MIDTERM EXAM ESSAY QUESTION

1. What is agency problem? Do you think agency problems arise in sole proprietorships
and/or partnerships?
2. What is different between financial statement of cash flow and accounting statement of
cash flow?
3. Discuss the difference between book values and market values on the balance sheet and
explain which is more important to the financial manager and why?
4. Should financing costs, sunk costs, opportunity costs be included as an incremental cash
flow in capital budgeting analysis? Explain.
5. What should be the goal of the financial manager of a corporation? Does it mean that
financial managers have to do anything and everything to achieve that goal? Explain your
answer.
6. What is the relationship between the price of a bond, its YTM and time to matutities? and
coupon rates? Graph and explain.
7. Explain why some bonds sell at a premium over par value while other bonds sell at a
discount. What do you know about the relationship between the coupon rate and the
YTM for premium bonds? What about for discount bonds? For bonds selling at par
value?