Financial managers should primarily focus on the interests of Multiple Choice their immediate supervisor. shareholders. the vice president of finance. themselves. the board of directors.
Added by Ryan T.
Close
Step 1
In corporate finance, the primary goal of financial management is to maximize shareholder wealth. This is typically achieved by maximizing the current stock price, which reflects the present value of expected future cash flows to shareholders. Show more…
Show all steps
Your feedback will help us improve your experience
Jennifer Stoner and 53 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
Corporate Governance The management of Smith and T Co. controls 58% of the company's stock. The firm did not meet any of its quarterly sales projections for the last year. Some of the firm's institutional investors are worried that the firm's poor performance is partly because management has not been focused on maximizing shareholder wealth. Which of the following measures would the institutional investors most likely want to see implemented? They would like to see that the majority of the company's board of directors is composed of true outsiders. They would like to see that the company has an interlocking board of directors with one of the company's strategic partners. They would like to see the size of the board of directors increased because larger boards usually implement a higher degree of corporate governance. It is reasonable to assume that a firm's management is going to be ultimately motivated to act in their own best interest. It can be a serious problem for shareholders if management's self-interests do not align with shareholders' self-interests. Select the statement that best describes the board of directors' actions in the following scenario: Charles Underwood Agency Inc.'s optimal capital structure calls for the firm to have 20% debt and 80% equity financing. The firm's board of directors has decided to include only 10% debt in the firm's capital structure. The reason for using less than the optimal amount of debt is that the board wants to ensure they can borrow at a reasonable rate if a good investment opportunity arises. The board's decision will help to align management's interests with the shareholders' interests. The board's decision will give management an opportunity to make decisions that may not be in the shareholders' best interest. The firm's amount of debt will not have an effect on the relationship between managers and shareholders.
Jennifer S.
In most public firms, although the executive management is in charge of running the business profitably, they are also the agents of the stockholders and they techinally work for the stockholders. They must do whatever the majority of stockholders want the firm to do.This is false. The company management only answers to themselves and they do not need to bow down to any other group.The only responsibility the comapny managers have to the stockholders is to take part of the annual profits and allow the stockholders to benefit by paying them dividends based on the stocks they own. The company management has no other obligation to stockholdersThis is true because the stockholders are technically the owners of the firmThe company management must first satisfy the investors who bought company bonds, then they must satisfy bankers who lent money to the firm, then the company management can worry about serving the wishes of the stockholders who are in third place
Ivan K.
Which of these problems does corporate finance deal with? Check all that apply: - How to finance long-term investments - How much to pay employees - How to manage short-term finances - Which long-term investments to make Which are advantages of focusing on shareholder wealth maximization as the goal of financial management? Check all that apply: - It takes into account both short-term and long-term effects and expectations. - It can be measured objectively. - It's an unambiguous goal. - It avoids conflicts with other goals. The best way to maximize shareholders' (or owners') wealth is to: - Maximize profits by paying the lowest wages possible - Maximize profits by charging high prices and reducing the quality of the product - Ignore environmental effects where the rules are unclear - Work within the confines of the law and ethical conventions - Take ethical shortcuts as long as the behavior is not illegal The executive board comprises the top managers of a company: CEO, CFO, COO, CMO, etc. Which statements are true? Check all that apply: - The board of directors has a fiduciary duty to shareholders. - The board of directors appoints and monitors the executive board. - Shareholders supervise the executive board. - Shareholders elect the board of directors. Which statements are true? Check all that apply: - Normally, each share of stock has one vote. - Corporations have to hold regular elections for the board of directors. - Shareholders can transfer their right to vote to someone else. - Shareholders must vote in person at the annual meeting. The problems stemming from a conflict of interest between shareholders and executives are called agency problems. - Opportunity - Incompatibility - Coordination - Agency
Akash M.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD