Business Finance EXAM 1 Chapters 1-4 Questions With Complete Solutions.
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Course
Business finance
Institution
Business Finance
The long-run goal of the firm is to - Answer maximize shareholder wealth
Maximizing shareholder wealth means maximizing the - Answer market value of the firm's common stock
Advantages of the corporation include - Answer Transferability of ownership and ability of the corporation to r...
Business Finance EXAM 1 Chapters 1-4
Questions With Complete Solutions.
The long-run goal of the firm is to - Answer maximize shareholder wealth
Maximizing shareholder wealth means maximizing the - Answer market value of the firm's common
stock
Advantages of the corporation include - Answer Transferability of ownership and ability of the
corporation to raise capital.
Disadvantages of the partnership are - Answer lack of permanence and unlimited liability
According to Principle 3, how should investors decide where to invest their money? - Answer By
determining if the return is more than expected given the level of risk.
Why is it so hard to find extremely profitable projects? - Answer It is so hard to find extremely
profitable projects because if an industry is generating large profits, then new entrants are attracted,
driving down profits. Besides, to find high profit projects, the product or service must be differentiated
and/or have a cost advantage over the competition and imperfections in the market that are not
currently being taken advantage of must be located
The corporation is a legal entity seperate from its owners; thus ti is possible for the corporation to
continue even upon the death of one or more shareholders. - Answer true
One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's
financial decisions. - Answer false
An efficient market is one where the prices of the assets traded in that market fully reflect all available
information at any instant in time - Answer true
True or False: The risk-return trade-off is seen in many areas of finance - Answer true
, Shareholders react to poor investment or dividend decisions by causing the total value of the firms stock
to fall, and they react to good decisions by causing the total value of the firm's stock to fall, and they
react to good decisions by bidding the price of the stock up - Answer true
The sole proprietorship has no legal business structure separate from its owner. - Answer true
the owners of a corporation enjoy limited liability - Answer false
An investment project is acceptable if the total cash received over the life of the project exceeds the
total cash spent over the life of the project. - Answer false
Shareholder wealth maximization means maximizing the price of the existing common stock. - Answer
true
The goal of profit maximization ignores the risk of financial decisions. - Answer true
A group of investment bankers organized to distribute large securities issues is known as a syndicate. -
Answer true
For a firm to have its securities listed on exchange, it must meet certain requirements. These usually
include measures of profitability, size, market value, and public ownership - Answer true
Organized stock exchanges provide the benefits of a continuous market, fair security principles and
helping business raise new capital - Answer true
Capital markets are all the financial institutions that help a business raise long term capital - Answer
true
The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will
sell a security - Answer true
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