Exam 1: An Overview of Managerial Finance

A) Minimise the debt used by a firm.
B) Maximise expected EPS.
C) Minimise the chances of losses.
D) Maximise the stock price per share.
E) Maximise expected net income.

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A) In a partnership, liability for other partners' misdeeds includes but is limited to the amount a particular partner has invested in the business.
B) Partnerships must be formed according to specific rules which include the filing of a formal written agreement with state authorities where the partnership does business.
C) A fast growth company would be more likely to set up a partnership for its business organisation than would a slow-growth company.
D) Partnerships have difficulty attracting capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organisation.
E) A major disadvantage of a partnership as a form of business organisation is the high cost and practical difficulty of its formation.

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D

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A) Attracting and sustaining new customers.
B) Hiring and keeping skilled employees.
C) Keeping up with competition.
D) Dealing with firms who use "questionable" ethics.
E) None of the above.

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True

A) an agency problem.
B) an accounting glitch.
C) an appropriate use of the tax laws.
D) an appropriate action, because executive compensation should always be increased substantially each year.
E) acceptable, because it is obvious that the executives were trying to maximise the value of the firm, which is what the shareholders want them to do.

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A) Maximise net income (profits) .
B) Maximise the firm's net worth, or book value.
C) Maximise dividends paid to common shareholders.
D) Minimise variable operating expenses.
E) Maximise the market value of the firm's stock.

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A) The corporate bylaws are the set of rules drawn up by the state to enable managers to run the firm in accordance with state laws.
B) Procedures for electing corporate directors are contained in bylaws while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter.
C) Procedures which govern changes in the bylaws of the company are contained in the corporate charter.
D) Although most companies design a charter, only the bylaws are legally required to be filed with the secretary of state in order for a company to be in official existence.

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A) Regardless of economic conditions, if a firm's share price falls during the year, this indicates that the firm's managers must not be acting in the best interests of the shareholders.
B) One method of controlling agency problems is to engage in the taking of "poison pills."
C) One of the best means to control agency problems is to require the managers and other important decision makers of the firm to also be owners of the firm.
D) Agency problems probably would not exist if the important decisions of a firm were made by persons who have no vested interests, such as ownership, in the firm.
E) None of the above is a correct statement.

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A) To take advantage of lower production costs in regions of inexpensive labour.
B) To develop new markets for their finished products.
C) To better serve their primary customers.
D) Because important raw materials are located abroad.
E) All of the above.

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A) A hostile takeover is a primary method of transferring ownership interest in a company.
B) The company is a legal entity created by the state and is a direct extension of the legal status of its owners and managers, that is, the owners and managers are the company.
C) Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organisation.
D) In part due to limited liability and ease of ownership transfer, companies have less trouble raising money in financial markets than other organisational forms.
E) Although shareholders of the company are insulated by limited legal liability, the legal status of the company does not protect the firm's managers in the same way.

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