areas of finance.

Which of the following goals of the firm are synonymous (equivalent)to the maximization of shareholder wealth?

Which of the following categories of owners enjoy limited liability?

The chief financial officer (CFO)is responsible for overseeing financial planning,corporate strategic planning,and controlling the firm's cash flow.

One of the problems associated with maximization of total current stock value is that it ignores the timing of a project's return.