1.1 Learning Objective 1 1) Financial management deals with the maintenance and creation of economic value or wealth. 2) Each financial decision made by a corporate manager can be evaluated by its direct impact on the corporation’s stock price. 3) The fundamental goal of a business is to maximize the retained earnings available to the corporation’s shareholders. 4) Shareholder wealth maximization means maximizing the price of the existing common stock. 5) It is important to evaluate a corporate manager’s financial decision by measuring the effect the decision should haveon the corporation’s stock price if everything else were held constant. 6) Corporate managers should accept investment projects that maximize profits int he short run because of the time value of money. 7) The goal of the firm’s financial managers should be the maximization of the total value of the firm’s stock. 8) The payment of a dividend to current shareholders will have no impact on a corporation’s share price because the cash paid is not available to future potential shareholders who may want to buy the corporation’s stock. 9) One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm’s financial decisions. 10) The goal of profit maximization ignores the risk of financial decisions 11) Only a firm’s financial decisions affect its stock prices. 12) Shareholders react to poor investment or dividend decisions by causing the total value of the firm’s stock to fall and they react to good decisions by bidding the price of the stock up.
