14) In planning and managing the requirements of the firm the financial manager is concerned with A) the mix and type of assets but not the type of financing utilized. B) the type of financing utilized but not the mix and type of assets. C) the acquisition of fixed assets allowing someone else to plan the level of current assets required. D) the mix and type of assets the type of financing utilized and analysis in order to monitor the financial condition. 15) The financial manager’s financing decisions determine A) both the mix and the type of assets found on the firm’s balance sheet. B) the most appropriate mix of short-term and long-term financing. C) both the mix and the type of assets and liabilities found on the firm’s balance sheet. D) the proportion of the firm’s earnings to be paid as dividend. 1.6 Describe the nature of the principle-agent relationship between owners and managers of a corporation and explain how various corporate governance mechanisms attempt to manage agency problems. 1) The likelihood that managers may place personal goals ahead of corporate goals is called the agency problem. 2) Agents of corporate owners are themselves owners of the firm and have been elected by all the corporate owners to represent them in decision-making and management of the firm. 3) The agency problem occurs when the firm selects an ineffective marketing advertising and PR firm to represent them. 4) Most recent studies on executive compensation have failed to find a strong relationship between CEO compensation and share price. 5) The major purpose of the Sarbanes-Oxley Act of 2002 was to place caps on the compensation that could be paid to corporate executives. 6) The board of directors is responsible for managing day-to-day operations and carrying out the policies established by the chief executive officer. 7) The president or chief executive officer is elected by the firm’s stockholders and has ultimate authority to guide corporate affairs and make general policy. 8) Agency costs include all of the following EXCEPT A) management reports to stockholders. B) performance incentives paid to managers. C) the cost of monitoring management behavior. D) purchasing insurance against management misconduct. 9) One way often used to insure that management decisions are in the best interest of the stockholders is to A) threaten to fire managers who are seen as not performing adequately. B) remove management’s perquisites. C) tie management compensation to the performance of the company’s common stock price. D) tie management compensation to the level of earnings per share. 10) Among solutions to the agency problem in publicly-held corporations are all of the following EXCEPT A) stock options. B) performance shares. C) cash bonuses tied to goal achievement. D) bonuses based on short-term results.
