19. Explain how agency problems interfere with a manager's ability to achieve the primary goal of financial management.
20. Discuss the background behind the Sarbanes-Oxley Act and describe the intent of this legislation.
23. How is liquidity both beneficial and harmful to a firm?
24. Is the average tax rate or the marginal tax rate more relevant when making financial decisions? Justify your answer.
25. Assuming that a firm has positive earnings, the sustainable growth rate assumes that a firm increases its debt each year.
How can a firm do this over a number of years without going bankrupt?
26. Explain how firms can use peer group analysis to evaluate their own firm's financial performance.
27. York Motors has a total book value of equity of $10 million, and a market to book ratio of 5. What is the total market value of York Motors' equity?
28. Given a profit margin=2.7%, total asset turnover = 67, equity multiplier=4.5, calculate return on equity using Du Pont identity.

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19. The primary goal of financial management is to increase the market value of the firm so that the value of shareholder’s wealth is maximized. Shareholders are the owners of the company and since they do not have the time to manage the daily operations of the company, they appoint managers whose task is to run the company on behalf of the shareholders. Thus, shareholders are the principal and the managers are the agents. This creates conflict of interest along with information asymmetry since the managers know more about the company due to their association with the daily affairs. They try to maximize their own salaries and income and they are motivated to boost the short term profits of the company without considering the long term effects since the performance of the managers would be evaluated in terms of the present financial condition of the company. As such, they are motivated to act in their own interests which can have an adverse effect on shareholder’s interests...
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