FINN 3110 EXAM 1 CH 1-4 CLEMSON
EXAM QUESTIONS AND ANSWERS
GRADED A+ 2025/2026
The primary objective of the firm is _______. - ANS shareholder wealth maximization
Shareholder wealth is measured by the ____ value of the shareholders' common stock holdings.
- ANS Market
The limitations of the profit maximization goal include which of the following?
The definition of profit is ambiguous.
b. It lacks a time dimension (i.e., it is static).
c. It fails to consider risk with alternative decisions.
d. All of these choices are limitations. - ANS All of these choices are limitations
The two most important disciplines on which financial management relies are _ -
ANS accounting and economics
The primary reason for the divergence between the shareholder wealth maximization goal and
the actual goals pursued by management has been attributed to _____. - ANS separation of
ownership and control
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, ____ arise from the divergent objectives between owners and managers. - ANS Agency
problems
Agency costs include all of the following, EXCEPT _____.
a. flotation costs
b. expenditures to monitor management's actions
c. bonding expenditures
d. providing stock as part of management's compensation expenditures to structure the
organization - ANS flotation costs
A potential agency conflict can arise between stockholders and creditors because owners may
_____. - ANS increase the risk of a firm's investments
Agency problems may give rise to constraints that ____ the market value o - ANS decrease
Per the shareholder wealth maximization goal, management should seek to maximize the ____
of the ____ to owners. - ANS present value; expected future returns
Shareholder wealth is measured by the ____. - ANS market value of the shareholders'
common stock holdings
The existence of divergent objectives between owners and managers is one example of a class
of problems arising from ____. - ANS agency relationships
The bottom-line earnings figure from the accounting system is misleading because _____. -
ANS it does not reflect actual cash inflows and outflows of the firm
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
EXAM QUESTIONS AND ANSWERS
GRADED A+ 2025/2026
The primary objective of the firm is _______. - ANS shareholder wealth maximization
Shareholder wealth is measured by the ____ value of the shareholders' common stock holdings.
- ANS Market
The limitations of the profit maximization goal include which of the following?
The definition of profit is ambiguous.
b. It lacks a time dimension (i.e., it is static).
c. It fails to consider risk with alternative decisions.
d. All of these choices are limitations. - ANS All of these choices are limitations
The two most important disciplines on which financial management relies are _ -
ANS accounting and economics
The primary reason for the divergence between the shareholder wealth maximization goal and
the actual goals pursued by management has been attributed to _____. - ANS separation of
ownership and control
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, ____ arise from the divergent objectives between owners and managers. - ANS Agency
problems
Agency costs include all of the following, EXCEPT _____.
a. flotation costs
b. expenditures to monitor management's actions
c. bonding expenditures
d. providing stock as part of management's compensation expenditures to structure the
organization - ANS flotation costs
A potential agency conflict can arise between stockholders and creditors because owners may
_____. - ANS increase the risk of a firm's investments
Agency problems may give rise to constraints that ____ the market value o - ANS decrease
Per the shareholder wealth maximization goal, management should seek to maximize the ____
of the ____ to owners. - ANS present value; expected future returns
Shareholder wealth is measured by the ____. - ANS market value of the shareholders'
common stock holdings
The existence of divergent objectives between owners and managers is one example of a class
of problems arising from ____. - ANS agency relationships
The bottom-line earnings figure from the accounting system is misleading because _____. -
ANS it does not reflect actual cash inflows and outflows of the firm
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
