Which of the Following Statements Is CORRECT

question 31

Multiple Choice

Which of the following statements is CORRECT?

• A) The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the most to the wealth of the individual shareholders.
• B) 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, generally the coming year.
• C) The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets. However, EPS is not affected by the manner in which those assets are financed.
• D) Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders.
• E) Large, publicly-owned firms like AT&T and GM are controlled by their management teams. Ownership is generally widely dispersed, hence managers have great freedom in how they manage 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 is no way to either force or motivate them to act in the stockholders' best interests.

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Definitions:

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used by anyone without preventing others from using them as well.

Voluntary Contributions

Donations or services provided by individuals or organizations willingly without any legal or social obligation.

Public Radio

Radio stations that are funded by public sources, such as government grants and listener donations, rather than commercial advertising.

Free-rides

The situation where individuals consume a public good without contributing to its cost, benefiting from others' contributions.