Chapter 1 | Concept Review

Which of the following are among the three main areas of finance?

All of the above

One disadvantage of the sole proprietorship form of organization is that there is

Unlimited Liability

Which of the following represents a significant disadvantage to the corporate form of organization?

Exposure to taxation of corporate earnings and stockholder dividend income

One reason that the value of most businesses is maximized if they are organized as a corporation is that:

It is easier to transfer ownership of a corporation (corporations are more liquid assets)

What is the primary goal of financial management?

Maximize shareholder wealth (or stock price)

Which of the following statements is true?

Shirking is an example of agency problems that can exist in a corporation

Which of the following statements is not true?

Bondholders are generally risk seekers and want managers to take risks

In finance we say that:

All of the above are correct

The concept of the time value of money generally implies that:

A dollar today is worth more than a dollar in the future

A basic concept in finance says that investors will take on financial risk if:

They view the return as adequate relative to the risk