Foundations of Financial Management - 10th Canadian Edition by Block
Chapter 01
1. What is the primary goal of financial management?
A. Increased earnings
B. Maximizing cash flow
C. Maximizing shareholder wealth
D. Minimizing risk of the firm
2. Proper risk-return management means that:
A. the firm should take as few risks as possible.
B. consistent with the objectives of the firm, an appropriate trade-off between risk and return should be
determined.
C. the firm should earn the highest return possible.
D. the firm should value future profits more highly than current profits.
3. Which of the following is not a major area of concern and emphasis in modern financial management and in
this text?
A. Inflation and its effect on profits
B. Stable short-term interest rates
C. Changing international environment
D. Increased reliance on debt
4. Which of the following is not a major area of concern and emphasis in modern financial management and in
this text?
A. Marginal analysis
B. Risk-return trade-off
C. Commodity trading
D. Changing financial institutions
5. The effect of the high rates of inflation experienced during the 1970s and early 1980s was to make:
A. the gold standard was eliminated.
B. purchasing power increased.
C. interest rates fell.
D. capital budgeting decisions less reliable.
, Foundations of Financial Management - 10th Canadian Edition by Block
6. In the past, the study of finance has included:
A. operational efficiency.
B. employee relationships.
C. legal cases.
D. mergers and acquisitions.
7. A financial manager's goal of maximizing current or short-term earnings may not be appropriate because:
A. it considers the timing of the benefits.
B. increased earnings may be accompanied by acceptably higher levels of risk.
C. share ownership is widely dispersed.
D. earnings are subjective; they can be defined in various ways such as accounting or economic earnings.
8. One of the major disadvantages of a sole proprietorship is:
A. that there is unlimited liability to the owner.
B. the simplicity of decision making.
C. low organizational costs.
D. low operating costs.
9. The partnership form of organization:
A. avoids the double taxation of earnings and dividends found in the corporate form of organization.
B. usually provides limited liability to the partners.
C. has unlimited life.
D. simplifies decision making.
10. A corporation is not:
A. owned by shareholders who enjoy the privilege of limited liability.
B. easily divisible between owners.
C. a separate legal entity with perpetual life.
D. a separate legal entity with limited life.
11. Inflation:
A. increases corporations' reliance on debt for capital expansion needs.
B. creates larger asset values on the firm's historical balance sheet.
C. makes it cheaper (in terms of interest costs) for firms to borrow money.
D. creates stability for investors.
, Foundations of Financial Management - 10th Canadian Edition by Block
12. Which of the following securities is not included as part of the capital market?
A. Common stock
B. Commercial paper
C. Government bonds
D. Preferred stock
13. Maximization of shareholder wealth is a concept in which:
A. increased earnings is of primary importance.
B. profits are maximized on a quarterly basis.
C. virtually all earnings are paid as dividends to common shareholders.
D. optimally increasing the long-term value of the firm is emphasized.
14. The largest Canadian corporations are mainly:
A. widely held.
B. family controlled.
C. U.S. controlled.
D. Japanese controlled.
15. Which of the following is not a true statement about the goal of maximizing shareholder wealth?
A. It takes into account the timing of cash-flows.
B. It is a short-run point of view which takes risk into account.
C. It considers risk as a factor.
D. It is a long-run point of view which takes risk into account.
16. Increased international competition can be seen as a motivator to emphasize:
A. asset diversification strategies.
B. the risk side of the risk-return relationship.
C. the return side of the risk-return relationship.
D. invest in a new risky project.
17. Corporations can reduce portfolio risk by:
A. narrowing their focus on one successful product.
B. merging with companies in unrelated industries.
C. repurchasing their own stock.
D. selling their own stock.
, Foundations of Financial Management - 10th Canadian Edition by Block
18. The shift to the return side of the risk-return relationship has occurred because:
A. narrow focus on production.
B. stock splits.
C. there has been a decrease in the use of advanced technology in the production process.
D. there has been an increase in international competition.
19. A corporate buy-back, or the repurchasing of shares, is:
A. an example of balance sheet restructuring.
B. an excellent source of profits when the firm's stock is over-priced.
C. a method of reducing the debt-to-equity ratio.
D. shown as revenue on the income statement.
20. Which of the following is (are) a result of high inflation?
A. Loss from disposal of assets
B. Over-valued liabilities
C. Lower stock price
D. Under-valued assets
21. A corporate restructuring can result in:
A. increased revenue.
B. buying of low-profit margin divisions.
C. selling of high-profit margin divisions.
D. reductions in the work force.
22. Which of the following is not an example of restructuring as discussed in the text?
A. Repurchase of common stock
B. Creating a new organizational chart
C. Merging with companies in related industries
D. Divesting of an unprofitable division
23. Agency theory deals with the issue of:
A. when to hire an agent to represent the firm in negotiations.
B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.
C. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
D. the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.
Chapter 01
1. What is the primary goal of financial management?
A. Increased earnings
B. Maximizing cash flow
C. Maximizing shareholder wealth
D. Minimizing risk of the firm
2. Proper risk-return management means that:
A. the firm should take as few risks as possible.
B. consistent with the objectives of the firm, an appropriate trade-off between risk and return should be
determined.
C. the firm should earn the highest return possible.
D. the firm should value future profits more highly than current profits.
3. Which of the following is not a major area of concern and emphasis in modern financial management and in
this text?
A. Inflation and its effect on profits
B. Stable short-term interest rates
C. Changing international environment
D. Increased reliance on debt
4. Which of the following is not a major area of concern and emphasis in modern financial management and in
this text?
A. Marginal analysis
B. Risk-return trade-off
C. Commodity trading
D. Changing financial institutions
5. The effect of the high rates of inflation experienced during the 1970s and early 1980s was to make:
A. the gold standard was eliminated.
B. purchasing power increased.
C. interest rates fell.
D. capital budgeting decisions less reliable.
, Foundations of Financial Management - 10th Canadian Edition by Block
6. In the past, the study of finance has included:
A. operational efficiency.
B. employee relationships.
C. legal cases.
D. mergers and acquisitions.
7. A financial manager's goal of maximizing current or short-term earnings may not be appropriate because:
A. it considers the timing of the benefits.
B. increased earnings may be accompanied by acceptably higher levels of risk.
C. share ownership is widely dispersed.
D. earnings are subjective; they can be defined in various ways such as accounting or economic earnings.
8. One of the major disadvantages of a sole proprietorship is:
A. that there is unlimited liability to the owner.
B. the simplicity of decision making.
C. low organizational costs.
D. low operating costs.
9. The partnership form of organization:
A. avoids the double taxation of earnings and dividends found in the corporate form of organization.
B. usually provides limited liability to the partners.
C. has unlimited life.
D. simplifies decision making.
10. A corporation is not:
A. owned by shareholders who enjoy the privilege of limited liability.
B. easily divisible between owners.
C. a separate legal entity with perpetual life.
D. a separate legal entity with limited life.
11. Inflation:
A. increases corporations' reliance on debt for capital expansion needs.
B. creates larger asset values on the firm's historical balance sheet.
C. makes it cheaper (in terms of interest costs) for firms to borrow money.
D. creates stability for investors.
, Foundations of Financial Management - 10th Canadian Edition by Block
12. Which of the following securities is not included as part of the capital market?
A. Common stock
B. Commercial paper
C. Government bonds
D. Preferred stock
13. Maximization of shareholder wealth is a concept in which:
A. increased earnings is of primary importance.
B. profits are maximized on a quarterly basis.
C. virtually all earnings are paid as dividends to common shareholders.
D. optimally increasing the long-term value of the firm is emphasized.
14. The largest Canadian corporations are mainly:
A. widely held.
B. family controlled.
C. U.S. controlled.
D. Japanese controlled.
15. Which of the following is not a true statement about the goal of maximizing shareholder wealth?
A. It takes into account the timing of cash-flows.
B. It is a short-run point of view which takes risk into account.
C. It considers risk as a factor.
D. It is a long-run point of view which takes risk into account.
16. Increased international competition can be seen as a motivator to emphasize:
A. asset diversification strategies.
B. the risk side of the risk-return relationship.
C. the return side of the risk-return relationship.
D. invest in a new risky project.
17. Corporations can reduce portfolio risk by:
A. narrowing their focus on one successful product.
B. merging with companies in unrelated industries.
C. repurchasing their own stock.
D. selling their own stock.
, Foundations of Financial Management - 10th Canadian Edition by Block
18. The shift to the return side of the risk-return relationship has occurred because:
A. narrow focus on production.
B. stock splits.
C. there has been a decrease in the use of advanced technology in the production process.
D. there has been an increase in international competition.
19. A corporate buy-back, or the repurchasing of shares, is:
A. an example of balance sheet restructuring.
B. an excellent source of profits when the firm's stock is over-priced.
C. a method of reducing the debt-to-equity ratio.
D. shown as revenue on the income statement.
20. Which of the following is (are) a result of high inflation?
A. Loss from disposal of assets
B. Over-valued liabilities
C. Lower stock price
D. Under-valued assets
21. A corporate restructuring can result in:
A. increased revenue.
B. buying of low-profit margin divisions.
C. selling of high-profit margin divisions.
D. reductions in the work force.
22. Which of the following is not an example of restructuring as discussed in the text?
A. Repurchase of common stock
B. Creating a new organizational chart
C. Merging with companies in related industries
D. Divesting of an unprofitable division
23. Agency theory deals with the issue of:
A. when to hire an agent to represent the firm in negotiations.
B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.
C. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.
D. the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.
