Pecking Order Theory Essay Example

corporation, the chief financial officer (CFO) holds the highest ranking position. a. True b. False b. False 11. The activities of the financial staff encompass forecasting and planning, making major investment and financing decisions, dealing with financial markets, and managing risk. e. Correct 12. The financial vice-president reports to the president and the chief executive officer. a. True. b. False b. False 13. In most firms, the treasurer is responsible for managing cash and marketable securities, planning the firm's capital structure, raising capital through the sale of stocks and bonds, overseeing the corporate pension plan, and managing risk. a. True b. False a. True 14.The text emphasizes various goals in corporate decision-making. These goals include maximizing expected total corporate profit, maximizing expected EPS, minimizing the chances of losses, maximizing the stock price per share, and maximizing expected net income.

Additionally, the text states that departing from the goal of shareholder wealth maximization can lead to potential job removal for managers.

It also mentions that most actions which help a firm increase its stock price tend to benefit society as a whole.

Lastly, the primary contribution of finance to total social welfare lies in its function as a productive resource and its contribution to the efficient allocation and use of resources.The text contains several statements and questions related to various topics, including exogenous variables, ethical behavior, social responsibility, agency relationships, and reducing agency conflicts.

All of the statements above are correct. Which of the following actions are likely to reduce agency conflicts between stockholders and managers? Paying managers a large fixed salary, increasing the threat of corporate takeover, and placing restrictive covenants in debt agreements. The managers

should always undertake actions that result in a transfer of wealth from bondholders to stockholders. False. Which of the following factors tend to encourage management to pursue stock price maximization as a goal? Shareholders link management’s compensation to company performance and managers’ reactions to the threat of firing and hostile takeovers. Mechanisms used to motivate managers to act in shareholders’ best interests include managerial compensation, direct intervention by shareholders, and the threat of firing or takeovers. Creditors lend funds at rates that are based on the riskiness of the firm’s existing assets, expectations concerning the riskiness of future asset additions, and expectations concerning future capital structure decisions. The dividend policy decision is the way the firm is funded, not the mix of debt and equity used. Incorrect.

The decision regarding the dividend policy is about determining the proportion of earnings to distribute as dividends and the amount to retain for reinvestment. This decision does not solely depend on managerial actions. Furthermore, maximizing EPS does not equate to maximizing stockholder wealth.