A Manager Should Attempt to Maximize the Value of the Firm

question 49

Multiple Choice

A manager should attempt to maximize the value of the firm by:

• A)changing the capital structure if and only if the value of the firm increases only to the benefit the debtholders.
• B)changing the capital structure if and only if the value of the firm increases to the benefit of inside management.
• C)changing the capital structure if and only if the value of the firm increases.
• D)changing the capital structure if and only if the value of the firm increases and stockholder wealth is constant.
• E)changing the capital structure if and only if the value of the firm increases although it decreases the stockholders' value.

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Definitions:

Principal

The original sum of money borrowed in a loan, or the amount of the investment, not including the interest or profits.

Agency Relationship

A legal bond where one party, the agent, acts on behalf of another, the principal, in dealings with third parties.

Financial Year End

Financial year end is the completion of a one-year, or 12-month, accounting period; the date when companies must finalize their financial statements and report their financial performance.

Reasonable Period

A span of time that is considered fair and appropriate in a given context, especially in legal and contractual situations.