Which of the Following Statements Is CORRECT

question 51

Multiple Choice

Which of the following statements is CORRECT?

• A) The proper goal of the financial manager should be to maximize the firm's expected cash flows, because this will add the most wealth to each of the individual shareholders (owners) of the firm.
• B) The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected after-tax income over the relevant time horizon.
• C) 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.
• D) 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 are no effective tools that can be used to motivate them to take actions that are in the stockholders' best interests.
• E) Potential conflicts of interest can exist between stockholders and managers, and also between stockholders and bondholders.

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Definitions:

Ethane

A colorless, odorless gas that is the second simplest alkane, consisting of two carbon atoms and six hydrogen atoms.

Double Bonds

Chemical bonds between two atoms involving four bonding electrons instead of the usual two, making the bond stronger and the structure more rigid.

Lewis Structure

A graphical representation of the valence electrons of atoms within a molecule, showing how they are arranged and shared to form bonds.

Chloromethane

A colorless, flammable gas with a faintly sweet odor, used in the production of silicones.