8-14 8 What should be the primary goal of finas A. Increased earnings B. Maximiz

Question

8-14 8 What should be the primary goal of finas A. Increased earnings B. Maximizing cash flow C. Maximizing shareholder wealth D. Minimizing risk of the firm 9. With an S corporation stockholders have the same liability as members of a partnership. C. the number of stockholders is unlimited D. the life of the corporation is limited A. income is taxed as direct income to stockholders 10. The partnership form of an organization A. avoids the double taxation of earnings and dividends found in the corporate form of B. usually provides limited liability to the partners. C. has unlimited life. D. simplifies decision making 11. Many companies such as Tyco, Enron, and WorldCom that suffered financial distress in the late 1990s and early 2000s A. committed fraud B. had failed corporate governance oversight. C. went bankrupt. D. All of the options are true. 12. Agency theory deals with the issue of A. when to hire an agent to represent the firm in negotiations B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm D. the conflicts t managers that can arise between the viewpoints and motivations of a firm's owners and 13. The Sarbanes-Oxley Act was passed in an effort to Il business from large corporations dominating the market. A. protect smal B. ensure that partnerships divide profits among partners in a fair manncr that outside auditors can control corporate accounting practices. D. control corrupt corporate financial behavior 14. What is the major difference between money markets and capital markets? while the other is more international. A. One is more domestic B. One includes stock while the other includes loans D. The timing of how long the security will be held onto

Explanation / Answer

1) INCREASED EARNINGS

Maximize Profits A company's most important goal is to make money and keep it. Profit-margin ratios are one way to measure how much money a company squeezes from its total revenue or total sales.

2) B)

The owners (the shareholders) have the same protection from liability as shareholders of a Ccorporation. An S corporation shareholder's personal assets, such as personal bank accounts, cannot be seized to satisfy business liabilities.

3) A)

4) D) ALL OF THE ABOVE

5)

The agency theory is a supposition that explains the relationship between principal and agents in business. Agency theory is concerned with resolving problems that can exist in agency relationships due to unaligned goals or different aversion levels to risk.

6)

The U.S. Congress passed the Sarbanes-Oxley Act of 2002 on July 30, 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The SOX Act of 2002, also known as the Corporate Responsibility Act of 2002, mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.

7)

Capital market is a broader term that includes the stock market and other venues for trading financial products. The stock market allows investors and banking institutions to trade stocks, either publicly or privately.

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