Learning Module for Business Fina Activity 3 TRUE or FALSE Direction: Before each statement on the space provided, write TRUE if the statement is correct or FALSE if the statement is incorrect. 1. High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price. 2. When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability. 3. To achieve the goal of profit maximization for each alternative being considered, the financial manager would select the one that is expected to result in the highest monetary return. 4. Dividend payments change directly with changes in earnings per share. 5. The wealth of corporate owners is measured by the share price of the stock. 6. Risk and the magnitude and timing of cash flows are the key determinants of share price, which represents the wealth of the owners in the firm. _7. When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to maximize shareholder value. 8. An increase in firm risk tends to result in a higher share price since the stockholder must be compensated for the greater risk. 9. Stockholders expect to earn higher rates of return on investments of lower risk and lower rates of return on investments of higher risk. 10. The key capital market securities are bonds (long-term debt) and both common stock and preferred stock (equity, or ownership). 13