FIN 3414 - Chapter 1

Why would it not make sense for a firm to set financial goals like "maximize profits" or "minimize costs"?

A sole focus on items like this may lead to ignoring what is in the stockholders' long-term best interests.

In large firms, financial activity is usually associated with which top officer?

Chief financial officer

True or false: Shareholders are the ONLY stakeholder in a firm as they are the owners.

False

Identify which assets last a long time and include items such as equipment, land, machinery or buildings.

Fixed

A good financial decision will do which of the following?

Increase market value of shareholders' equity Increase the value of the firm's existing stock

In a shareholder-manager relationship, who is the agent?

Managers

Which of the following, according to the textbook, are possible financial goals for a company?

Minimize costs Survival Maximize profits

What happens when a firm creates value?

Shareholder wealth increases.

______ are frequently used to encourage key managers to maximize the value of the firm's stock.

Stock options

Which of the following are considered non-owner stakeholders in a company?

Suppliers Employees Government

What is the primary purpose of awarding stock options to managers?

To give managers the incentive to pursue shareholders' goals, such as, increasing shareholder value

The purpose of the firm is to create _______ for the owner.

Value

The left side of a balance sheet shows a firm's current and fixed ______.

assets

The goal of financial management is to increase the current value (per share) of a firm's ____________

stock

The primary responsibility of financial managers is to increase the value of _____.

the existing shares of stock

Which of the following statements are true about fixed assets?

Fixed assets have a longer life than current assets. Fixed assets can be tangible or intangible.

Which of the following positions generally report to the chief financial officer (CFO)?

Treasurer Controller

The costs incurred due to a conflict of interest between stockholders and management are called ______ costs.

agency

The relationship between stockholders and management can best be described as a(n) ______ relationship.

agency

The owners of a firm wish to make a risky investment with upside, as the value of the stock may go up. Management wants to avoid this investment, as there is significant risk, and jobs may be lost as a result. This is an example of an _______________________

agency cost

A firm's balance sheet shows a snapshot of the firm's finances ______.

at a single point in time

A bad financial decision is defined as a decision that ______ owners' equity.

decreases

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that ______ effectively controls the firm.

management

When a large group owns stock in a company, stockholders individually have very little power to control the direction of the firm. This means that _________ effectively controls the firm.

management