Chapter 1 Quiz Questions
Which of the following helps ensure that managers operate in their stockholders' interests rather than their own personal interests? a. The threat of firing by the board of directors. b. The threat of a hostile takeover possibly resulting in top managers losing their jobs. If the stock price is below its intrinsic value, this threat is magnified. c. Compensation packages designed to provide incentives for management to maximize the long-run stock price. d. All of these help keep management focused on stockholders' interests as reflected in maximizing the long-run stock price.
All of these help keep management focused on stockholders' interests as reflected in maximizing the long-run stock price.
Which of the following are stakeholders in a corporation? a. A corporation's shareholders b. A corporation's employees c. A corporation's customers d. A corporation's vendors e. All the above are stakeholders in a corporation.
All the above are stakeholders in a corporation.
Intrinsic value is equal to market value when markets are: a. In the money. b. At the margin. c. In equilibrium. d. Efficient.
Efficient.
Conflicts between stockholders and debtholders arise because stockholders are less willing than debtholders to take on risky projects because stockholders are more "at risk" of losing their investment. True or false? a. True b. False
False
Stocks have market prices, and they also have intrinsic values. If the market price is below the intrinsic value as estimated by marginal investors, and if the intrinsic value remains stable in the future, then there will be a tendency for the stock's price to fall over time. True or false?
False
Market Value SHOULD equal Intrinsic Value...however, most of the time they don't equal due to optimism, pessimism, or investors relying on false data.
Market Value SHOULD equal Intrinsic Value...however, most of the time they don't equal due to optimism, pessimism, or investors relying on false data.
Which of the following is NOT an advantage of the corporate form of organization versus partnerships and proprietorships? a. Ability to attract large amounts of capital. b. Liquidity of investors' holdings in the business. c. Limited liability. d. More favorable tax treatment. e. Ease of transferring ownership among investors.
More favorable tax treatment.
Finance prepares students for jobs in banking, investments, insurance, corporations, and government. It is important for all business students, no matter what their major is, to understand finance concepts. In addition, finance is useful to all individuals regardless of their jobs as we encounter finance in our everyday lives, such as decisions regarding consumer loans and mortgages. True or false?
True
If a company practices "good business ethics," then it will treat its customers, employees, and stockholders "fairly," and this will cause it to have a good reputation. Such behavior may increase costs and thus hurt profits in the short run, but this is often offset by long-run benefits in the form of customer loyalty, more dedicated employees, and stockholders who will support management in the event of a downturn in the business. True or false? a. True b. False
True
If a firm's managers narrowly focused on creating shareholder value, but in the process the company was unresponsive to its employees and customers, hostile to its local community, and indifferent to the effects its actions had on the environment; then in all likelihood society would impose a wide range of costs on the company, and this would ultimately lead to a reduction in shareholder value. True or false? a. True b. False
True
Managers should try to forecast the effects of different decisions on the firm's intrinsic value and then take actions designed to maximize this value. Management should provide information that helps investors make better estimates of the firm's intrinsic value, which will keep the stock price closer to the equilibrium level. However, there are times when management cannot divulge the true situation because doing so would provide information that helps its competitors. True or false?
True
The chief executive officer (or CEO) is the top executive officer, and he or she reports to the board. The chairperson of the board often also serves as the CEO. Most firms also have a chief operating officer (COO) and a chief financial officer (CFO). The COO is often designated as the firm's president and directs the firm's operations. The CFO is in charge of accounting, financing, credit policy, decisions regarding asset acquisitions, and investor relations. True or false?
True
Another word for intrinsic value is: a. Fair market price. b. Nominal price. c. True value. d. Exchange rate neutral.
True Value
stakeholder
anyone who has an interest in the company or is affected by it. - vendors, customers, anyone who depends on the business for revenue, employees, and shareholders.
Intrinsic Value
estimate of the true value of the asset
share
individual unit of stock
shareholder
investor in a company's stock
maximizing shareholder value
primary goal of a business
