1. Assume that you are starting a business. Further assume that the business is expected to grow very quickly and a great deal of capital will be needed soon. What type of business organization would you choose?

a.     Corporation

b.     General Partnership

c.     Sole proprietorship

d.     Limited partnership

 

2. If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:                              

a.     positively affect profits.

b.     increase the market value of the firm’s common stock.

c.     either increase or have no effect on the value of the firm’s common stock.

d.     accomplish all of the above.

 

3. Profit maximization is not an adequate goal of the firm when making financial decisions because:     

a.     it does not necessarily reflect shareholder wealth maximization.

b.     it ignores the risk inherent in different projects that will generate the profits.

c.     it ignores the timing of a project’s returns.

d.     all of the above are correct.

 

4. Which of the following goals is in the best long-term interest of stockholders?          

a.     Profit maximization

b.     Risk minimization

c.     Maximizing of the market value of the existing shareholders’ common stock

d.     Maximizing sales revenues

 

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