Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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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.
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2.
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An
agency problem exists between stockholders and managers. A second agency problem arises between
stockholders and creditors.
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3.
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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.
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4.
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When
one firm is taken over by another over the opposition of the taken-over firm’s management, it is
called: a. | agency
problem | c. | oversight
management | b. | hostile takeover | d. | value-based management | | | | |
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5.
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Questions about the honesty of security analysts arose from a noted case in 2001
involving which brokerage house? a. | Arthur Andersen | c. | Merrill Lynch | b. | WorldCom | d. | Legg
Mason | | | | |
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6.
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The
theory of financial management is built upon the assumption that the goal of the firm is to create
(or maximize) stockholder value. Which of the following is not a benefit of this clear
goal? a. | Consumers
benefit from new products | c. | A wealth benefit
to society | b. | Employees benefit from when working for successful
firms | d. | A benefit from
higher costs of equity and other financing | | | | |
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7.
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The
tighter the probability distribution of expected future returns, the smaller the risk of a given
investment as measured by the standard deviation.
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8.
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The
coefficient of variation, calculated as the standard deviation divided by the expected return, is a
standardized measure of the risk per unit of expected return.
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9.
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A
security's beta measures its nondiversifiable (or market) risk relative to that of most other
securities.
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10.
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A
stock's beta is more relevant as a measure of risk to an investor with a well-diversified portfolio
than to an investor who holds only one stock.
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