Test Bank for Fundamentals of Corporate Finance 10th
Edition by Ross Westerfield
Who makes financing decisions - ANSWER:The CEO, CFO, and their team/financial
manager
What is corporate finance - ANSWER:The long term investments of a firm that works
to generate more money
How do you pay for investments? - ANSWER:You can reinvest profits, issue bonds, or
sell equity (a portion of the company that is sold through stocks)
How do you manage everyday financial decisions? - ANSWER:Through cash flow
management and through lines of credit (accounts receivable and accounts payable)
What is always the goal of the firm? - ANSWER:To maximize shareholder value
Who owns a corporation? - ANSWER:The shareholders
How do shareholders control the corporation? - ANSWER:Shareholders hire the
board, the board hires the managers, and the managers hire the employees
What is the agency problem? - ANSWER:It happens when the interests of you and
who you hired are not aligned. It's a conflict between the shareholders and
managers/CEO
How do you fix the agency problem? - ANSWER:Either by adjusting the managers
compensation or by removing the board or managers by shareholders
How do financial managers pay for things? - ANSWER:Through financial markets
(stocks, bonds, or retained earnings)
What are the financial markets? - ANSWER:There is a stock market and a bond
market. The stock market is where ownership stakes in companies are sold, and the
bond market is when you borrow money to pay back later.
What is important to know about the stock market? - ANSWER:There are primary
and secondary markets. The primary market involves IPOs and the company gets
money. The secondary market is regular people buying stocks
What is the IPO and what market is it involved in? - ANSWER:Initial Public Offering is
the first time a company goes public and sells stocks; it's part of the primary market
How does money flow in and out of a corporation when financial markets are
assessed? - ANSWER:The company issues stocks or bonds for cash (an inflow), then
uses that money to invest in assets (an outflow), then that asset generates a profit
Edition by Ross Westerfield
Who makes financing decisions - ANSWER:The CEO, CFO, and their team/financial
manager
What is corporate finance - ANSWER:The long term investments of a firm that works
to generate more money
How do you pay for investments? - ANSWER:You can reinvest profits, issue bonds, or
sell equity (a portion of the company that is sold through stocks)
How do you manage everyday financial decisions? - ANSWER:Through cash flow
management and through lines of credit (accounts receivable and accounts payable)
What is always the goal of the firm? - ANSWER:To maximize shareholder value
Who owns a corporation? - ANSWER:The shareholders
How do shareholders control the corporation? - ANSWER:Shareholders hire the
board, the board hires the managers, and the managers hire the employees
What is the agency problem? - ANSWER:It happens when the interests of you and
who you hired are not aligned. It's a conflict between the shareholders and
managers/CEO
How do you fix the agency problem? - ANSWER:Either by adjusting the managers
compensation or by removing the board or managers by shareholders
How do financial managers pay for things? - ANSWER:Through financial markets
(stocks, bonds, or retained earnings)
What are the financial markets? - ANSWER:There is a stock market and a bond
market. The stock market is where ownership stakes in companies are sold, and the
bond market is when you borrow money to pay back later.
What is important to know about the stock market? - ANSWER:There are primary
and secondary markets. The primary market involves IPOs and the company gets
money. The secondary market is regular people buying stocks
What is the IPO and what market is it involved in? - ANSWER:Initial Public Offering is
the first time a company goes public and sells stocks; it's part of the primary market
How does money flow in and out of a corporation when financial markets are
assessed? - ANSWER:The company issues stocks or bonds for cash (an inflow), then
uses that money to invest in assets (an outflow), then that asset generates a profit
