【正文】 . If management is protected against takeovers by takeover defenses, it is more likely that managers will act in their own best interest, rather than in the interests of the firm and its stockholders. Est time: 01–05 13. Both capital budgeting decisions and capital structure decisions are longterm financial decisions. However, capital budgeting decisions are longterm investment decisions, while capital structure decisions are longterm financing decisions. Capital structure decisions essentially involve selecting between equity financing and longterm debt financing. Est time: 01–05 14. A bank loan is not a ―real‖ asset that can be used to produce goods or services. Rather, a bank loan is a claim on cash flows generated by other activities, which makes it a financial asset. Est time: 01–05 15. Investment in research and development creates knowhow. This knowledge is then used to produce goods and services, which makes it a real asset. Est time: 01–05 16. The responsibilities of the treasurer include the following: supervising cash management, raising capital, and banking relationships. The controller’s responsibilities include supervision of accounting, preparation of financial statements, and tax matters. The CFO of a large corporation supervises both the treasurer and the controller. The CFO is responsible for largescale corporate planning and financial policy. Est time: 01–05 Chapter 01 Goals and Governance of the Corporation 15 169。 2020 by McGrawHill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. (ii) Investing more in the firm can increase profits, even if the increase in profits is insufficient to justify the additional investment. In this case the increased investment increases profits but can reduce shareholder wealth. (iii) Profits can be affected by accounting rules, so a decision that increases profits using one set of rules may reduce profits using another. Est time: 06–10 22. The contingency arrangement aligns the interests of the lawyer with those of the client. Neither makes any money unless the case is won. If a client is unsure about the skill or integrity of the lawyer, this arrangement can make sense. First, the lawyer has an incentive to work hard. Second, if the lawyer turns out to be inpetent and loses the case, the client will not have to pay a bill. Third, the lawyer will not be tempted to accept a very weak case simply to generate bills. Fourth, there is no incentive for the lawyer to charge for hours not really worked. Once a client is more fortable with the lawyer, and is less concerned with potential agency problems, a feeforservice arrangement might make more sense. Est time: 06–10 23. The national chain has a great incentive to impose quality control on all of its outlets. If one store serves its customers poorly, that can result in lost future sales. The reputation of each restaurant in the chain depends on the quality in all the other stores. In contrast, if Joe’s serves mostly passing travelers who are unlikely to show up again, unsatisfied customers pose a far lower cost. They are unlikely to be seen again anyway, so reputation is not a valuable asset. The important distinction is not that Joe has one outlet while the national chain has many. Instead, it is the likelihood of repeat relations with customers and the value of reputation. If Joe’s were located in the center of town instead of on the highway, one would expect his clientele to be repeat customers from town. He would then have the same incentive to establish a good reputation as the chain has. Est time: 01–05 24. Traders can earn huge bonuses when their trades are very profitable, but if the trades lose large sums, as in the case of Barings Bank, the trader’s exposure is limited. This asymmetry can create an incentive to take big risks with the firm’s (., the shareholders’) money. This is an agency problem. Est time: 01–05 Chapter 01 Goals and Governance of the Corporation 18 169。 building code requirements enforced by local governments。 2020 by McGrawHill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, di。 2020 by McGrawHill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Est time: 01–05 3. Separation of ownership and control for public corporations means that the ultimate owners of the corporation are not its managers. These same managers will consider their own interest as well as shareholders when making decisions. This creates agency problems. Est time: 01–05 4. Money markets, where shortterm debt instruments are bought and sold. Foreignexchange markets: Most trading takes place in overthecounter transactions between the major international banks. Commodities markets for agricultural modities, fuels (including crude oil and natural gas), and metals (such as gold, silver, and platinum). Derivatives markets, where options and other derivative instruments are traded. Est time: 01–05 5. Buy shares in a mutual fund. Mutual funds pool savings from many individual investors and then invest in a diversified portfolio of securities. Each individual investor then owns a proportionate share of the mutual fund’s portfolio. Est time: 01–05 Chapter 01