Chapter 1, Problem 2ST

Which of the following helps to meet the short-term liquidity position of the concern? a.Investment Decision b.Capital Budgeting c.Cash Management d.Interrelation with Other Departments

Which of the following items describes a weakness of the internal rate-of-return method?a. The internal rate of return is difficult to calculate and requires a financial calculator or spreadsheet tool such as Excel to calculate efficiently.b. Cash flows from the investment are assumed in the IRR analysis to be reinvested at the internal rate of return.c. The internal rate-of-return calculation ignores time value of money.d. The internal rate-of-return calculation ignores project cash flows occurring after the initial investment is recovered.

Define and explain the agency problem in terms of differences in ability to diversify risk by finance and human capital. Why does it arise? What are the mechanisms available to ameliorate the agency problem?