A Manager Should Attempt to Maximize the Value of the Firm

question 81

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.
• 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 only to the benefits of the debtholders.
• D) changing the capital structure if and only if the value of the firm increases although it decreases the stockholders' value.
• E) changing the capital structure if and only if the value of the firm increases and stockholder wealth is constant.

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Definitions:

Temporary Investments

Short-term investments that a company plans to convert into cash within a short period, typically one year or less.

Remote Contingent Liability

A potential financial obligation that is considered to be unlikely to occur; it is noted in financial statements as a footnote to provide full disclosure.

Accrual

A method of accounting that recognizes revenue and expenses when they are incurred, regardless of when cash transactions occur.

Disclosure

Disclosure involves the act of making new or important information known, especially about the financial or operational state of a company.