18. Which of the following statements is most correct? a. The proper goal of the financial manager should be to maximize the firm’s expected cash flow, because this will add the most wealth to each of the individual shareholders (owners) of the firm. b. One way to state the decision framework most useful for carrying out the firm’s objective is as follows: “The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon.” c. Since large, publicly-owned firms are controlled by their management teams, and typically, ownership is widely dispersed, managers have great freedom in managing the firm. Managers may operate in stockholders’ best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there simply aren’t any effective controls over managerial decisions in such situations. d. The riskiness inherent in a firm’s earnings per share (EPS) depends on the characteristics of the projects the firm selects, which means it depends upon the firm’s assets, but EPS does not depend on the manner in which those assets are financed. e. Agency problems exist between stockholders and managers, and between stockholders and creditors
18. Which of the following statements is most correct?
a. The proper goal of the
b. One way to state the decision framework most useful for carrying out the firm’s objective is as follows: “The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon.”
c. Since large, publicly-owned firms are controlled by their management teams, and typically, ownership is widely dispersed, managers have great freedom in managing the firm. Managers may operate in stockholders’ best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there simply aren’t any effective controls over managerial decisions in such situations.
d. The riskiness inherent in a firm’s earnings per share (EPS) depends on the characteristics of the projects the firm selects, which means it depends upon the firm’s assets, but EPS does not depend on the manner in which those assets are financed.
e. Agency problems exist between stockholders and managers, and between stockholders and creditors
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