BADM 710 Chapter 1

Which one of these is a cash outflow from a corporation? A: sale of an asset B: dividend payment C: sale of common stock D: issuance of debt E: profit retained by the firm

B: dividend payment

Financial managers primarily create firm value by: A: maximizing current dividends. B: investing in assets that generate cash in excess of their cost. C: lowering the earnings per share. D: increasing the firm's market share. E: maximizing current sales.

B: investing in assets that generate cash in excess of their cost.

The ultimate control of a corporation lies in the hands of the corporate: A: board of directors. B: stockholders. C: president. D: chief executive officer. E: chairman of the board.

B: stockholders.

Which one of the following is a capital budgeting decision? A: determining how much debt should be borrowed from a particular lender B:deciding whether or not a new production facility should be built C: deciding when to repay a long-term debt D: determining how much inventory to keep on hand E: deciding how much credit to grant to a particular customer

B:deciding whether or not a new production facility should be built

A conflict of interest between the stockholders and management of a firm is referred to as the: A: stockholders' liability. B: corporate breakdown. C: agency problem. D: corporate activism. E: legal liability.

C: agency problem.

Financial managers should primarily strive to: A: minimize costs while increasing current dividends. B: maximize the current profits of the firm. C: maximize the current value per share of existing stock. D: maximize current dividends even if doing so adds financial distress costs to the firm. E: maximize current market share in every market in which the firm participates.

C: maximize the current value per share of existing stock.

The process of planning and managing a firm's long-term assets is called: A: working capital management B: financial depreciation C: agency cost analysis D: capital budgeting E: capital structure

D: capital budgeting

Agency costs refer to: A: the total dividends paid to stockholders over the lifetime of a firm. B: the costs that result from default and bankruptcy of a firm. C: corporate income subject to double taxation. D: the costs of any conflicts of interest between stockholders and management. E: the total interest paid to creditors over the lifetime of the firm.

D: the costs of any conflicts of interest between stockholders and management.

Which one of these accounts is included in net working capital? A: copyright B: manufacturing equipment C: common stock D: long-term debt E: inventory

E: inventory

A firm's capital structure refers to the firm's: A: mixture of various types of production equipment. B: investment selections for its excess cash reserves. C: combination of cash and cash equivalents. D: combination of accounts appearing on the left side of its balance sheet. E: proportions of financing from current and long-term debt and equity.

E: proportions of financing from current and long-term debt and equity.