Chapter 1 Homework

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

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

A corporation: A. is ultimately controlled by its board of directors. B. is a legal entity separate from its owners. C. is prohibited from entering into contractual agreements. D. has its identity defined by its bylaws. E. has its existence regulated by the rules set forth in its charter.

B. is a legal entity separate from its owners.

What is the primary goal of financial management for a sole proprietorship? A. Maximize net income given the current resources of the firm B. Decrease long-term debt to reduce the risk to the owner C. Minimize the tax impact on the proprietor D. Maximize the market value of the equity E. Minimize the reliance on fixed costs

D. Maximize the market value of the equity

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: A. a corporate takeover. B. a capital structure issue. C. a working capital decision. D. an agency conflict. E. a compensation issue.

D. an agency conflict.

The primary goal of financial management is to maximize: A. current profits. B. market share. C. current dividends. D. the market value of existing stock. E. revenue growth.

D. the market value of existing stock.

The primary goal of financial management is most associated with increasing the: A. dollar amount of each sale. B. traffic flow within the firm's stores. C. the fixed costs while lowering the variable costs. D. firm's liquidity. E. market value of the firm.

E. market value of the firm.

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? A. Organizational B. Structural C. Formative D. Agency E. Territorial

D. Agency

When conducting a financial analysis of a firm, financial analysts: A. cannot use accounting information as it is historical. B. rely solely on accounting information. C. frequently use accounting information. D. ignore accounting information but do use marketing information. E. assume the future will be a repeat of the past as reflected in the firm's accounting reports.

C. frequently use accounting information.

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

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

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

D. Basing management bonuses on the length of employment