FIN ch 1 HW

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency problem.

A stakeholder is:

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

Why should financial managers strive to maximize the current value per share of the existing stock?

Because they have been hired to represent the interests of the current shareholders.

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting.

The decision to issue additional shares of stock is an example of which one of the following?

Capital structure decision.

A business created as a distinct legal entity and treated as a legal "person" is called a:

Corp

Which one of the following business types is best suited to raising large amounts of capital?

Corporation.

Which one of the following is a capital budgeting decision?

Deciding whether or not to purchase a new machine for the production line.

Which one of the following is a capital structure decision?

Determining how much debt should be assumed to fund a project.

Which one of the following is a working capital management decision?

Determining whether to pay cash for a purchase or use the credit offered by the supplier.

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. I. Compensation based on the value of the stock. II. Stock option plans. III. Threat of a company takeover. IV. Threat of a proxy fight.

I, II, III, and IV.

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory

I, II, and IV only.

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raise capital. IV. Unlimited firm life.

I, III, and IV only.

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?

Increase in the market value per share.

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the firm's equity.

Decisions made by financial managers should primarily focus on increasing which one of the following?

Market value per share of outstanding stock

Which one of the following best states the primary goal of financial management?

Maximize the current value per share.

Public offerings of debt and equity must be registered with which one of the following?

Securities and Exchange Commission.

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Was facilitated in the secondary market.

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

capital structure

Which form of business structure is most associated with agency problems?

corporation

Which type of business organization has all the respective rights and privileges of a legal person?

corporation

Which one of the following parties has ultimate control of a corporation?

shareholders

Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

working capital