Question 1. The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.

1. The financial manager should examine available risk-return trade-offs and make his decision based upon the greatest expected return.

True

False

2. Only a few financial decisions involve some sort of risk-return tradeoff.

True

False

3. The sole proprietorship can be described as the absence of any legal business structure.

True

False

4. 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.

True

False

5. There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership.

True

False

6. General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to transfer their ownership.

True

False

7. Ultimate control in a corporation is vested in the board of directors.

True

False

8. There are a significant number of legal requirements to follow when establishing a sole proprietorship.

True

False

9. Limited partners may actively manage the business.

True

False

10. The life of a corporation is not dependent upon the status of the investors.

True

False

11. A sole proprietorship is the most desirable business form in all circumstances.

True

False

12. In a sole proprietorship, the owner is personally responsible without limitation for the liabilities incurred.

True

False

13. In a limited partnership, at least one general partner must remain in the association; the privilege of limited liability still applies to this partner.

True

False

14. In a general partnership, there is a distinction between business and personal assets.

True

False

15. In order to maximize shareholder wealth, a firm must consider historical costs as an integral part of their decision-making.

True

False

16. Financial management is concerned with the maintenance and creation of wealth. True

True

False

17. Shareholder wealth is measured by the market value of the firm’s common stock. True

True

False

18. The agency problem arises due to the separation of ownership and control in a firm.

True

False

19. There is little, if any, difference between a business error and an ethical error.

True

False

20. For markets to be efficient, price adjustments to new information must be correct.

True

False

21. Ethical dilemmas frequently exist in finance.

True

False

22. Even though diversification can eliminate risk, it also makes it more difficult to measure a project’s or an asset’s risk.

True

False

23 Consider the following equally likely project outcomes: Profit XY Pessimistic prediction$0$500 Expected outcome$ 500$500 Optimistic prediction$1000 $500

a. Project Y has less uncertainty than Project X.

b. Project X has more variability than Project Y.

c. a and b.

d. Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

24. Maximization of shareholder wealth as a goal is superior to profit maximization because:

a. it considers the time value of the money.

b. following the shareholder wealth maximization goal will ensure high stock prices.

c. it considers uncertainty.

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