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ld better identify sustainable competitive advantages and then a strategy for Groupon survival and growth built around them. This chapter, then, focuses o

TRUE OR FALSE

1 Paying dividends is always beneficial for shareholders, regardless of the company's financial situation false

2 Capital budgeting decisions only focus on short-term returns false

3 Risk management ensures the firm has enough cash to meet its day-to-day obligations while maintaining an optimal cash balance false

4 The financial environment influences how financial institutions and markets operate true

5 Diversification in MPT involves spreading investments across different asset classes to reduce risk. true

6 MPT guarantees a specific level of return for any investment portfolio. False*

7 An efficient market, as defined by MPT, is one where readily available information is reflected in asset prices. true

8 The Time Value of Money principle suggests that a dollar today is worth less than a dollar received in the future. False

9 MPT relies solely on historical data to predict future market performance. False*

10 Shareholders bear the residual risk of a business, meaning they benefit the most during profitable times but face the most significant losses during bad times. true

MCQ

1 Which financial market enables investors to buy and sell shares of publicly traded companies?

(a) Stock Market

(b) Bond Market

(c) Foreign Exchange Market (d) Commodity Market

2 What is the primary function of the bond market? (a) Buying and selling commodities

(b) Allowing individuals to exchange currencies

(c) Providing a means for governments and corporations to raise capital

(d) Facilitating the trading of stocks

3 What is the purpose of commodity markets? (a) Buying and selling stocks

(b) Managing price risks for raw materials

(c) Exchanging currencies

(d) Raising capital for governments

4 When should a company prioritize reinvesting profits instead of paying dividends? A When the company has high debt levels and needs to focus on reducing it

B When the company has attractive investment opportunities for future growth

C When the company's stock price is low and needs a boost D When the shareholders are demanding higher dividend payouts

5 Investing in a new product line represents which type of financial decision?

7 Modern Portfolio Theory (MPT) is primarily concerned with: a) Minimizing investment costs

b) Balancing risk and return in investment portfolios

c) Predicting future market movements d) Maximizing short-term gains

8 The Time Value of Money principle in MPT emphasizes: a) Investing in trendy assets

b) The greater value of money received today

c) Ignoring future inflation rates d) Predicting future interest rates

9 Shareholders are considered the most important stakeholders because they: a) Have the most voting rights (not always true)

b) Effectively own the business

c) Provide daily operations management d) Are the most numerous stakeholder group

10 Shareholders receive what's left of the company's profits after: a) Only employee salaries are paid

b) All other stakeholders with fixed claims are paid

c) A set amount is donated to charity d) The government takes its taxes

1=C2=D3=A4=B