Finance Principles and Ethical Dilemmas Quiz
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Questions and Answers

What is the primary purpose of investment decisions in finance?

  • To determine how assets will be financed
  • To allocate money to maximize its value (correct)
  • To diversify away risk
  • To reduce or eliminate specific assets

    • Which principle states that ethical dilemmas are prevalent in finance?

  • Principle 8
  • Principle 10 (correct)
  • Principle 9
  • Principle 11

    • What is the impact of diversification on risk according to Principle 9?

  • It increases the difficulty of measuring risk
  • It can diversify away some risk (correct)
  • It cannot reduce risk
  • It can increase risk

    • What do financing decisions revolve around in finance?

    <p>Determining how the assets will be financed</p> Signup and view all the answers

    What are asset management decisions concerned with?

    <p>How, when, where and how much money will be spent on investment opportunities</p> Signup and view all the answers

    What is the primary goal of the firm?

    <p>Maximization of Shareholder Wealth</p> Signup and view all the answers

    What is the term for the behavior of principals and their agents in a firm, as mentioned in the text?

    <p>Agency Theory</p> Signup and view all the answers

    In the context of financial decision-making, what is the best type of financing according to the text?

    <p>Mixing debt and equity</p> Signup and view all the answers

    What is the main responsibility of management in a modern organization, based on the text?

    <p>Acting as an agent for the owners (shareholders)</p> Signup and view all the answers

    What does Shareholders' wealth encompass?

    <p>Current and future profits and EPS; the timing, duration, and risk of profits; dividend policy; and all other relevant factors</p> Signup and view all the answers

    Risk can be completely diversified away, leaving no risk at all

    <p>False</p> Signup and view all the answers

    According to Principle 10, ethical behavior is subjective and varies from person to person

    <p>True</p> Signup and view all the answers

    Investment decisions are focused on how to allocate money to maximize its value

    <p>True</p> Signup and view all the answers

    Financing decisions revolve around how to pay for investments and expenses

    <p>True</p> Signup and view all the answers

    Asset management decisions concern how to finance the assets of a firm

    <p>False</p> Signup and view all the answers

    Debt financing always involves risk for the company

    <p>True</p> Signup and view all the answers

    The modern organization implies a separation between shareholders and management

    <p>True</p> Signup and view all the answers

    Social responsibility is a primary focus of agency theory in finance

    <p>False</p> Signup and view all the answers

    Maximizing sales or market share is a general goal of the firm

    <p>True</p> Signup and view all the answers

    The real goal of the firm according to the text is to maximize shareholder wealth

    <p>True</p> Signup and view all the answers

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