Fundamentals of corporate finance 13th
edition quizzes with verified solutions
Benefit Corporation ✔️✔️A benefit corporation is for profit, but it has three additional legal
attributes:
1. Accountability - must consider how an action will affect shareholders, employees,
customers, the community, and the environment
2. Transparency - in addition to standard corporate reports, a benefit corporation must
provide an annual report detailing how the company pursued a public benefit during the
year, or any factors that inhibited the pursuit of this goal
3. Purpose - must provide a public benefit, either to society as a whole or the environment
(7) Possible Financial Goals ✔️✔️Risk Control:
• Survive
• Avoid financial distress and bankruptcy
Profitability:
• Beat the competition
• Maximize sales or market share
• Minimize costs
• Maximize profits
• Maintain steady earnings growth
,These two things are difficult to do at the same time! You usually have to take some risks in
order to
increase profitability.
Goal of Financial Management ✔️✔️In a for-profit business, the goal of financial
management is to make money or add value for the owners.
• In general, the goal is to maximize the current value per share of the existing stock. When a
firm has no traded stock, the goal is to maximize the market value of the existing owners' equity.
• Goal does not imply the financial manager should take illegal or unethical actions to increase
the value of equity in the firm
Sarbanes-Oxley Act (SOX) ✔️✔️Enacted in 2002, SOX is intended to protect investors from
corporate abuses
Key requirements of SOX include the following:
• Section 404 requires each company's annual report to have an assessment of the company's
internal control structure and financial reporting
• Officers of corporation must review and sign annual reports
• Annual report must list any deficient in internal controls
Agency Problem ✔️✔️The possibility of conflict of interest between the stockholders and
management of a firm.
, Occurs when:
Stockholder self-interest =/= management's self-interest
Agency Cost ✔️✔️Refer to the costs of the conflict of interest between stockholders and
management
• Indirect agency costs are lost opportunities
• Direct agency costs come in two forms:
1. Corporate expenditures that benefits management but costs the stockholder
2. Expense that arises from the need to monitor management actions
How to make management behave: ✔️✔️Compensate and have the power to replace
What is a Proxy? and what is a Proxy Fight? ✔️✔️• proxy - the authority to vote someone
else's stock
• proxy fight - when a group solicits proxies in order to replace the existing board and thereby
replace existing managers
• Existing management may be replaced by stockholders via proxy fights and takeovers
Stakeholders ✔️✔️A stakeholder is someone other than a stockholder or creditor who
potentially has a claim on the cash flows of the firm
• Such groups will also attempt to exert control over the firm, perhaps to the detriment of the
owners
edition quizzes with verified solutions
Benefit Corporation ✔️✔️A benefit corporation is for profit, but it has three additional legal
attributes:
1. Accountability - must consider how an action will affect shareholders, employees,
customers, the community, and the environment
2. Transparency - in addition to standard corporate reports, a benefit corporation must
provide an annual report detailing how the company pursued a public benefit during the
year, or any factors that inhibited the pursuit of this goal
3. Purpose - must provide a public benefit, either to society as a whole or the environment
(7) Possible Financial Goals ✔️✔️Risk Control:
• Survive
• Avoid financial distress and bankruptcy
Profitability:
• Beat the competition
• Maximize sales or market share
• Minimize costs
• Maximize profits
• Maintain steady earnings growth
,These two things are difficult to do at the same time! You usually have to take some risks in
order to
increase profitability.
Goal of Financial Management ✔️✔️In a for-profit business, the goal of financial
management is to make money or add value for the owners.
• In general, the goal is to maximize the current value per share of the existing stock. When a
firm has no traded stock, the goal is to maximize the market value of the existing owners' equity.
• Goal does not imply the financial manager should take illegal or unethical actions to increase
the value of equity in the firm
Sarbanes-Oxley Act (SOX) ✔️✔️Enacted in 2002, SOX is intended to protect investors from
corporate abuses
Key requirements of SOX include the following:
• Section 404 requires each company's annual report to have an assessment of the company's
internal control structure and financial reporting
• Officers of corporation must review and sign annual reports
• Annual report must list any deficient in internal controls
Agency Problem ✔️✔️The possibility of conflict of interest between the stockholders and
management of a firm.
, Occurs when:
Stockholder self-interest =/= management's self-interest
Agency Cost ✔️✔️Refer to the costs of the conflict of interest between stockholders and
management
• Indirect agency costs are lost opportunities
• Direct agency costs come in two forms:
1. Corporate expenditures that benefits management but costs the stockholder
2. Expense that arises from the need to monitor management actions
How to make management behave: ✔️✔️Compensate and have the power to replace
What is a Proxy? and what is a Proxy Fight? ✔️✔️• proxy - the authority to vote someone
else's stock
• proxy fight - when a group solicits proxies in order to replace the existing board and thereby
replace existing managers
• Existing management may be replaced by stockholders via proxy fights and takeovers
Stakeholders ✔️✔️A stakeholder is someone other than a stockholder or creditor who
potentially has a claim on the cash flows of the firm
• Such groups will also attempt to exert control over the firm, perhaps to the detriment of the
owners
