FIN MAN STUDY
Which of the following statements is most correct?
Agency problems exist between stockholders and managers, and between stockholders and creditors.
Which of the following statements would most people in business agree with?
Although people's moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation.
Which of the following statements is most correct?
Bond covenants are designed to reduce potential conflicts between stockholders and bondholders.
Which of the following statements is most correct? a. One of the advantages of the corporate form of organization is that there is no double taxation.b. The partnership form of organization has easy transferability of ownership.c. One of the disadvantages of the sole proprietorship form of organization is that there is unlimited liability.d. Statements b and c are correct.e. None of the statements above is correct.
C. One of the disadvantages of the sole proprietorship form of organization is that there is unlimited liability.
Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?
Corporations generally find it easier to raise large amounts of capital.
The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the smaller the percentage of the payment that will be a repayment of principal. T or F
False
Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?
Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.
The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to
Maximize shareholder wealth, which is equivalent to maximizing the firm's stock price per share.
The primary goal of a publicly-owned firm interested in serving its stockholders should be to
Maximize the stock price per share.
Which of the following statements is CORRECT?
One disadvantage of operating a business as a corporation is that the firm is subject to double taxation, because taxes are levied at both the firm level and the individual shareholder level.
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?
The discount rate increases.
Suppose someone offered you the choice of two equally risky annuities, each paying $10,000 per year for five years. One is an ordinary (or deferred) annuity, the other is an annuity due. Which of the following statements is most correct?
The present value of the annuity due exceeds the present value of the ordinary annuity, and the future value of the annuity due also exceeds the future value of the ordinary annuity.
Which of the following statements is most correct?
d. In part due to limited liability and ease of ownership transfer, corporations have less trouble raising money in financial markets than other organizational forms.
Managers do not always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. Thus, conflicts between stockholders and managers can exist. Additionally, there can be conflicts between stockholders and bondholders. T or F
true