Exam

Question 1

Agency Issues

Answer 1

when people we delegate decisions to dont do what we want them to

Question 2

Contain Agency Issues by thinking about:

Answer 2

1. Corporate Governance
2. Corporate Culture
3. Incentive Structures

Question 3

Corporate Governance

Answer 3

making sure we have outside directors in place to monitor corporate executives

Question 4

The specific objectives behind financial markets are

Answer 4

fairness, transparency, and stability

Question 5

Companies can obtain debt financing from _______

Answer 5

banks and capital markets

Question 6

fund long term assets with ______ and short term assets with _______

Answer 6

long-term debt. short-term debt.

Question 7

financial statements look at a firm’s

Answer 7

profitability, cash generation, asset base, funding structure

Question 8

Which margins show profitability?

Answer 8

Gross profit margin, operating profit margin, net profit margin

Question 9

Gross profit:

Answer 9

Revenue-COGS

Question 10

net profit:

Answer 10

Revenue-all expenses

Question 11

operating profit:

Answer 11

profit before deduction of taxes and interest

Question 12

Profitability can also be shown by

Answer 12

Return on Assets and Return on equity Ratios

Question 13

Asset Efficiency is:

Answer 13

How assets & Liabilities on the balance sheet convert to revenues & expenses on the income statement

Question 14

1. Company A: ROA = 5%, ROE = 10%
   Company B: ROA = 5%, ROE = 15%

Based only on this information, what do you suspect is the main difference between them?

Answer 14

Company B has more financial leverage