Indicate whether the statement is true or false.
____ 1. The proper goal of the financial manager should be to maximize the firm's expected profit, since this will add the most wealth to each of the individual shareholders (owners) of the firm.
____ 2. The goal of maximizing stock price is a detriment to society in that few of the actions that result in maximization of stock price also benefit society.
____ 3. If a firm's managers want to maximize stock price it is in their best interests to operate efficient, low-cost plants, develop new and safe products that consumers want, and maintain good relationships with customers, suppliers, creditors, and the communities in which they operate.
____ 4. If a firm's stock price falls during the year, this indicates that the firm's managers are not acting in shareholders' best interests.
____ 5. An agency problem ...view middle of the document...
|Compensating managers with stock can reduce the agency problem between stockholders and managers.|
b.|Restrictions are included in credit agreements to protect bondholders from the agency problem that exists between bondholders and stockholders.|
c.|The threat of a takeover can reduce the agency problem between bondholders and stockholders.|
d.|Statements a and b are correct.|
e.|All of the statements above are correct.|
____ 8. Which of the following statements is CORRECT?
a.|If expected inflation increases, interest rates are likely to increase.|
b.|If individuals in general increase the percentage of their income that they save, interest rates are likely to increase.|
c.|If companies have fewer good investment opportunities, interest rates are likely to increase.|
d.|Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities.|
e.|Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.|
____ 9. Which of the following statements is most correct?
a.|Sarbanes-Oxley requires the Securities Exchange Commission to audit public companies' financial statements.|
b.|Sarbanes-Oxley made it illegal for company executives to trade on insider information.|
c.|Sarbanes-Oxley requires the Chairman of the Board of Directors to sign and certify the company's financial statements.|
d.|Sarbanes-Oxley requires the CEO sign and certify the company's financial statements.|
e.|Sarbanes-Oxley requires company executives to disclose their fraudulent activities "in a timely and accurate manner."|
____ 10. Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?
a.|Households start saving a larger percentage of their income.|
b.|The economy moves from a boom to a recession.|
c.|The level of inflation begins to decline.|
d.|Corporations step up their expansion plans and thus increase their demand for capital.|
e.|The Federal Reserve uses monetary policy in an attempt to stimulate the economy.|