FIN 200 ch 1 financial mangement

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Your friend asks you to join him in the new Internet business he is setting up as a corporation. If you invest $10000 in the business, what is the limit to your liability?

10,000

The costs that result from attempting to align the goals and managers and owners are known as:

agency costs

If the managers of a company are not the owners of the company they are considered:

agents

Tying a manager's compensation to performance metrics is done to:

better align the goals of managers and owners

The process of evaluating long-term investment opportunities for the firm and then determining which ones the firm should invest in is known as

capital budgeting

The primary goal of the financial manager is to:

maximize the current market value of the company

Which of the following is an example of an agency cost?

executive stock options

For a firm to align upper management's goals with the goals of the shareholders the exercise price of executive stock options should be __________ than the current stock price

higher

The Securities Exchange Commission (SEC) has the primary duty of monitoring publicly traded firms to ensure:

investors are protected from fraud and price manipulation

A limited liability company combines the:

limited liability of a corporation with the ownership of a partnership

Capital structure refers to the:

mix of the firm's long-term sources of financing

A disadvantage of a partnership is:

unlimited liability

Which of the following is one of the primary questions addressed by financial managers?

which projects should the firm invest resources in to increase shareholder wealth?

One of the primary tasks of the financial manager is to manage short-term cash needs which is known as

working capital management

A __________ is a form of business organization that is considered an artificial being and has limited liability

corporation

Which of the following types of firms have limited liability?

corporation

The market where financial securities are offered for sale to the public for the very first time is known as the:

primary market

When Mark Zuckerburg, the owner and founder of Facebook, decided to allow public ownership of his company the stock offering occurred in the __________.

primary market

Issuers sell new financial claims to investors in the __________.

primary markets

What term do economists use to refer to the conflict between the interests of shareholders and the interests of top management?

principal-agent problem

Investors resell existing stocks to each other in what type of market?

secondary market

Firms that engage in unethical or socially irresponsible activity can suffer loss of reputational capital and also __________ when the news becomes public

see stock prices decline

Agency theory studies the relationships that occur when managers are hired to act as agents for the:

shareholders

Financial managers __________ when making decisions because it can have a direct impact on shareholder wealth

should always engage in ethical behavior

Corporate governance refers to the firm's:

system of controls-regulations-and incentives designed to ensure ethical behavior


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