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financial management overview2

financial management overview2 - stockholders and...

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Goal of firm Answer: d Diff: E i . The primary goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize expected total corporate profit. b. Maximize expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share. e. Maximize expected net income. Agency Answer: d Diff: E ii . Which of the following statements is most correct? a. 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. Agency Answer: a Diff: E iii . Which of the following work to reduce agency conflicts between
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Unformatted text preview: stockholders and bondholders? a. Including restrictive covenants in the company’s bond contract. b. Providing managers with a large number of stock options. c. The passage of laws that make it easier for companies to resist hostile takeovers. d. Statements b and c are correct. e. All of the statements above are correct. Agency Answer: b Diff: E i . Goal of firm Answer: d Diff: E ii . Agency Answer: d Diff: E Both statements a and b are correct; therefore, statement d is the correct choice. The threat of a takeover alleviates the agency problem between managers and stockholders, not between bondholders and stockholders. iii . Agency Answer: a Diff: E Statement a is correct; the other statements are false. Restrictive covenants resolve differences between bondholders and stockholders....
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