USD Business Finance Quiz 1

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

Corporation.

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

Capital structure.

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.

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 one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements.

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.

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

Maximize the current value per share.

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?

Secondary, auction market.

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

Shareholders

Which one of the following is a capital budgeting decision?

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