Chapter 2
Goals, Values and Performance
Test Bank

True/False Questions

1. Value refers to the amount of money that customers are willing to pay for a good or a service True Page: p35

2. A firm’s Value Added is the difference between the value of its outputs and the total costs of the inputs purchased by the firm to provide these outputs True Page: p35

3. One way of creating value by a firm is its “Commerce” activity, which transforms raw material and intermediate products into final products False Page: p35

4. Most of the tools used by top decision-makers in the corporate world are based upon the central assumption of profit maximization True Page: p35

5. There are different ways of measuring a firm’s profitability. Different measures of profitability are likely to result in very different rankings of firm performance True Page: p37

6. Economic profit is a better indicator of a firm’s performance than accounting profit because economic profit includes the cost of remunerating of the capital employed by the firm False Page: p36

7. Time is an important factor in assessing a firm’s performance True Page: p39

8. If time enters into the equation, the maximization of profit equates the maximization of the firm’s value, where this value is equal to the Net Present Value of the firm’s cash flows False Page: p39

9. In practice, valuing firms by discounting economic profits leads to the same result as by discounting the firm’s net cash flows True Page: p40

10. In fact, the value of a firm less its debt does not equal the stock market value of its equity False Page: p40

11. Flexibility is a very important and valuable element in the corporate arena because investments and strategic behaviors