Financial Management Principles and Applications 8th Edition By Sheridan Titman test bank

 $1000 today because it will be worth more than $1000 received in five years
 $1000 in five years because it will be worth more than $1000 received today
 Investors would be indifferent to when they would receive the $1000
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: B
Why do investors prefer receiving cash sooner rather than later, according to finance theory?
 Incremental profits are greater than accounting profits.
 Money received earlier can be reinvested and returns can be increased.
 Tax considerations are important when investing.
 Diversification leads to increased value.
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: B
Investors choose to invest in higher risk investments because these investments offer higher [blank].
 expected returns
 inflation
 actual returns
 future consumption
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: A
Foregoing the earning potential of a dollar today is referred to as the [blank].
 time value of money
 opportunity cost concept
 risk–return trade-off
 creation of wealth
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: B
In measuring value, the focus should be on [blank].
 cash flow
 accounting profits
 time value of money
 earnings per share
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: A
Which of the following is a characteristic of an efficient market?
 Small number of individuals
 Opportunities exist for investors to profit from publicly available information
 Security prices reflect fair value of the firm
 Immediate response occurs for new public information
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: C
Which of the following factors is most important in investment decisions?
 The change in earnings before taxes
 The change in gross sales revenue
 The change in net income
 The change in after-tax cash flow
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: D
In November 2005, traders on the ground sold off a significant amount of Nike’s shares while Nike’s CEO was flying aboard the company’s Gulfstream jet. The jet was malfunctioning and traders were watching television coverage of the event. This scenario illustrates which principle?
 Market prices reflect information
 Individuals respond to incentives
 Cash flows are the source of value
 The time value of money
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: A
The two worst performers on the ASX in 2016 were healthcare companies.
True
False
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: A
The risk–return principle implies that the more risky a given course of action, the higher the expected return must be.
True
False
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals
Answer: A
The financial manager should examine available risk–return trade-offs and make his decision based upon the greatest expected return.
True
False
Difficulty: Moderate
AACSB: 3. Analytical thinking
Learning Objective: 1.4 Explain the five principles of finance that form the basis of financial management for both businesses and individuals