Chapter 1 Overview of Corporate Finance

The ultimate goal of corporate financial management is:

• Maximizing the accounting profit of a corporation

• Minimizing the operating costs of a corporation

• Maximizing market share of a corporation

• Maximizing the value of the stock

Which type of business entity does not have legal personality?

• Sole proprietorship

• Partnership

• Joint-stock company

• Limited liability company

Agency costs in a corporation arise due to:

• Conflicts of interest between owners and corporate agents

• The separation of ownership and management in the company

• Asymmetric information between owners and corporate agents

• All of the above are correct.

How to minimize agency costs in a joint-stock company?

• A. Sign a short-term contract for manager

• B. Having a reasonable compensation policy for CEOs.

• C. Enhancing monitoring and supervision

• B and C

How does a company’s balance sheet change if it borrows from a bank to purchase fixed assets?

• Total assets decrease, total liabilities decrease

• Total assets increase, total liabilities decrease

• Total assets increase, total liabilities increase

• Total assets decrease, total liabilities increase

Which of the following is a long-term financing source for a corporation?

• A. Equity

• B. Accounts payable

• C. Bonds

• A and C

Earnings per share (EPS) is calculated as:

• Profits allocated for dividends / Total outstanding shares

• Net profit after tax/ Total outstanding shares

• Net income attributable to common shareholders / Total outstanding shares

• Net profit after tax / Total company shares

Dividend per share (DPS) is constrained by the following condition:

• DPS is always equal to EPS

• DPS > 0

• 0 ≤ DPS ≤ EPS

• 0 ≤ EPS ≤ DPS

The tax shield from interest expense is determined as:

• Interest expense – corporate income tax

• Interest expense × corporate income tax rate

• Interest expense × (1 – corporate income tax rate)

• Interest expense × corporate income tax

A company has a fixed asset with an initial cost of 600 million VND and a straight-line depreciation period of 10 years. If the corporate income tax rate is 20%, what is the annual tax shield from depreciation?

• 12 million VND

• 10 million VND

• 120 million VND

• 60 million VND