Chapter 1- Finance Quiz

Managers' actions are monitored by:

The board of directors, commercial banks that have loaned funds to the firm, and Wall Street analysts

The financial goal of a corporation is to:

Maximize the value of the firm

What are some actions the shareholders can take if the corporation is not performing well?

Replace the board of directors in an election, force the board of directors to change the management team, sell their shares of stock in the corporation

Generally, a corporation is owned by its:

Share holders

In the Principle- Agent Framework; who is who?

Shareholders are the principles and managers are the Agents

Corporations, potentially, have infinite life because:

of separation of ownership and management

The difference in information held by managers, owners, and lenders is often referred to as what kind of information?

Asymmetric

What is an example of an agency cost?

Audits

The idea of "maximizing shareholder value" is widely accepted in:

USA and UK

The mixture of debt and equity, used to finance a corporation is also known as:

Capital Structure

The following are examples of real assets except: A. Machinery B. Common Stock C. Office Buildings D. Patents

Common Stock; B

The following are advantages of serration of ownership and management of corporations except: a. corporations can exist forever b. facilitate transfer of ownership without affecting the operations of the firm c. hire professional managers d. incur agency costs

Incur agency costs; D

Agency costs are costs incurred when:

Managers do not attempt to maximize firm value and shareholders incur costs to monitor the managers and influence their actions.

Who are claimants of a firm's income stream?

Shareholders, bondholders, employees, management and government

A firm's investment decision is also called the:

capital budgeting decision

Limited liability is an important feature of:

corporations