1. The agency problem is A. a result of the separation between management and owners of the firm. B. not important in pursuing the goal of wealth maximization. C. Associated with insuring the safety of the management as the agent of shareholders. D. Likely to be important in profit maximization. 2. The most important basic financial statement to judge the economic well-being of a firm is A. Balance Sheet. B. Income Statement. C. Statement of Cash Flows. D. All of the above. 3. A use of cash would be _________in fixed assets or _______ in short-term debt. A. a decrease; a decrease B. an increase; a decrease C. a decrease; an increase D. an increase; an increase 4. One of the major drawbacks of a sole proprietorship is A. low organizational costs B. easy to make decision C. low operating costs D. unlimited liability to the owner.

5. Which of the following is not a primary source of capital to the firm? A. Debentures/bonds. B. Common stock. C. Fixed assets. D. Preferred stock.