FIN 200 ch 1 financial mangement
Your friend asks you to join him in the new Internet business he is setting up as a corporation. If you invest $10000 in the business, what is the limit to your liability?
10,000
The costs that result from attempting to align the goals and managers and owners are known as:
agency costs
If the managers of a company are not the owners of the company they are considered:
agents
Tying a manager's compensation to performance metrics is done to:
better align the goals of managers and owners
The process of evaluating long-term investment opportunities for the firm and then determining which ones the firm should invest in is known as
capital budgeting
The primary goal of the financial manager is to:
maximize the current market value of the company
Which of the following is an example of an agency cost?
executive stock options
For a firm to align upper management's goals with the goals of the shareholders the exercise price of executive stock options should be __________ than the current stock price
higher
The Securities Exchange Commission (SEC) has the primary duty of monitoring publicly traded firms to ensure:
investors are protected from fraud and price manipulation
A limited liability company combines the:
limited liability of a corporation with the ownership of a partnership
Capital structure refers to the:
mix of the firm's long-term sources of financing
A disadvantage of a partnership is:
unlimited liability
Which of the following is one of the primary questions addressed by financial managers?
which projects should the firm invest resources in to increase shareholder wealth?
One of the primary tasks of the financial manager is to manage short-term cash needs which is known as
working capital management
A __________ is a form of business organization that is considered an artificial being and has limited liability
corporation
Which of the following types of firms have limited liability?
corporation
The market where financial securities are offered for sale to the public for the very first time is known as the:
primary market
When Mark Zuckerburg, the owner and founder of Facebook, decided to allow public ownership of his company the stock offering occurred in the __________.
primary market
Issuers sell new financial claims to investors in the __________.
primary markets
What term do economists use to refer to the conflict between the interests of shareholders and the interests of top management?
principal-agent problem
Investors resell existing stocks to each other in what type of market?
secondary market
Firms that engage in unethical or socially irresponsible activity can suffer loss of reputational capital and also __________ when the news becomes public
see stock prices decline
Agency theory studies the relationships that occur when managers are hired to act as agents for the:
shareholders
Financial managers __________ when making decisions because it can have a direct impact on shareholder wealth
should always engage in ethical behavior
Corporate governance refers to the firm's:
system of controls-regulations-and incentives designed to ensure ethical behavior
