FIN CHPT 1

Which one of the following situations is most apt to create an agency conflict? -Compensating a manager based on his or her division's net income -Giving all employees a bonus if a certain level of efficiency is maintained -Hiring an independent consultant to study the operating efficiency of the firm -Basing management bonuses on the length of employment -Laying off employees during a slack period

-Basing management bonuses on the length of employment

Which one of the following is most apt to align management's priorities with shareholders' interests? -Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers -Compensating managers with shares of stock that must be held for a minimum of three years -Paying a special management bonus on every fifth year of employment -Increasing the number of paid holidays that long-term employees are entitled to receive -Allowing employees to retire early with full retirement benefits

-Compensating managers with shares of stock that must be held for a minimum of three years

An agency issue is most apt to develop when: -a firm encounters a period of stagnant growth. -a firm downsizes. -the control of a firm is separated from the firm's ownership. -the firm's owner is also its key manager. -a firm is structured as a general partnership.

-the control of a firm is separated from the firm's ownership.

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

An agency conflict

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

The goal of financial management is to increase the:

Current market value per share

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

The primary goal of financial management is most associated with increasing the

Market value of the firm

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

Secondary market

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

Sole Proprietorship

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General Partnership

The issuer of a security must be involved in all _____ transactions involving that security.

Primary market