FINA 3770 – Flashcards

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

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

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

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

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.

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

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

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

The goal of profit maximization ignores the risk of financial decisions

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.

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

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.

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.

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.

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.