Financial Management Exam # 1
Questions and Answers Graded A+
goal of financial management - Correct answer-maximize stock price, maximize
shareholder wealth
agency problems - Correct answer-managers are supposed to act as agents on
behalf of shareholders but own < 100% of the outstanding common stock
what makes managers act in shareholders best interest? - Correct answer-
possibility of promotion
threat of being fired
threat of hostile takeover
SEC rule change - Correct answer-exec. pay reporting must be clearer and more
comprehensive
corporate responsibility relation to value maximization - Correct answer-socially
responsible actions can be costly but still enhance firm value
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, financial market - Correct answer-mechanism for bringing borrowers and lenders
together
money market - Correct answer-short term debt securities
capital market - Correct answer-equity (stock) and longer term debt securities
primary market - Correct answer-original sale of securities by govt and corp.
secondary market - Correct answer-sales of securities after initial issue
balance sheet - Correct answer-assets: liabilities+owners equity
liquidity - Correct answer-ability of asset to be quickly converted to cash with little
or no loss of value
liquidity trade off - Correct answer-liquid assets reduce probability of financial
distress but yield smaller returns
financial decision of fixed assets - Correct answer-capital budgeting decision
financial decision of current assets and current liabilities - Correct answer-working
capital decision
financial decision of debt and equity - Correct answer-capital structure decision,
dividend policy/pay out decision
do we want to look at market or book value? - Correct answer-market
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
Questions and Answers Graded A+
goal of financial management - Correct answer-maximize stock price, maximize
shareholder wealth
agency problems - Correct answer-managers are supposed to act as agents on
behalf of shareholders but own < 100% of the outstanding common stock
what makes managers act in shareholders best interest? - Correct answer-
possibility of promotion
threat of being fired
threat of hostile takeover
SEC rule change - Correct answer-exec. pay reporting must be clearer and more
comprehensive
corporate responsibility relation to value maximization - Correct answer-socially
responsible actions can be costly but still enhance firm value
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
, financial market - Correct answer-mechanism for bringing borrowers and lenders
together
money market - Correct answer-short term debt securities
capital market - Correct answer-equity (stock) and longer term debt securities
primary market - Correct answer-original sale of securities by govt and corp.
secondary market - Correct answer-sales of securities after initial issue
balance sheet - Correct answer-assets: liabilities+owners equity
liquidity - Correct answer-ability of asset to be quickly converted to cash with little
or no loss of value
liquidity trade off - Correct answer-liquid assets reduce probability of financial
distress but yield smaller returns
financial decision of fixed assets - Correct answer-capital budgeting decision
financial decision of current assets and current liabilities - Correct answer-working
capital decision
financial decision of debt and equity - Correct answer-capital structure decision,
dividend policy/pay out decision
do we want to look at market or book value? - Correct answer-market
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
