Finance 5352 Chapter 1
Why maximizing firm value/stock price is considered the primary goal of the firm?
-Because it ties the goal to the owners of the firm. -Because it is all encompassing compared to maximizing profit or minimizing costs. -Because it is forward looking. -Because firm value is determined by society ( not accountants).
Why maximizing firm value/stock price is considered the primary goal of the firm? A. Because it ties the goal to the owners of the firm. B. because it is all encompassing compared to maximizing profit or minimizing costs. C. because it is forward looking. D. because firm value is determined by society ( not accountants). E. all of the above
All of the above
The profits of a general partnership are taxed the same as those of a corporation. True False
False
1. Which one of the following statement is NOT correct? A) Equity securities offer fixed cash flows. B) Real assets can produce goods and services. C) When firms issue new securities, they are primary market transactions. D) None of the above
Equity securities offer fixed cash flows.
In partnership, each partner's liability for the firm's debts is limited to each partner's investment in the firm. True False
False
1. Which of the following are advantages of the corporate form of organization? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Profits taxed at the corporate level IV. Limited liability for all owners A. I and II only B. III and IV only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV
I, II, and IV only
which one of the following statements is correct? A. An auction market is also referred to as an OTC market. B. Financial assets produce goods and services C. Equity securities provide fixed income to investors. D. None of the above
None of the above
Compared to sole proprietorship, corporations have the ability to raise large sums of equity capital True False
True
1. Which one of the following applies to a general partnership? A. The firm's operations must be controlled by a single partner. B. Any one of the partners can be held solely liable for all of the partnership's debt. C. The profits of the firm are taxed as a separate entity. D. Each partner's liability for the firm's debts is limited to each partner's investment in the firm. E. The profits of a general partnership are taxed the same as those of a corporation.
Any one of the partners can be held solely liable for all of the partnership's debt.
which one of the following is correct? A. Primary market is for trading of existing securities B. The payoff/value of derivatives depend on the value of the underlying/assets C. money market is for long term securities D. None of the above
The payoff/value of derivatives depend on the value of underlying/assets.
1. Which one of the following actions best matches the primary goal of financial management? a. increasing the size of the company by acquiring another firm in a different industry b. decreasing the variable costs while increasing the fixed costs per unit sold c. increasing the market value of equity by improving the efficiency of operations d. decreasing the liquidity of the firm while increasing the long-term debt e. increasing the net working capital while maintaining the same level of sales
increasing the market value of equity by improving the efficiency of operations
Which one of the following statements correctly applies to a sole proprietorship? A. The business entity has an unlimited life. B. The ownership can easily be transferred to another individual. C. The owner enjoys limited liability for the firm's debts. D. Debt financing is easy to arrange in the firm's name. E. Obtaining additional equity is dependent on the owner's personal finances.
obtaining additional equity is dependent on the owner's personal finances.
1. Which one of the following best matches the primary goal of financial management (corporation)? A. Increasing the dollar amount of each sale B. Increasing traffic flow within the firm's stores C. Transforming fixed costs into variable costs D. Increasing the firm's liquidity E. Increasing the market value of firm
Increasing the market value of firm
Which one of the following actions best matches the primary goal of financial management? A. decreasing the variable costs while increasing the fixed costs per unit sold B. increasing the market value of the equity by improving the efficiency of operations C. increasing the net working capital while maintaining the same level of sales D. increasing the size of the company by acquiring another firm in a different industry E. decreasing the liquidity of the firm while increasing the long-term debt
Increasing the market value of the equity by improving the efficiency of operations
Which one of the following statement is NOT correct? A. The potential conflict of interest between a firm's owners and its managers is referred to agency problem. B. The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm's stakeholders. C. A sole proprietorship has its profits taxed as personal income
None of the Above
1. Which one of the following statement is NOT correct? A) The potential conflict of interest between a firm's owners and its managers is referred to agency problem. B) The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm's stakeholders. C) A sole proprietorship has its profits taxed as personal income D) None of the above
None of the above
Which one of the following statemenets is correct? A. An auction market is also referred to as an OTC market. B. Financial assets produce goods and services C. Equity securities provide fixed income to investors. D. None of the above
None of the above
Which one of the following statements is NOT correct A. Corporations have the advantage of ease of ownership transfer. B. the primary goal of financial management (corporation) is to maximize stock price C. An agency conflict could arise when management is separated from ownership D. Stock option is an effective way to reduce agency cost. E. None of the above
None of the above
1. Which one of the following statements is NOT correct? A) An agency conflict could arise when management is separated from ownership. B) The following can effectively align management's priorities with shareholders' interests: Compensating managers with shares of stock that must be held for 3 years before the shares can be sold. C) The following is an effective means of aligning management goals with shareholder interests: Management bonuses tied to performance goals D) A corporation is a legal entity separate from its owners. E) None of the above.
None of the above.
1. Which one of the following statements correctly applies to a sole proprietorship? A. The business entity has an unlimited life. B. The ownership can easily be transferred to another individual. C. The owner enjoys limited liability for the firm's debts. D. Debt financing is easy to arrange in the firm's name. E. Obtaining additional equity is dependent on the owner's personal finances.
Obtaining additional equity is dependent on the owner's personal finances.
Which one of the following statements is NOT correct? A. One of the advantages of a corporation is that the owners have limited liabilities. B. Sole proprietorship has its profits taxed as personal income C. Money market is for short term securities. D. The partnership has the disadvantage of double taxation. E. One of the advantages of corporations is that the ownership can easily be transferred.
Partnership has the disadvantage of double taxation.
1. The primary goal of corporation/financial management is to maximize which one of the following for a corporation? A. Current profits B. Number of shares outstanding C. Stock Price D. Revenue growth
Stock Price
Which one of the following is correct? A. Primary market is for trading of existing securities B. The payoff/value of derivatives depend on the value of the underlying/assets C. money market is for long term securities D. None of the above
The payoff/value of derivatives depend on the value of the underlying/assets
