Bài tập tuần 1

Corporate finance 1
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HAPTER 1: INTRODUCTION
1. The long-run objective of financial management is to:

maximize earnings per share.
maximize the value of the firm's common stock.
maximize return on investment.
maximize market share.
2. The market price of a share of common stock is determined by:

the board of directors of the firm.
the stock exchange on which the stock is listed.
the president of the company.
individuals buying and selling the stock.
3.The decision function of financial management can be broken down into

the decisions.
financing and investment
investment, financing, and asset management
financing and dividend
capital budgeting, cash management, and credit management
4. The controller's responsibilities are primarily in nature, while the

treasurer's responsibilities are primarily related to .
operational; financial management
financial management; accounting
accounting; financial management

Corporate finance 1
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financial management; operations
( Các câu từ 1-4 được lấy từ : https://web.utk.edu/~jwachowi/mcquiz/mc1.html. Các em có thể đăng

nhập link)
5. Which of the following enjoys limited liability?

A general partnership.
A corporation.
A sole proprietorship.
None of the above.
6. Michael Cohn is a "member" (a type of owner) of a marine supply business.

Michael's business is
a sole proprietorship.
a corporation.
a limited liability company.
a general partnership.
7. A major advantage of the corporate form of organization is:

reduction of double taxation.
limited owner liability.
legal restrictions.
ease of organization.
Các câu hỏi 5-7 được lấy từ : https://web.utk.edu/~jwachowi/mcquiz/mc2.html
8. What are the three types of financial management

decisions? For each type of decision, give an example of
a business transaction that would be relevant.
Corporate finance 1
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Capital Budgeting:
Definition: This involves making decisions about long-term investments
and projects. It assesses which projects or investments will provide the best
return over time.
Example: A company deciding whether to invest in a new production line
is an example of a capital budgeting decision. For instance, a manufacturing
company might evaluate the cost and potential benefits of purchasing advanced
machinery that could increase production efficiency and output.
Capital Structure:
Definition: This relates to how a company finances its overall operations
and growth by using different sources of funds, such as debt (loans or bonds)
and equity (stocks). It involves deciding the right mix of debt and equity
financing.
Example: A company deciding whether to issue new shares of stock or take
out a loan to fund an expansion is an example of a capital structure decision. For
instance, if a tech company wants to fund the development of a new software
product, it might choose between issuing additional equity to raise funds or
borrowing from a bank.
Working Capital Management:

Definition: This involves managing the company’s short-term assets and
liabilities to ensure that it maintains sufficient liquidity to meet its day-to-day
operational needs.
Example: Managing inventory levels and deciding on the optimal amount
of inventory to keep on hand is a working capital management decision. For
instance, a retail company might analyze its inventory turnover rates and sales
forecasts to determine how much stock to order and keep in reserve.
9.What goal should always motivate the actions of a

firm’s financial manager?
The primary goal that should always motivate the actions of a firm's
financial manager is to maximize shareholder wealth. This goal typically
translates into maximizing the company's stock price, as the value of the
company's shares reflects the market's perception of its profitability and
financial health.
In essence, while financial managers must balance various stakeholders'
interests, the overarching goal of maximizing shareholder wealth ensures that
Corporate finance 1
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the company is directed towards achieving optimal financial performance and

long-term success.The primary goal that should always motivate the actions of a
firm's financial manager is to maximize shareholder wealth. This goal typically
translates into maximizing the company's stock price, as the value of the
company's shares reflects the market's perception of its profitability and
financial health.
10. Who owns a corporation? Describe the process

whereby the owners control the firm’s management.
What is the main reason that an agency relationship
exists in the corporate form of organization? In this
context, what kinds of problems can arise?
Ownership and Control of a Corporation
Ownership: A corporation is owned by its shareholders (or stockholders).
Shareholders are individuals or entities that own shares of the company’s stock,
which represent ownership stakes in the corporation. Each share typically
provides the shareholder with voting rights on important matters, including the
election of the board of directors.
Process of Controlling Management:

1. Electing the Board of Directors: Shareholders exercise their ownership
rights primarily through voting in annual general meetings or special meetings.
They elect the board of directors, who are responsible for overseeing the
company’s overall direction and making high-level strategic decisions.
2. Appointing Executives: The board of directors appoints top executives,

such as the CEO and CFO, who are responsible for the day-to-day operations of
the company. The board monitors and evaluates the performance of these
executives to ensure they are working in the best interests of the shareholders.
3. Setting Policies and Approving Major Decisions: The board of directors

sets key policies and must approve significant decisions, such as mergers,
acquisitions, and large capital expenditures. This helps align management’s
actions with the shareholders’ interests.
4. Monitoring and Evaluating Performance: Shareholders can influence

management through various mechanisms, such as proxy votes, shareholder
Corporate finance 1
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resolutions, and discussions during annual meetings. They also monitor

performance through financial reports and other disclosures.
Reason for Agency Relationship:

An agency relationship exists in the corporate form of organization because
the shareholders (principals) delegate decision-making authority to the
management team (agents). Shareholders are often not involved in the daily
operations of the company and rely on the management team to act in their best
interests and make decisions that will maximize shareholder value.
Problems That Can Arise:

1. Agency Costs: These are costs associated with ensuring that the agents
(managers) act in the best interests of the principals (shareholders). They
include monitoring costs (e.g., audits and oversight) and bonding costs (e.g.,
performance-based compensation to align incentives).
2. Conflict of Interest: Managers may pursue their own interests at the

expense of shareholders. For instance, they might focus on expanding the
company’s size to enhance their personal job security or pursue projects that
increase their compensation but do not necessarily benefit shareholders.
3. Moral Hazard: Managers might take excessive risks if they believe they
will benefit personally from the upside while shareholders bear the downside.
For example, aggressive financial strategies or risky investments can lead to
significant losses for shareholders.
4. Information Asymmetry: Managers typically have more information

about the company's operations and prospects than shareholders. This imbalance
can lead to decisions that are not in the best interests of shareholders, as
shareholders might not have full visibility into management's actions.
Mitigating Agency Problems:

To mitigate these problems, companies can use several strategies:
- Performance-Based Compensation: Linking executive compensation to
the company’s performance helps align managers’ incentives with shareholders’
interests.
- Corporate Governance: Implementing strong governance practices, such
as having an independent board of directors and effective oversight
mechanisms.
Corporate finance 1
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- Transparency: Ensuring clear and accurate financial reporting to reduce

information asymmetry and build trust with shareholders.
Overall, the agency relationship and its associated problems are

fundamental aspects of the corporate structure, requiring ongoing efforts to
align the interests of management with those of shareholders.
Các câu hỏi 8,9,10 lấy từ sách: Fundamental of Corporate finance (8 Th edition)

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Corporate finance 1

1. The long-run objective of financial management is to:

maximize the value of the firm's common stock.

maximize return on investment.

maximize market share.

2. The market price of a share of common stock is determined by:

the stock exchange on which the stock is listed.

the president of the company.

individuals buying and selling the stock.

3.The decision function of financial management can be broken down into

investment, financing, and asset management

financing and dividend

capital budgeting, cash management, and credit management

4. The controller's responsibilities are primarily in nature, while the

financial management; accounting

accounting; financial management

financial management; operations

( Các câu từ 1-4 được lấy từ : https://web.utk.edu/~jwachowi/mcquiz/mc1.html. Các em có thể đăng

5. Which of the following enjoys limited liability?

None of the above.

6. Michael Cohn is a "member" (a type of owner) of a marine supply business.

a limited liability company.

7. A major advantage of the corporate form of organization is:

limited owner liability.

Các câu hỏi 5-7 được lấy từ : https://web.utk.edu/~jwachowi/mcquiz/mc2.html

8. What are the three types of ﬁnancial management

Working Capital Management:

9.What goal should always motivate the actions of a

the company is directed towards achieving optimal financial performance and

10. Who owns a corporation? Describe the process

Process of Controlling Management:

2. Appointing Executives: The board of directors appoints top executives,

3. Setting Policies and Approving Major Decisions: The board of directors

4. Monitoring and Evaluating Performance: Shareholders can influence

resolutions, and discussions during annual meetings. They also monitor

Reason for Agency Relationship:

Problems That Can Arise:

2. Conflict of Interest: Managers may pursue their own interests at the

4. Information Asymmetry: Managers typically have more information

Mitigating Agency Problems:

- Transparency: Ensuring clear and accurate financial reporting to reduce

Overall, the agency relationship and its associated problems are

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