CHAPTER 12

RELATIONSHIP OF FINANCIAL OBJECTIVES TO ORGANIZATIONAL STRATEGY

AND OTHER ORGANIZATIONAL OBJECTIVES

Multiple Choice Questions

1. The wealth maximization goal is advocated on the following grounds except
a. It considers all future cash flow, dividends and earnings per share
b. The financial decisions are taken with a view to improve the company
c. It considers the risk and time value of money
d. Maximization of firms value is reflected in the market price of share

2. What is the primary financial goal of a firm?

a. Maximize sales
b. Maximize the wealth of its existing shareholders
c. Provide quality products and service
d. Welfare of society at large

3. Long range in scope and has its focus on the organization as a whole is
a. Financial Planning
b. Objectives Setting
c. Strategic Planning
d. Growth Planning

4. Reveals areas that are less effective and provide information to help managers develop
remedial action
a. Historical financial statements

b. Master plan
c. Current financial statements
d. Objectives

5. The following are the firms short and medium-term objectives example except
a.

Maximization of return on investment

b. Growth in earnings per share

c.

Minimization of dividends

d. Efficient procurement and utilization of short term, medium term and long term funds

6. The responsibility of a financial manager to determine how scarce the resources or funds
committed to projects refers to
a. Management function
b. Investing function
c. Financing function
d. Operating function

7. The responsibility of a financial manager which is concern with working capital

management refers to
a. Management function
b. Investing function
c. Financing function
d. Operating function

8. The responsibility of a financial manager which is concern with the ways in which the
firm obtains and manages the financing it needs to support its investments refers to

a. Management function
b. Investing function
c. Financing function
d. Operating function

9. The amount of pesos invested in current and fixed assets

a. Hurdle rate
b. Asset mix
c. Investment mix
d. Asset investment

10. The investment decisions should aim at investments in assets only when they are
expected to earn a return greater than a minimum acceptable return which is also called
a. Hurdle rate
b. Asset mix
c. Investment mix
d. Debt-equity mix

11. The following areas are example of investing decisions except

a. Prioritization of investment alternatives
b. Funds allocation and its rationing
c. Evaluation of alternative sources of funds
d. Securities analysis and portfolio management

12. In fund raising decisions the finance manager should keep in view the following except

a. Where to raise money

b. Determination of asset mix
c. Impact of interest
d. Inflation rates on the firms

13. The following are the issues that may have to be resolved in relation to managing a firm's
working capital except
a. The level of cash, securities and inventory that should be kept on hand
b. The credit policy
c. Sources of short and long-term financing
d. Financing purchases of goods

14. The stakeholder's perspective on the primary financial objectives of the business firm is
a. Maximize shareholders or owners wealth
b. Profitability
c. Social responsibility
d. Maximize the market price of equity shares

15. The owners perspective on the primary financial objectives of the business firm is
a. Maximize shareholders or owners wealth
b. Profitability
c. Social responsibility
d. Maximize the market price of equity shares

Key to correction
1. B - The wealth maximization goal is not just to improve the company itself.
2. B - The primary financial goal of a firm is to maximize the wealth of its shareholders.
3. C - Strategic Planning refers to long range scope and has its focus on the organization as
a whole.
4. A - Historical financial statement is not timely, the reason why it is less effective in
making financial decision.
5. C - Maximization of dividends is one of the short term goals of a firm.
6. B - Investing Function refers to the responsibility of a financial manager to determine
how scarce the resources or funds committed to projects.
7. D - Operating function refers to the responsibility of a financial manager which is
concern with the working capital management.
8. C - Financing Function refers to the responsibility of a financial manager which is
concern with the ways in which the firm obtains and manages the financing it needs to
support its investments.
9. B - Asset Mix refers to the amount of pesos invested in current and fixed assets.
10. A - The investment decisions should be based on hurdle rate, meaning it should invest in
assets only when they are expected to earn a return greater than a minimum acceptable
return.

11. C - Investing Decisions revolve around how to best allocate their capital to maximize
their value.
12. B - When a firm tries to raise fund, the finance manager should take into account the
source of the funds and its corresponding interests.
13. C - Sources of short term and long term financing is not commonly resolved by the
managing the firm's working capital.
14. C - Social Responsibility is not part of the primary financial goal of a firm.
15. A - The shareholders are the owners of the firm, yet they are the last to received benefits.
Therefore, their primary goal is to maximize the shareholder's wealth.