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01 - An Overview of Financial Management
01 - An Overview of Financial Management
FINANCIAL
CHAPTER
1 MANAGEMENT
Answer: c
Diff: E
Firm organization
2
Answer: c
Diff: E
Firm organization
3
Answer: a
Diff: E
Chapter 1 - Page 1
Firm organization
4
Answer: a
Diff: E
Until this year, Cheers Inc. was organized as a partnership. This year,
the partners have decided to organize the business as a corporation. As
a result of this change in organizational form, which of the following
statements is most correct?
a.
b.
c.
d.
Answer: c
Diff: E
Corporate form
6
Answer: c
Corporations
Corporations
Corporations
Corporations
Statements c
Corporate form
7
Diff: E
Answer: a
Diff: E
Chapter 1 - Page 2
Goal of firm
8
Answer: d
Maximize
Maximize
Minimize
Maximize
Maximize
Agency
9
Diff: E
Answer: d
Diff: E
Agency
10
to
reduce
agency
Answer: a
Diff: E
conflicts
between
Answer: b
Diff: E
Chapter 1 - Page 3
Agency
12
Answer: d
Diff: E
Which of the following actions are likely to reduce the agency problem
between stockholders and managers?
a. Congress passes a law that severely restricts hostile takeovers.
b. A manager receives a lower salary but receives additional shares of
the companys stock.
c. The board of directors has become more vigilant in its oversight of
the companys management.
d. Statements b and c are correct.
e. All of the statements above are correct.
Managerial incentives
13
Bond covenants.
The threat of a takeover.
Pressure from the board of directors.
Statements a and b are correct.
Statements b and c are correct.
Managerial incentives
.
Diff: E
14
Answer: e
Answer: e
Diff: E
Miscellaneous concepts
15
Answer: c
Diff: E
Chapter 1 - Page 4
Miscellaneous concepts
16
Answer: e
Diff: E
Miscellaneous concepts
17
Answer: c
Diff: E
Miscellaneous concepts
18
Answer: a
Diff: E
Miscellaneous concepts
19
Answer: b
Diff: E
Chapter 1 - Page 5
Miscellaneous concepts
20
Answer: e
Diff: E
Medium:
Business ethics
21
Social welfare
.
Diff: M
22
Answer: e
Answer: a
Diff: M
Chapter 1 - Page 6
Answer: b
Diff: M
Corporate form
24
Answer: d
Diff: M
Partnership form
25
Answer: d
Diff: M
Chapter 1 - Page 7
Firm organization
26
Answer: c
Diff: M
Firm organization
27
Answer: e
Diff: M
Answer: c
Diff: M
Chapter 1 - Page 8
Answer: e
Diff: M
Agency
30
Answer: c
Diff: M
Chapter 1 - Page 9
Agency
31
Answer: d
Diff: M
Miscellaneous concepts
32
Answer: e
Diff: M
Chapter 1 - Page 10
ANSWERS
AND SOLUTIONS
CHAPTER
1
Chapter 1 - Page 11
1.
Firm organization
Answer: c
Diff: E
Statement c is correct.
Sole proprietorships pay personal income tax not
corporate tax. The other statements are false. Corporations are subject to
limited liability, but are subject to more regulations than the other forms of
business organization.
2.
Firm organization
Answer: c
Diff: E
Statement c is correct. The other statements are false. The corporate form
is subject to double taxation and partnerships are not easily transferred.
3.
Firm organization
Answer: a
Diff: E
Firm organization
Answer: a
Diff: E
Except for statement a, all the other statements are exactly opposite for
corporations.
5
Firm
Answer: c
organization
Diff: E N
Corporate form
Answer: c
Diff: E
Corporate form
Answer: a
Diff: E
Goal of firm
Answer: d
Diff: E
9.
Agency
Answer: d
Diff: E
Agency
Answer: a
Diff: E
11.
Agency
Answer: b
Diff: E
Statement b is true. Corporate takeovers are most likely to occur when a firm
is underperforming. Managers who fear losing their jobs will try to maximize
shareholder wealth. The other statements are false. Statement a will
exacerbate the agency conflict, while statement c reduces the agency conflict
between stockholders and bondholders.
12.
Agency
Answer: d
Diff: E
Managerial incentives
Answer: e
preventing
Diff: E
Managerial
incentives
Answer: e Diff: E N
Miscellaneous concepts
Answer: c
Diff: E
16.
Miscellaneous concepts
Answer: e
Diff: E
Miscellaneous concepts
Answer: c
Diff: E
18.
Miscellaneous concepts
Answer: a
Diff: E
Miscellaneous concepts
Answer: b
Diff: E
Miscellaneous concepts
Answer: e
Diff: E
Business ethics
Answer: e
Diff: M
22.
Social welfare
Answer: a
Diff: M
23.
Answer: b
Diff: M
24.
Corporate form
Answer: d
Diff: M
25.
Partnership form
Answer: d
Diff: M
26.
Firm organization
Answer: c
Diff: M
27.
Firm organization
Answer: e
Diff: M
28.
Answer: c
Diff: M
29.
Answer: e
Diff: M
30.
Agency
Answer: c
Diff: M
if managers stay within the law, the threat of firing and/or the threat of
takeover may be used to keep managers interests aligned with those of the
shareholders. Statement d is false because the conflict exists when the
decision-making authority is delegated to that person.
31.
Agency
Answer: d
Diff: M
Miscellaneous concepts
Answer: e
Diff: M