Corporate Finance Chap 01

Which organizational form best enables a firm to sell its securities to the market?

• sole proprietorship
• partnership
• private corporation
• public corporation

A good capital budgeting decision is

• one in which the benefits of the project are equal to the cost of the asset.
• one in which the benefits of the project are less than the cost of the asset.
• one in which the benefits of the project are more than the cost of the asset.
• all of the above.

Working capital management decisions involve

• how a firm's day-to-day financial matters should be managed.
• how the firm should finance its assets.
• which productive assets the firm should employ.
• all of the above.

Current liabilities are liabilities that

• will be converted to cash within a year.
• must be paid within a year.
• will be converted to equity within a year.
• none of the above

Which of the following is an appropriate goal for the firm?

• profit maximization
• revenue maximization
• shareholder wealth maximization
• tax minimization

One reason for the existence of agency problems between managers and share holders is that

• there is a separation of ownership and control of the firm.
• managers know how to manage the firm better than shareholders.
• shareholders have unreasonable expectations about managerial performance.
• none of the above

An example of a direct agency cost is

• a manager turning down a value-contributing project because of its risks.
• a manager expensing a large dinner on the company expense report.
• a manager using too little debt within the firm's capital structure because of the additional risk associated with debt.
• all of the above

If a firm establishes maximizing profits at the most important goal of the firm, which of the following would not be given proper consideration?

• Sales revenues
• Expenses
• Risk
• Cost of goods sold

Which of the following factors or activities can be controlled by the management of a firm?

• Capital budgeting.
• The level of economic activity.
• The level of interest rates.
• Stock market conditions.

Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?

• sole proprietorship
• partnership
• private corporation
• public corporation