FIN300 CHAPTER 1 Questions with Correct Solutions
Question:
1. Activist investor
Answer:
A party that buys a significant stake in a company with the intent of improving the stock price
by changing how the board and C-suite run the firm.
Question:
2. Agency relationship
Answer:
A situation where the principal hires an agent to act in their best interests, such as
stockholders and corporate managers.
Question:
3. Agency costs, direct
Answer:
Measurable monetary costs from conflicts of interest, including C-suite waste and resources
expended on monitoring managers.
Question:
4. Agency costs, indirect
Answer:
Valuable opportunities managers forgo because they are highly risk-averse, depriving owners
of potential value creation.
Question:
5. Agent
Answer:
The party in an agency relationship hired to act in the principal's best interests.
Question:
6. Articles of incorporation or charter
Answer:
Documents a business files with a state to create a corporation, including its name, address,
purpose, and authorized shares.
, Question:
7. Asymmetric information
Answer:
A situation where two contracting parties have different information sets, making it difficult
to arrive at mutually agreeable terms.
Question:
8. Bankruptcy
Answer:
A legal proceeding that follows when a business breaks its contractually required debt
obligations.
Question:
9. Board of directors
Answer:
Elected representatives of shareholders who have a fiduciary obligation to act in the best
interests of the principals.
Question:
10. Bylaws
Answer:
Internal rules and procedures established by owners that govern the operation and structure
of a corporation.
Question:
11. C-corporation
Answer:
A corporation with more than 100 owners whose profits pay corporate income tax and whose
dividends are taxed again at the personal level.
Question:
12. C-suite
Answer:
The senior managers, chiefs, and vice presidents responsible for running a corporation.
Question:
13. Capital
Answer:
The physical and intellectual assets deployed by a business to produce goods and services.
Question:
1. Activist investor
Answer:
A party that buys a significant stake in a company with the intent of improving the stock price
by changing how the board and C-suite run the firm.
Question:
2. Agency relationship
Answer:
A situation where the principal hires an agent to act in their best interests, such as
stockholders and corporate managers.
Question:
3. Agency costs, direct
Answer:
Measurable monetary costs from conflicts of interest, including C-suite waste and resources
expended on monitoring managers.
Question:
4. Agency costs, indirect
Answer:
Valuable opportunities managers forgo because they are highly risk-averse, depriving owners
of potential value creation.
Question:
5. Agent
Answer:
The party in an agency relationship hired to act in the principal's best interests.
Question:
6. Articles of incorporation or charter
Answer:
Documents a business files with a state to create a corporation, including its name, address,
purpose, and authorized shares.
, Question:
7. Asymmetric information
Answer:
A situation where two contracting parties have different information sets, making it difficult
to arrive at mutually agreeable terms.
Question:
8. Bankruptcy
Answer:
A legal proceeding that follows when a business breaks its contractually required debt
obligations.
Question:
9. Board of directors
Answer:
Elected representatives of shareholders who have a fiduciary obligation to act in the best
interests of the principals.
Question:
10. Bylaws
Answer:
Internal rules and procedures established by owners that govern the operation and structure
of a corporation.
Question:
11. C-corporation
Answer:
A corporation with more than 100 owners whose profits pay corporate income tax and whose
dividends are taxed again at the personal level.
Question:
12. C-suite
Answer:
The senior managers, chiefs, and vice presidents responsible for running a corporation.
Question:
13. Capital
Answer:
The physical and intellectual assets deployed by a business to produce goods and services.
