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