BCOR 2204 Finance Quiz 1 Quizzes with Correct
Answers
The objective of finance
Maximize profit
Finance
The science (accounting) and the art (tradeoff and risk) of valuing and managing money
NPV Model
Consists of PV, FV, PMT, N, and I
Intrinsic value
The value of any security is the market value
Expected balue
Future cash flows
Careers in finance
Wall Street professions are all about intermediation
Balance sheet
Investment and finance decisions
Goal of the firm
Maximize shareholder wealth
Profit maximization may not lead to the highest possible share price (3 reasons)
, 1. Timing
2. Profits do not necessarily result in cash flows available
3. Profit maximization fails to account for risk
Corporate governance
The rules, processes, and laws by which companies are operated, controlled, and regulated
Principal-agent relationship
An arrangement in which an agent acts on behalf of a principal
Agency problems
Arise when managers placepersonal goals ahead of the goals of shareholders
Agency costs
Arise from agency problems that are borne by shareholders and represent a loss of shareholder
wealth
Management compensation plans
Must ensure managers' interests are aligned with shareholders
2 ways to ensure managers' interested are aligned with shareholders
1. Incentive plans
2. Performance plans
Incentive plans
Answers
The objective of finance
Maximize profit
Finance
The science (accounting) and the art (tradeoff and risk) of valuing and managing money
NPV Model
Consists of PV, FV, PMT, N, and I
Intrinsic value
The value of any security is the market value
Expected balue
Future cash flows
Careers in finance
Wall Street professions are all about intermediation
Balance sheet
Investment and finance decisions
Goal of the firm
Maximize shareholder wealth
Profit maximization may not lead to the highest possible share price (3 reasons)
, 1. Timing
2. Profits do not necessarily result in cash flows available
3. Profit maximization fails to account for risk
Corporate governance
The rules, processes, and laws by which companies are operated, controlled, and regulated
Principal-agent relationship
An arrangement in which an agent acts on behalf of a principal
Agency problems
Arise when managers placepersonal goals ahead of the goals of shareholders
Agency costs
Arise from agency problems that are borne by shareholders and represent a loss of shareholder
wealth
Management compensation plans
Must ensure managers' interests are aligned with shareholders
2 ways to ensure managers' interested are aligned with shareholders
1. Incentive plans
2. Performance plans
Incentive plans
