Question 1: The total economic (true, i.e. true financial value) value of the firm is (Please READ ALL alternatives before answering):
a. Found on the balance sheet
b. Equal to the total market value of the stockholders' equity
c. equal to the total market value of the all of the firm's assets
d. Equal to the total market value of the owners and creditors' claim on the firm, by the balance sheet equation( aka accounting equation)
e. both c and d are correct
Question 2: Stockholders possess several devices which help align management goals with the stockholders' goals. Included among these are all of the following except:
a. The right to sell their stock back to the company (I.e. the right to demand the company to repurchase their stock).
b. incentive compensation plans for management
c. the right to elect directors
d. the right to replace or fire managers via the board of directors
Question 3: Because of the limited diversification potential of human capital, managers have an incentive to seek:
a. Higher risk projects because they offer the potential for higher returns (payoffs) for the managers
b. higher return projects because they are less risky
c. lower risk projects, because these projects are in the best interest of all stakeholders
d. lower risk projects, because these projects are in the best interest of stockholders
e. lower risk projects, because these projects reduce the probability of the firm going bankrupt.