Exam 1: An Overview of Financial Management

A) Maximize managers' own interests, which are by definition consistent with maximizing shareholders' wealth.
B) Maximize the firm's expected EPS, which must also maximize the firm's price per share.
C) Minimize the firm's risks because most stockholders dislike risk. In turn, this will maximize the firm's stock price.
D) Use a well-structured managerial compensation package to reduce conflicts that may exist between stockholders and managers.
E) Since it is impossible to measure a stock's intrinsic value, the text states that it is better for managers to attempt to maximize the current stock price than its intrinsic value.

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A) In a typical partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business.
B) In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business, and the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy.
C) A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company.
D) Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests.
E) A major disadvantage of a partnership relative to a corporation is the fact that federal income taxes must be paid by the partners rather than by the firm itself.

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