8. Which of the following statements is CORRECT?

a. The proper goal of the financial manager should be to attempt to maximize the firm's expected cash flows, because this will add the most to the wealth of the individual shareholders.

b. The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year.

c. The riskiness inherent in a firm's earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firm's assets. However, EPS is not affected by the manner in which those assets are financed.

d. Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders.

e. Large, publicly-owned firms like AT&T and GM are controlled by their management teams. Ownership is generally widely dispersed, hence managers have great freedom in how they manage the firm. Managers may operate in stockholders' best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there is no way to either force or motivate them to act in the stockholders' best interests.

____ 39. Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

a. Prices and interest rates would both rise.

b. Prices would rise and interest rates would decline.

c. Prices and interest rates would both decline.

d. There would be no changes in either prices or interest rates.

e. Prices would decline and interest rates would rise.

____ 40. Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

a. Households start saving a larger percentage of their income.

b. The economy moves from a boom to a recession.

c. The level of inflation begins to decline.

d. Corporations step up their expansion plans and thus increase their demand for capital.

e. The Federal Reserve uses monetary policy in an attempt to stimulate the economy.

____ 41. Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

a. Households reduce their consumption and increase their savings.

b. The Federal Reserve decides to try to stimulate the economy.

c. There is a decrease in expected inflation.

d. The economy falls into a recession.

e. Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs.