CHAPTER 1- CORPORATE FINANCE (CENGAGE)
QUESTIONS AND ANSWERS UPDATED 2024 - 2025
Firms must provide the right incentives if they are to get ___ to focus on LR value maximization. ANS -
Managers
Conflicts exist between managers and stockholders and between stockholders (represented by
managers) and ___ ANS -Debtholders
However, managers can be motivated to act in their stockholders' best interests through reasonable ___
ANS -Compensation
If a firm's stock is undervalued, ___ will see it as a bargain and will attempt to capture the firm in a __ __
ANS -Corporate raiders; Hostile takeover
___ generally receive fixed payments regardless of how the firm does, while ___ earn higher returns
when the firm's earning are higher. ANS -Bondholders; stockholders
Investments in ___ ventures, that have great payoffs to stockholders if successful but threaten
bankruptcy if they fail, create conflicts. ANS -Risky
In addition, the use of additional ___ increases stocker-debt holder conflicts. ANS -Debt
Consequently, bondholders attempt to protect themselves by including ___ in bond agreements that
limit firms' use of additional ___ and constrain ___ actions. ANS -Debt; Covenants; Managers'
In terms of numbers, most businesses are ___. ANS -Proprietorships
However, based on the dollar value of sales, most business is done by ___ ANS -Corporations
Businesses are frequently started as ___ and then converted to ___ when their growth results in
disadvantages outweighing advantages. ANS -Proprietorships; Corporations
QUESTIONS AND ANSWERS UPDATED 2024 - 2025
Firms must provide the right incentives if they are to get ___ to focus on LR value maximization. ANS -
Managers
Conflicts exist between managers and stockholders and between stockholders (represented by
managers) and ___ ANS -Debtholders
However, managers can be motivated to act in their stockholders' best interests through reasonable ___
ANS -Compensation
If a firm's stock is undervalued, ___ will see it as a bargain and will attempt to capture the firm in a __ __
ANS -Corporate raiders; Hostile takeover
___ generally receive fixed payments regardless of how the firm does, while ___ earn higher returns
when the firm's earning are higher. ANS -Bondholders; stockholders
Investments in ___ ventures, that have great payoffs to stockholders if successful but threaten
bankruptcy if they fail, create conflicts. ANS -Risky
In addition, the use of additional ___ increases stocker-debt holder conflicts. ANS -Debt
Consequently, bondholders attempt to protect themselves by including ___ in bond agreements that
limit firms' use of additional ___ and constrain ___ actions. ANS -Debt; Covenants; Managers'
In terms of numbers, most businesses are ___. ANS -Proprietorships
However, based on the dollar value of sales, most business is done by ___ ANS -Corporations
Businesses are frequently started as ___ and then converted to ___ when their growth results in
disadvantages outweighing advantages. ANS -Proprietorships; Corporations
