Week 1 - Finance Concepts Quiz

What is the primary financial goal of a firm?

• To increase employee satisfaction

• To maximize shareholder wealth

• To minimize operational costs

• To maximize sales

Which of the following best describes the principal-agent problem (Agency Problem)?

• Conflict between shareholders and creditors

• Conflict between the board of directors and employees

• Conflict between shareholders and managers

• Conflict between two competing firms

What is shareholder-wealth maximization?

• Maximizing the total sales of a company

• Maximizing the dividends paid to shareholders

• Maximizing the market value of the shareholders' equity

• Maximizing the number of shareholders

Which of the following is NOT a decision typically made by a financial manager?

• Investment decisions

• Financing decisions

• Dividend policy decisions

• Hiring decisions

How does the agency problem affect a firm's operations?

• It increases operational efficiency

• It has no effect on the firm's operations

• It can lead to decisions that do not align with the best interest of shareholders

• It decreases the market competition

What is meant by financing decisions?

• Decisions about how to use the company's funds

• Decisions regarding the acquisition of funds

• Decisions about distributing profits

• Decisions on employee benefits

Which of the following is an example of an investment decision?

• Choosing between equity and debt financing

• Determining the amount of dividends to distribute

• Deciding to expand into a new market

• Setting salaries for new employees

What role does dividend policy play in a firm?

• It determines how much debt the firm should take on

• It dictates the firm's investment strategies

• It involves deciding how much profit to retain and how much to distribute to shareholders

• It is unrelated to financial management

Which of the following best helps in reducing the principal-agent problem?

• Decreasing transparency in financial reporting

• Increasing managerial compensation

• Implementing strict operational controls

• Aligning manager incentives with shareholder goals

Why is maximizing shareholder wealth considered important?

• It ensures high customer satisfaction

• It guarantees the firm's survival and growth

• It is legally required by the government

• It minimizes employee turnover