Chapter 5 Flashcards
(17 cards)
Strategic financial management focuses only on cost reduction and short-term gains.
False
(It aligns financial decisions with long-term strategic goals.)
Capital structuring involves deciding the proportion of debt and equity used for financing.
True
Mergers and acquisitions are primarily aimed at improving short-term liquidity.
False
(They are aimed at growth, efficiency, and strategic alignment.)
Mergers and acquisitions are primarily aimed at improving short-term liquidity.
False
(They are aimed at growth, efficiency, and strategic alignment.)
Shareholders benefit only from capital gains and not from dividends.
False
(Shareholders benefit from both dividends and capital gains.)
Corporate governance practices can reduce financial risks and improve investor confidence.
True
An optimal capital structure balances debt and equity to minimize the cost of capital.
True
Return on Assets (ROA) measures how effectively a company uses its equity capital to generate profits.
False
(It measures how effectively assets—not just equity—are used to generate profits.)
Dividend policies have no relationship with shareholder wealth.
False
(They directly impact shareholder returns and perceptions of financial health.)
Corporate governance ensures that management’s decisions align with the interests of shareholders.
True
A firm with an optimal capital structure minimizes its weighted average cost of capital (WACC).
True
Corporate governance frameworks reduce the likelihood of unethical financial practices.
True
Mergers often fail to deliver expected synergies due to poor integration and cultural mismatches.
True
Return on Equity (ROE) is unaffected by a firm’s use of financial leverage.
False (Leverage can amplify ROE.)
Strategic financial management involves evaluating only financial aspects of a company’s decision-making process.
False
(It integrates financial goals with overall strategic objectives.)
The incremental cost refers to the cost of all the existing liabilities
False.
(The incremental cost refers to the cost of incremental funds to finance the new investment project. It is not the cost of the existing liabilities.)
Decision-making in CERTAINTY. Estimation a priori and a posteriori coincide.
True
