Primary goal of the publicly-owned firm

Question

Question 1: The primary goal of a publicly-owned firm interested in serving its stockholders should be to

• Maximize expected total corporate profit.
• Maximize expected EPS.
• Minimize the chances of losses.
• Maximize the stock price per share.
• Maximize expected net income.

Question 2: By maximizing the earnings of the firm we will ensure that the price per share of common stock is maximized, hence shareholders' wealth will also be maximized.

• True
• False

Question 3: Which of the following is the best measure of the wealth of a firm's stockholders?

• The firm's Net Income during the past year
• Expected Earnings per Share during the coming year
• Book Value (or Net Worth) as recorded on the balance sheet
• The price of the firm's stock on the open market

Question 4: Money markets are markets for what?

• Foreign currency exchange.
• Consumer automobile loans.
• Corporate stocks.
• Long-term bonds.
• Short-term debt securities.

Question 5: The New York Stock Exchange is primarily

• A secondary market.
• An organized auction market.
• An over-the-counter market.
• Answers a and b are correct.
• Answers b and c are correct.

Question 6: A company has the following income statement. What is its net operating profit after taxes (NOPAT)?

Sales $1,000
Costs $700
Depreciation $100
EBIT $ 200
Interest expense $50
EBT $ 150
Taxes (40%)
Net income $ 90

• $90
• $120
• $150
• $180
• $200

Question 7: Holmes Aircraft recently announced an increase in its net income, yet its net cash flow declined relative to last year. Which of the following could explain this performance?

• The company's interest expense increased.
• The company's depreciation expense declined.
• The company's operating income declined.
• All of the statements above are correct.
• None of the statements above is correct.

Question 8: A company's balance sheet shows what assets the company obtained and disposed of during a particular period.

• True
• False

Question 9: A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000, total assets of $22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm's ROA?

• 8.4%
• 10.9%
• 12.0%
• 13.3%
• 15.1%

Question 10: In financial analysis, the Du Pont equation is used to:

• Determine the best place for a firm to invest its money
• Analyze the components of return on equity (ROE)
• Determine the optimal blend of debt and equity financing
• Calculate the riskness of a firm's stock price