Final
1 The value of a firm is
a. smaller the higher is the risk premium used to compute the firm’s value.
b. larger the higher is the risk premium used to compute the firm’s value. c. the price for which the firm can be sold minus the present value of the expected future profits. d. both b and c
2 A price-taking firm can exert no control over price because
a. the firm's demand curve is downward sloping. b. of a lack of substitutes for the product.
c. the firm's individual production is insignificant relative to production in the industry.
d. many other firms produce a product that is nearly identical to its product.
e. both c and d
3 Which of the following statements is true?
a. Shareholders as a group have little or no ability to force managers to pursue maximization of the firm’s value. b. The effectiveness of a board of directors in monitoring managers will be enhanced by appointing members from the firm who are well-informed about the management problems facing the firm. c. Reducing the amount of debt financing can reduce the divergence between the shareholders’ interests and the owner’s interests. d. Equity ownership by managers is thought to be one of the most effective corporate control mechanisms. e. All of the above are true.
4 When a firm earns less than a normal profit,
a. the revenues generated cannot pay all explicit costs and the opportunity cost of using owner-supplied resources. b. accounting profit is negative. c. economic profit is zero. d. normal profit is negative. e. all of the above
5 Economic profit is the best measure of a firm’s performance because
a. normal profit is generally too difficult to measure. b. economic profit fully accounts for all sources of revenue. c. only explicit costs influence managerial decisions since, in general, only explicit
a. smaller the higher is the risk premium used to compute the firm’s value.
b. larger the higher is the risk premium used to compute the firm’s value. c. the price for which the firm can be sold minus the present value of the expected future profits. d. both b and c
2 A price-taking firm can exert no control over price because
a. the firm's demand curve is downward sloping. b. of a lack of substitutes for the product.
c. the firm's individual production is insignificant relative to production in the industry.
d. many other firms produce a product that is nearly identical to its product.
e. both c and d
3 Which of the following statements is true?
a. Shareholders as a group have little or no ability to force managers to pursue maximization of the firm’s value. b. The effectiveness of a board of directors in monitoring managers will be enhanced by appointing members from the firm who are well-informed about the management problems facing the firm. c. Reducing the amount of debt financing can reduce the divergence between the shareholders’ interests and the owner’s interests. d. Equity ownership by managers is thought to be one of the most effective corporate control mechanisms. e. All of the above are true.
4 When a firm earns less than a normal profit,
a. the revenues generated cannot pay all explicit costs and the opportunity cost of using owner-supplied resources. b. accounting profit is negative. c. economic profit is zero. d. normal profit is negative. e. all of the above
5 Economic profit is the best measure of a firm’s performance because
a. normal profit is generally too difficult to measure. b. economic profit fully accounts for all sources of revenue. c. only explicit costs influence managerial decisions since, in general, only explicit