ABNORMAL PSYCHOLOGY MIDTERM COMPREHENSIVE
REVIEW Questions with Correct Answers (Grade A+)
Question 1: Shareholder wealth.
Answer: Present value of the expected future returns to owners
Question 2: How shareholder wealth is measured.
Answer: By market value of shareholders' common stock holdings Price per share * Number of shares
outstanding
Question 3: Shareholder wealth maximization goal.
Answer: Management should seek to maximize the present value of the expected future returns to owners
Question 4: Present value.
Answer: Value today of some future payment or stream of payments, evaluated at an appropriate discount
rate
Question 5: Discount rate.
Answer: Rate of interest used in the process of finding present values
Question 6: Stock prices reflect.
Answer: Magnitude, timing, and risk with future benefits for shareholders
Question 7: Market value.
Answer: Price at which stock trades in the marketplace
Question 8: Stakeholders.
Answer:
1. Constituent groups in a firm
2. including stockholders
3. bondholders
4. suppliers
5. customers
6. employees
7. community neighbors
8. and creditors
Page 1
, Question 9: Economic values added.
Answer: The difference between a firm's annual after-tax operating profit and its total annual cost of capital
Question 10: Agency relationships.
Answer: Occur when one or more individuals (principals) hire another individual (agent) that perform a
service on their behalf
Question 11: Agency problems.
Answer: Inefficiencies that arise because of agency relationships
Question 12: Agency costs.
Answer: Costs incurred by owners of a firm when it is managed by others
Question 13: Exercise price.
Answer: Price at which an option holder can purchase or sell a company's stock (strike price)
Question 14: Book value.
Answer: Historic cost of assets
Question 15: Cash flows.
Answer: Relates to the actual cash generated or paid by the firms
Question 16: 5 competitive forces.
Answer:
1. Threat of new entrants
2. threat of a substitute product
3. bargaining power of buyers
4. bargaining power of suppliers
5. and rivalry among current competitors
Question 17: Sole proprietorship.
Answer: Business owned by one person
Question 18: Advantages of sole proprietorship.
Answer: Easy to make decisions and is only taxed once
Page 2
REVIEW Questions with Correct Answers (Grade A+)
Question 1: Shareholder wealth.
Answer: Present value of the expected future returns to owners
Question 2: How shareholder wealth is measured.
Answer: By market value of shareholders' common stock holdings Price per share * Number of shares
outstanding
Question 3: Shareholder wealth maximization goal.
Answer: Management should seek to maximize the present value of the expected future returns to owners
Question 4: Present value.
Answer: Value today of some future payment or stream of payments, evaluated at an appropriate discount
rate
Question 5: Discount rate.
Answer: Rate of interest used in the process of finding present values
Question 6: Stock prices reflect.
Answer: Magnitude, timing, and risk with future benefits for shareholders
Question 7: Market value.
Answer: Price at which stock trades in the marketplace
Question 8: Stakeholders.
Answer:
1. Constituent groups in a firm
2. including stockholders
3. bondholders
4. suppliers
5. customers
6. employees
7. community neighbors
8. and creditors
Page 1
, Question 9: Economic values added.
Answer: The difference between a firm's annual after-tax operating profit and its total annual cost of capital
Question 10: Agency relationships.
Answer: Occur when one or more individuals (principals) hire another individual (agent) that perform a
service on their behalf
Question 11: Agency problems.
Answer: Inefficiencies that arise because of agency relationships
Question 12: Agency costs.
Answer: Costs incurred by owners of a firm when it is managed by others
Question 13: Exercise price.
Answer: Price at which an option holder can purchase or sell a company's stock (strike price)
Question 14: Book value.
Answer: Historic cost of assets
Question 15: Cash flows.
Answer: Relates to the actual cash generated or paid by the firms
Question 16: 5 competitive forces.
Answer:
1. Threat of new entrants
2. threat of a substitute product
3. bargaining power of buyers
4. bargaining power of suppliers
5. and rivalry among current competitors
Question 17: Sole proprietorship.
Answer: Business owned by one person
Question 18: Advantages of sole proprietorship.
Answer: Easy to make decisions and is only taxed once
Page 2
