1. Net working capital is best defined as:
a. excess cash on hand.
b. a firm's current assets.
c. current assets minus current liabilities.
d. total assets minus total liabilities.
e. cash and marketable securities
2. The primary goal of financial management is to:
a. maximize current dividends per share of the existing stock.
b. minimize operational costs and maximize firm efficiency.
c. maintain steady growth in both sales and net earnings.
d. maximize the current value per share of the existing stock.
e. avoid financial distress.
3. Which one of the following is least apt to encourage managers to act in the best interest of shareholders?
a. Shareholder election of the board of directors, who in turn select managers
b. Threat of a takeover by another firm
c. Linking manager compensation to share value
d. Compensating managers with fixed salaries
e. Compensating managers with stock options
4. For a firm to create value it must:
a. have a greater cash inflow from its stockholders than its outflow to them.
b. create more cash flow than it uses.
c. reduce its investment in fixed assets since fixed assets require the use of cash.
d. avoid payments to the government so dividends can be increased.
e. avoid the issuance of debt securities.
5. Which one of the following actions by a financial manager least meets the goal of financial management?
a. Increasing current costs in order to increase the market value of the stockholders' equity
b. Agreeing to expand the company at the expense of stockholders' value
c. Refusing to lower selling prices if doing so will reduce the net profits
d. Agreeing to pay bonuses based on the market value of the company stock
e. Refusing to borrow money when doing so will create losses for the firm
6. Which of the following statements regarding agency problems and costs are correct?
I. An agency problem exists when there is a conflict of interest between the stockholders and the management of a firm.
II. An agency problem exists when there is a conflict of interest between a principal and an agent.
III. An agency cost occurs when firm management avoids risky projects that would favorably affect the stock price because the managers are worried about keeping their jobs.
IV. An agency cost occurs when management chooses an action that benefits the shareholders but reduces management compensation.
a. I and II only
b. II and III only
c. I, III, and IV only
d. I, II, and III only
e. II, III, and IV only