Financial Accounts Pass Paper

Chapter 1
An Introduction to Financial Management
True/False

1. The goal of the firm should be the maximization of profit. ANSWER: False DIFFICULTY: Easy KEYWORDS: goal of firm, profit maximization

2. The goal of profit maximization is equivalent to the goal of maximization of share value. ANSWER: False DIFFICULTY: Easy KEYWORDS: goal of firm, profit maximization

3. One of the problems associated with profit maximization is that it ignores the timing of a project’s return. ANSWER: True DIFFICULTY: Moderate KEYWORDS: goal of firm, profit maximization

4. Although maximization of the market value of a firm’s common stock is a valid objective of the firm, it is not without its drawbacks since the effects of financial structure decisions are not reflected in this term. ANSWER: False DIFFICULTY: Moderate KEYWORDS: goal of firm, market value of stock

5. For the risk-averse financial manager, the more risky a given course of action, the higher the expected return must be. ANSWER: True DIFFICULTY: Moderate KEYWORDS: risk-return tradeoff

6. The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return. ANSWER: False DIFFICULTY: Moderate KEYWORDS: risk-return tradeoff

7. Only a few financial decisions involve some sort of risk-return tradeoff. ANSWER: False DIFFICULTY: Easy KEYWORDS: risk-return tradeoff

8. The goal of profit maximization ignores the timing of profit. ANSWER: True DIFFICULTY: Moderate KEYWORDS: goal of firm, profit maximization, timing of cash flows

9. The sole proprietorship can be described as the absence of any legal business structure. ANSWER: True DIFFICULTY: Moderate KEYWORDS: sole proprietorship

10. In a general partnership, all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm. ANSWER: True DIFFICULTY: Moderate