Introduction to Finance Quizzes

Which of the following should be the primary goal pursued by the financial manager of a firm? Correct Answers Maximizing the market value of the firm's stock In general, the role of a financial manager is to plan for the acquisition and use of funds so as to maximize the value of the firm. Correct Answers True In a competitive marketplace, "good ethics" is a wonderful idea but an impractical standard, because there are simply too few benefits to be gained from maintaining high business ethics. Correct Answers False The finance function is relatively independent of most other corporate functions. Marketing decisions, for example, might affect the firm's need for funds but are not affected by conditions in financial markets or other financing issues. Correct Answers False Paying Payroll Service (PPS) recently declared bankruptcy. The price of PPS's stock has dropped from approximately $10 per share one year ago to $1 today. You can imagine that stockholders are not happy that the value of their stock has dropped so significantly. At the same time the financial position of the firm was deteriorating, PPS executives increased their salaries and perquisites substantially. Nothing they did violated any laws or was considered an unethical act. We would most likely describe this situation as _____. Correct Answers An agency problem In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder wealth maximization, they risk being disciplined by the market. Part of this discipline involves the threat of being taken over by companies with policies that are more aligned with stockholder interests. Correct Answers True The term multinational corporation is used to describe a firm that operates in two or more countries. Correct Answers True Incentive compensation plans are used to attract and retain top managerial talent as well as to align the interests of management with shareholders. Correct Answers True