Chapter 1 - Principles of Finance

What is the primary goal of the science of finance?

• To maximize profit in the long term

• To guide managers' decisions

• To establish general rules

• To allocate money

What does finance involve besides theory?

• Art

• Science

• Business

• Management

What is the primary goal of maximizing profit?

• Emphasizing shareholder wealth

• Emphasizing accounting profit for a short term

• Ignoring the risk of return

• Considering the risk of return

What happens if a company does not spend on research and development?

• It will lead to long-term success

• It will lag behind its competitors

• It will increase profits

• It will reduce costs

What is the objective of evaluating investment alternatives?

• To maximize profit

• To consider the risk of return

• To obtain profit or cash flow

• To ignore the risk of return

What is the relationship between risk and return?

• Higher returns require lower risk

• Higher returns require higher risk

• There is no relationship between risk and return

• Lower returns require higher risk

What is capital budgeting?

• How to manage cash flows

• How to raise money

• What long-term investments to undertake

• How to allocate money

What is capital structure?

• How to manage cash flows

• How to raise money

• What long-term investments to undertake

• How to allocate money

What is working capital management?

• How to manage cash flows

• How to raise money

• What long-term investments to undertake

• How to allocate money

What does the finance area focus on in a firm?

• Only short-term goals

• Only long-term goals

• Both short-term and long-term goals

• Neither short-term nor long-term goals