Encircle T for Correct statement and F for false statement

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 projects
return.
ANSWER: True
DIFFICULTY: Moderate
KEYWORDS: goal of firm, profit maximization
4.Although maximization of the market value of a firms 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 income statement represents a snapshot of account balances at one point in time.
ANSWER: False
DIFFICULTY: Easy
KEYWORDS: financial statements, balance sheet
7.

Total equity on the balance sheet increases as dividends paid increases.

ANSWER: False
DIFFICULTY: Easy
KEYWORDS: financial statements, balance sheet

8.

Cash flows from assets will always be less than cash flows from financing due to dividends.
ANSWER: False
DIFFICULTY: Moderate
KEYWORDS: cash flow from assets, cash flow from financing

9.

The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000.
ANSWER: True
DIFFICULTY: Moderate
KEYWORDS: marginal tax rate, average tax rate

10.

11.

An income statement reports a firms profit relative to its total investment in plant and equipment.
ANSWER: False
DIFFICULTY: Moderate
KEYWORDS: income statement, profit
The key ingredient in a firms financial planning is the sales forecast.
ANSWER: True
DIFFICULTY: Easy
KEYWORDS: sales forecast

12.

The projected change in retained earnings equals projected net income less any dividends to be
paid.
ANSWER: True
DIFFICULTY: Easy
KEYWORDS: change in retained earnings

13.

The cash budget can be used as an accurate standard for control purposes by adjusting the cost
figures for planned sales in proportion to total assets.
ANSWER: False
DIFFICULTY: Moderate
KEYWORDS: cash budget

14.

The initiation of a major advertising campaign would be an example of an event that would affect
past trends in sales when projecting statements.
ANSWER: True
DIFFICULTY: Easy
KEYWORDS: sales forecast

15.

Depreciation expense can be obtained from the cash budget.

ANSWER: False
DIFFICULTY: Easy
KEYWORDS: depreciation expense