Multiple Choice
Identify the letter of the choice that best
completes the statement or answers the question.
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1.
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Agency
problems can be reduced by: a. | Providing bonus or stock-option plans for
managers | b. | Monitoring
managers decisions | c. | Establishing parameters or constraints in which managers
can make decisions | d. | All of the above | | |
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2.
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A
general partnership: a. | Is a corporation composed of more than one
individual | b. | Has limited
liability for all partners of the business | c. | Has unlimited liability for all partners of the
business | d. | Is able to raise
funds through the sale of shares | | |
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3.
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One of
the ways to maximize shareholder wealth is to: a. | Use the profit maximization model | b. | Maximize shareholder wealth by increasing agency costs
until the last dollar of shareholder wealth costs at least one more dollar of agency
costs | c. | Reduce the risk of
agency problems | d. | Reduce future cash flows | | |
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4.
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The
market value of a company’s shares is determined by: a. | The amount of cash flow, the timing of cash flows, and the
risk associated with the cash flows | b. | The amount of net income, the timing of net income, and the
risk associated with the net income | c. | The book value of a company | d. | The Price to Earnings ratio of the company relative to the
Toronto Stock Exchange Index | | |
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5.
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Net
Present Value or NPV is positive when: a. | The total amount of future cash flows from a project
exceeds the project costs | b. | The present value of cash flows from a project is lower
than the project costs | c. | A project’s costs are lower than the total present
value of future cash flows | d. | None of the above | | |
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