370 Ch 1
A corporation is responsible for all the obligations of the business, even if those obligations exceed the amount the proprietor has invested in the business
False
An agency problem occurs if managers who are afraid of losing their jobs reject a promising but somewhat risky project even though the project is not likely to benefit the firm's owners.
False
An insurance company known as AIG collected fees and sold limited numbers of credit default swaps, was able to pay off its obligations and made profits during the 2008 financial crisis.
False
Cash inflows expected sooner result in a lower stock price.
False
Cash outflows expected later result in a lower stock price.
False
Company value does not depend on future cash flows, their timing, and their riskiness.
False
Corporations cannot be taxed as separate legal entities and cannot pay their own income tax just as if they were individuals.
False
Each general partner in a partnership is only liable as much as funds put into the business in the first place.
False
For businesses that sell stock publicly, the financial manager's role is to maximize the firm's profits.
False
If a managing director uses a private jet even though the common stockholders do not receive enough value because private jet is too costly to the corporation, then there is no agency problem.
False
It is less likely that a financial crisis similar to the 2008 may happen if the housing prices go up much more quickly than personal income.
False
Stock price maximization and stockholder wealth maximization are not the same thing.
False
Stock price maximization and the stockholder wealth maximization are not the same thing.
False
The basic financial goal of such firms is to maximize the prices of the firm's bonds.
False
The sales are the same as cash inflows because businesses sell goods and services and always collect cash at the time of the sale.
False
We saw in 2008 that some very large firms such as Lehman Brothers, Merrill Lynch, Bear Sterns, along with giant government-sponsored mortgage enterprises (GSEs) Fannie Mae and Freddie Mac to name only a few, were very profitable and successful.
False
When the financial decisions are consistent with the best interests of the stockholders, then there is a violation of the agent-principal relationship and an agency problem exists.
False
While financial managers pursue the goal of wealth maximization for the firm's owners, they can ignore several legal and ethical challenges influence such as legal considerations about environmental statutes mandating pollution control equipment, workplace safety standards, civil rights laws, and intellectual property laws that regulate the use of others' ideas.
False
Although unlimited liability is a major disadvantage of a proprietorship, liability insurance is often available to reduce the risk of losing business and non-business assets.
True
An agency problem occurs if managers who are afraid of losing their jobs reject a promising but somewhat risky project even though the project is likely to benefit the firm's owners.
True
An insurance company known as AIG collected fees and sold way more credit default swaps than it could pay off and went bankrupt during the 2008 financial crisis.
True
Any event or financial decision that increases the risk associated with receipt of expected cash flows reduces stock price.
True
Before and at the beginning of the 2008 Financial Crisis, housing prices had been going up much more quickly than personal income, and many people purchased houses with the sub-prime mortgages which were packaged as the mortgage-backed securities rated highly by the rating agencies such as Moody's, Standard and Poor's, and Fitch.
True
Before the 2008 financial crisis, high risk mortgage-backed securities which included sub-prime mortgages had been given very high ratings by the rating firms such as Moody's, Standard and Poor's, and Fitch.
True
Cash inflows expected sooner result in a lower stock price.
True
Cash outflows expected sooner result in a lower stock price.
True
Closely held corporations are private and the shares of these firms are not traded on organized exchanges nor on an organized over the counter market such as Nasdaq.
True
Corporations are legal entities separate from their owners unlike proprietorships and partnerships.
True
Corporations exist separately from their owners, and therefore they can "live" beyond the death of their original owners.
True
In a corporation, the board of directors look out for the interests of the stockholders.
True
Larger future inflows raise the stock price
True
Other stakeholders whose interests are often considered in financial decisions include employees, customers, and members of the communities in which the firm's plants are located.
True
Publicly traded corporations can raise capital by issuing new shares of common stock to the public.
True
Stockholders have limited liability for the corporation's activities.
True
Stockholders usually do not take an active role in the management of the business and they are represented by the board of directors.
True
The agency problem does not exist when the interests of a firm's managers (the agents) are in harmony with those of the firm's owners (the principals).
True
The financial manager, and the other managers of a business firm, are agents for the owners of the firm.
True
The sooner cash flows are expected to be received, the greater the firm value, and the later those cash flows are expected, the less the firm value.
True
We saw in 2008 that some very large firms such as Lehman Brothers, Merrill Lynch, Bear Sterns, along with giant government-sponsored mortgage enterprises (GSEs) Fannie Mae and Freddie Mac to name only a few, either failed or needed huge government bailouts.
True
When risk increases, the stock price goes down; and conversely, when risk decreases, the stock price goes up.
True
When the degree of risk associated with future cash flows goes down, the stock price goes up.
True