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Chapter 01 Goals and Governance of The Firm

The document discusses key concepts in corporate finance including: - Finance deals with money, markets, and people. - Shareholders of corporations can be individuals, pension funds, and insurance companies. - Corporations are generally owned by shareholders, not managers or the board of directors. - The financial goal of corporations is to maximize value for shareholders, not profits or sales. - Agency costs arise from conflicts of interest between shareholders and managers.

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Saranyieh Ramasamy
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42 views

Chapter 01 Goals and Governance of The Firm

The document discusses key concepts in corporate finance including: - Finance deals with money, markets, and people. - Shareholders of corporations can be individuals, pension funds, and insurance companies. - Corporations are generally owned by shareholders, not managers or the board of directors. - The financial goal of corporations is to maximize value for shareholders, not profits or sales. - Agency costs arise from conflicts of interest between shareholders and managers.

Uploaded by

Saranyieh Ramasamy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Chapter 01 Goals and Governance of the Firm

1. Finance, generally, deals with:


I) Money; II) Markets; III) People
A. I only
B. I and II only
C. I and III only
D. I, II and III

5. Shareholders of a corporation may be, among others:


I) Individuals; II) Pension Funds; III) Insurance Companies
A. I only
B. I and II only
C. II only
D. I, II and III

6. Generally, a corporation is owned by the:


I) Managers; II) Board of Directors; III) Shareholders
A. I only
B. II and III
C. III only
D. I, II and III

10. The following are examples of intangible assets except:


A. Building
B. Trademarks
C. Patents
D. Technical expertise

11. The following are examples of tangible assets except:


A. Machinery
B. Factories
C. Trademarks
D. Offices

12. A firm's investment decision is also called the:


A. Financing decision
B. Liquidity decision
C. Capital budgeting decision
D. None of the above
13. The following are examples of financial assets except:
A. Common stock
B. Bank loan
C. Preferred stock
D. Buildings

14. The treasurer usually oversees the following functions of a corporation except:
I) Preparation of financial statements; II) Investor relationships; III) Cash management; IV)
raising new capital
A. I only
B. I and II only
C. II, III and IV only
D. III only

15. The treasurer is usually responsible the following functions of a corporation:


I) Tax obligations; II) Investor relationships; III) Cash management; IV) raising new capital
A. I only
B. I and II only
C. II, III and IV only
D. I, II, III and IV

18. The following are important functions of financial markets:


I) Source of financing; II) Provide liquidity; III) Reduce risk; IV) Source of information
A. I only
B. I and II only
C. I, II, III, and IV
D. IV only

19. The Chief Financial Officer (CFO) of a corporation oversees:


A. Treasurer's functions
B. Controller's functions
C. Both A and B
D. None of the above

20. Conflicts of interest between shareholders and managers of a firm result in:
A. Principal-agent problem
B. Increased agency costs
C. Both A and B
D. Managers owning the firm

21. In the principal-agent framework:


A. Shareholders are the principals
B. Managers are the principals
C. Managers are the agents
D. A and D
22. Costs associated with the conflicts of interest between the bondholders and the
shareholders of a corporation are called:
A. Legal costs
B. Bankruptcy costs
C. Administrative costs
D. Agency costs

23. Agency costs are incurred by a corporation because:


A. managers may not attempt to maximize the value of the firm to shareholders
B. shareholders incur monitoring cost
C. separation of ownership and management
D. all of the above

25. The financial goal of a corporation is to:


A. Maximize profits
B. Maximize sales
C. Maximize the value of the firm for the shareholders
D. Maximize managers' benefits
26. The purchase of real assets is also referred to as the:
A. Capital decision
B. CFO decision
C. Financing decision
D. Investment decision

27. The sale of financial assets is also referred to as the:


A. Capital decision
B. CFO decision
C. Financing decision
D. Investment decision
28. The mixture of debt and equity, used to finance a corporation is also known as:
A. Capital budgeting
B. Capital structure
C. Investing
D. Treasury

30. Of the following list, which is a stakeholder?


I) Employee; II) Customer; III) Community; IV) Supplier
A. I, II and IV only
B. III only
C. I and II only
D. All

31. The following are examples of real assets:


I) Machinery; II) Office buildings; III) Warehouse; IV) Common stock
A. I, II, and III only
B. I and II only
C. IV only
D. I only

32. The following are examples of tangible assets except:


I) Machinery; II) Office buildings; III) Warehouse; IV) Training for employees
A. I only
B. I and II only
C. IV only
D. I, II, and III only

33. The financial goal of a corporation is to:


A. Minimize stockholder wealth
B. Maximize profit
C. Maximize value of the corporation to the stockholders
D. Decrease job security
69. Mr. Bird has $100 income this year and zero income next year. The market interest rate is
10% per year. Mr. Bird also has an investment opportunity in which he can invest $50 today
and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests in the
project. What will be his consumption next year?
A. $88
B. $102
C. $80
D. $100

71. Mr. Thomas has $100 income this year and zero income next year. The market interest
rate is 10% per year. Mr. Thomas also has an investment opportunity in which he can invest
$50 this year and receive $80 next year. Suppose Mr. Thomas consumes $50 this year and
invests in the project. What will be his consumption next year?
A. $55
B. $80
C. $50
D. None of the above

72. Mr. Dell has $100 income this year and zero income next year. The market interest rate is
10% per year. Mr. Dell also has an investment opportunity in which he can invest $50 this
year and receive $80 next year. Suppose Mr. Dell consumes $50 this year and invests in the
project. What is the NPV of the investment opportunity?
A. $5
B. $22.73
C. $0 (zero)
D. None of the above.

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