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FIN 340 EXAM 1 QUESTIONS AND VERIFIED ANSWERS

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FIN 340 EXAM 1 QUESTIONS AND VERIFIED ANSWERS....

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FIN 340 EXAM 1 QUESTIONS AND
VERIFIED ANSWERS



Objective of the financial manager - ANSWER Execute a strategy that
maximizes the market value of the shareholders' claim

Financial manager tasks - ANSWER 1. Make investment decisions
2. Make financing decisions
3. Manage short-term cash needs

Agency problem - ANSWER When managers, despite being hired as the agents
of shareholders, put their self-interest ahead of the interests of those
shareholders

Mitigating agency problems - ANSWER - incentive pay
- board of directors
- takeovers
- shareholder activism (proxy fights)
- legal protection of shareholders

Using Market Prices to determine cash values - ANSWER When a good trades
in a competitive market, it should be valued at its market price. Personal tastes
or opinions are irrelevant

Law of One Price - ANSWER If equivalent goods trade simultaneously in
different competitive markets, then they must trade for the same price in both
markets

Net Present Value (NPV) - ANSWER Difference between the present value of
its benefits and the present value of its costs

= PV (Benefits) - PV (Costs)

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