Financial Management 1

Generally, a corporation is owned by its:

• Managers

• Directors

• Shareholders

• All of these options

A firm's investment decision is also called the:

• Financing decision

• Capital budgeting decision

• Liquidity decision

• None of these options

Financing decisions are more important than investment decisions:

• True

• False

When shareholders appoint financial managers to run firms and make investment decisions, this is called:

• Agency cost

• Financing decision

• Limited liability

• Separation of ownership and control

Which of the following is not an advantage of separation of ownership and management of corporations?

• Corporations can exist forever

• Professional managers can be hired

• Agency costs are incurred

• Transfer of ownership can be facilitated without affecting the operations of the firm.

The financial goal of a corporation is to maximize:

• sales

• profits

• market value of the firm

• managers' benefits

Agency costs are costs incurred when:

• Managers do not attempt to maximize firm value

• Shareholders incur costs to monitor the managers and influence their actions

• Both of these options

• None of these options

The minimum acceptable rate of return on an investment is called the:

• Opportunity cost of capital

• Capital structure decision

• Risk

• Interest payment

Which of the following is typically considered an agency cost?

• Consultant fees

• Cost of goods sold

• Audit

• Taxes

Assets such as equipment and raw materials are referred to as:

• Dividends

• Securities

• Financial assets

• Real assets