Copyright 2019 Pearson Education, Inc.

1 Copyright© 2019 Pearson Education, Inc.Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart) Chapter 1 The Role of Managerial Finance 1.1 Finance and the firm.1) A firm is a business organization that sells goods and services.

Answer: TRUE

Diff: 1

Topic: Finance and the firm

Learning Obj.: LG 1

Learning Outcome: F-01

AACSB: Analytical Thinking

2) In finance we say that the goal of the firm ought to be to maximize profits.

Answer: FALSE

Diff: 1

Topic: Finance and the firm

Learning Obj.: LG 1

Learning Outcome: F-01

AACSB: Analytical Thinking

3) Other things being equal, it is better to receive money sooner rather than later.

Answer: TRUE

Diff: 1

Topic: Managing the firm

Learning Obj.: LG 4

Learning Outcome: F-01

AACSB: Analytical Thinking

4) Financial managers evaluating decision alternatives or potential actions must consider

________.

• only risk
• only return
• either risk or return
• risk, return, and the impact on share price

Answer: D

Diff: 1

Topic: Maximize Shareholder Wealth

Learning Obj.: LG 3

Learning Outcome: F-01

AACSB: Analytical Thinking

Principles of Managerial Finance, Brief Edition, 8e Chad Zutter, Scott Smart (Test Bank All Chapters) 1 / 4

2 Copyright © 2019 Pearson Education, Inc.5) If a firm earns a profit, it will necessarily also generate a positive cash flow.

Answer: FALSE

Diff: 2

Topic: Managing the firm

Learning Obj.: LG 4

Learning Outcome: F-01

AACSB: Analytical Thinking

6) If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning the highest possible returns on its investments.

Answer: FALSE

Diff: 2

Topic: Managing the firm

Learning Obj.: LG 4

Learning Outcome: F-01

AACSB: Analytical Thinking

7) Which of the following is an example of a firm's stakeholder?

• suppliers
• Federal Reserve
• media
• competitors

Answer: A

Diff: 1

Topic: What About Stakeholders?

Learning Obj.: LG 3

Learning Outcome: F-01

AACSB: Analytical Thinking

• / 4

3 Copyright © 2019 Pearson Education, Inc.8) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset costs $35,000 and is expected to provide earnings over a three-year period as described below.

Based on the wealth maximization goal, the financial manager would choose ________.

• Asset 1
• Asset 2
• Asset 3
• Asset 4

Answer: A

Diff: 2

Topic: Maximize Shareholder Wealth

Learning Obj.: LG 3

Learning Outcome: F-01

AACSB: Reflective Thinking

9) In the most recent year, two different companies generated the same earnings per share. The stocks of these two companies should trade at the same price.

Answer: FALSE

Diff: 2

Topic: Managing the firm

Learning Obj.: LG 4

Learning Outcome: F-01

AACSB: Analytical Thinking

10) One reason that firms exist is that most investors are risk averse, so they are not willing to make the kinds of risky investments that firms typically undertake.

Answer: FALSE

Diff: 1

Topic: Finance and the firm

Learning Obj.: LG 1

Learning Outcome: F-01

AACSB: Analytical Thinking

• / 4

4 Copyright © 2019 Pearson Education, Inc.11) Which of the following is TRUE of stakeholders?

• They are the owners of a firm.
• They are groups to whom a firm has financial obligations.
• They are groups having a direct economic link to a firm.
• They include only the bondholders, common stockholders, and preferred stockholders.

Answer: C

Diff: 1

Topic: What About Stakeholders?

Learning Obj.: LG 3

Learning Outcome: F-01

AACSB: Analytical Thinking

12) Which of the following is TRUE regarding cash flow?

• Profits do not necessarily result in cash flows available to the stockholders.
• It is guaranteed that the board of directors will increase dividends when net cash flows

increase.

• A firm's income statement will never show a positive profit when its cash outflows exceed its

cash inflows.

• An increase in revenue will always result in an increase in cash flow.

Answer: A

Diff: 1

Topic: Maximize Shareholder Wealth

Learning Obj.: LG 3

Learning Outcome: F-01

AACSB: Analytical Thinking

13) Investors who are risk averse will make risky investments as long as they expect compensation for doing so.

Answer: TRUE

Diff: 1

Topic: Managing the firm

Learning Obj.: LG 4

Learning Outcome: F-01

AACSB: Analytical Thinking

14) Which of the following is TRUE of cash flows and risk?

• Lower cash flow and lower risk result in an increase in share price.
• Higher cash flow and lower risk result in an increase in share price.
• Higher cash flow and higher risk result in an increase in share price.
• Lower cash flow and higher risk result in an increase in share price.

Answer: B

Diff: 1

Topic: Maximize Shareholder Wealth

Learning Obj.: LG 3

Learning Outcome: F-01

AACSB: Analytical Thinking

• / 4