Finance HW 1

Question 1

Why do all shareholders agree on the same goal for financial manager?

Answer 1

A. All of the decisions by the financial manager are made within the context of the overriding goal of financial management—to maximize the wealth of the owners, the stockholders.
D. The stockholders have invested in the corporation, putting their money at risk to become the owners of the corporation.

Question 2

Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than in their own interests. What strategies are available to shareholders to help ensure that managers are motivated to act this way?

Answer 2

A. Ensure that employees are paid with company stock and/or stock options
B.Ensure that underperforming managers are fired.
C.Write contracts that ensure that the interests of the managers and shareholders are closely aligned.
D.Mount hostile takeovers
Fire under-performing managers