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FINN 23

Financial Management, Principles and Applications

TEST BANK
Relationship of Financial Objectives to Organizational Strategy
and Other Organizational Objectives
Multiple Choice Questions
1. Corporate social responsibility is
a. Effectively enforced through the controls envisioned by
classical economics.
b. The obligation to shareholders to earn a profit.
c. The duty to embrace service to the public interest.
d. The obligation to serve long-term organizational interest.
2. Which of the following statements is false?
a. Timing is a particularly important consideration in financial
decisions.
b. During the 1930s, the government assumed a much greater
role in regulating the securities industry.
c. Because socially desirable goals can impede profitability in
many instances, managers should not try to operate under
the assumption of wealth maximization.
d. As finance emerged as a new field, much emphasis was
placed on mergers and acquisitions.
3. Which of the following statements is true?
a. Social responsibility and profit maximization are synonymous.
b. There are more serious problems with financial goal of
maximizing the earnings of a firm.
c. Maximizing the earnings of the firm is the primary goal of
financial management.
d. The higher the profit of the firm, the higher the value of the
firm is assured of receiving in the market.
4. Which of the following statements is false?
a. For as long as satisfactory level of profit is earned, the
financial manager need not be concerned with unethical
behavior.
b. In the mid 1950s, finance began to change to more analytical,
decision-oriented approach.
c. Inflation has led to phantom profits and undervalued assets.
d. Recently, the emphasis of financial management has been on
the relationships between risk and return.

FINN 23
Financial Management, Principles and Applications

5. A common argument against corporate involvement and socially


responsible behavior is that
a. As a legal person, a corporation is accountable for its conduct.
b. It encourages government intrusion in decision making.
c. In a competitive market, such behavior incurs costs that place
the company at a disadvantage.
d. It creates goodwill.
6. The wealth maximization goal is advocated on the following
grounds, except,
a. It considers the risk and time value of money.
b. It considers future cash flow, dividends and earnings per
share.
c. It suggests the regular and consistent dividend payments to
the shareholders.
d. The financial decisions are taken with a view to improve the
profit of the firm.
7. Which of the following is not an example of investing decisions of a
financial manager?
a. Funds allocation and its rationing
b. Asset replacement decision
c. Determination of fixed assets to be acquired.
d. Determination of the best capital structure or mixture of debt
and equity financing.
8. An 18th century economist who was of the first and well-known
proponent of shareholders wealth maximization viewpoint.
a. Luca Pacioli
b. Adam Smith
c. Karl Marx
d. John Maynard Keynes
9. Which of the following is an example of operating decisions made
by a financial manager?
a. The level of cash, securities and inventory that should be kept
on hand.
b. Securities analysis and portfolio management.
c. Determination of the total amount of fund that a firm can
commit for investment.
d. Evaluation and selection of capital investment proposal.
10. _________ is concerned about the acquisition, financing, and
management of assets with some overall goal in mind.
a. Financial Management
b. Profit Maximization
c. Agency theory
d. Social responsibility
11. What is the most appropriate goal of the firm?

FINN 23
Financial Management, Principles and Applications

a. Shareholder wealth maximization


b. Profit maximization
c. Stakeholder maximization
d. EPS maximization
12. The ________ decision involves determining the appropriate makeup of the right-hand side of the balance sheet.
a. Asset Management
b. Financing
c. Investment
d. Capital Budgeting
13. The _______ decision involves efficiently managing the assets on
the balance sheet on a day-to-day basis, especially current assets.
a. Asset Management
b. Financing
c. Investment
d. Capital Budgeting
14. A concept that implies that the firm should consider issues such
as protecting the consumer, paying fair wages, maintaining fair
hiring practices, supporting education, and considering
environmental issues.
a. Financial Management
b. Profit Maximization
c. Agency theory
d. Social responsibility
15. Which of the following statements is correct regarding profit
maximization as the primary goal of the firm?
a. Profit maximization considers the firms risk level.
b. Profit maximization will not lead to increasing short-term
profits at the expense of lowering expected future profits.
c. Profit maximization does consider the impact on individual
shareholder EPS.
d. Profit maximization is concerned more with maximizing the
net income than the stock price.
Prepared by:

Tiu, Jonathan Michael T.


3rd Year BS Accountancy

KEY ANSWERS
1. C.
Corporate social responsibility, often abbreviated "CSR," is
a corporation's initiatives to assess and take responsibility for the

FINN 23
Financial Management, Principles and Applications

company's effects on environmental and social wellbeing.


Investopedia, LLC (2016)
2. C.
Every corporations primary goal is to maximize the current value per
share of existing stock or ownership. Hence, it should try to keep in
balance its socially desirable goals and at the same time, the goal of
wealth maximization.
3. B.
Maximizing earnings is only of a short-term financial goal. It cannot
produce spontaneous ideas to generate useful decisions for high risk
problems that the company may encounter.
4. A.
A company is not created solely for earning profits. It should also be
responsible for its actions which fall outside of what is considered
morally right for a person, a profession, or an industry.
5. C.
Imagine a situation of a very tight competition in a certain industry, it
may really be very costly for a firm to consider corporate social actions
when its economical condition is at risk.
6. D.
The financial decisions are taken with a view to improve the capital
appreciation of the share price and not for profit.
7. D.
Determination of the best capital structure or mixture of debt and
equity financing is an example of financing decision.
8. B.
Adam Smith argued that, an individual pursuing its own interest tends
also to promote the good of his community.
9. A.
All the other choices are an example of investing decisions.
10.
A.
Financial management is a decision making process concerned with
planning, acquiring and utilizing funds in a manner that achieves the
firms desired goals.
11.
A.
The goal of financial management is to maximize the current value
per share of the existing stock or ownership in a firm.
12.
B.
The right side of the balance sheet is composed of the equity section
to which is affected by financing decisions.

FINN 23
Financial Management, Principles and Applications

13.
A.
Asset management may be referred to as the operating decisions
made by finance managers, which influences the day-to-day activities.
14.
D.
Refer to the meaning of CSR in answer #1.
15. D.
Wealth maximization focuses on the appreciation of the current value
per share, while the profit maximization on the other hand, is
concerned on the profit itself.

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