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Primary operating goal of a publicly-owned firm

Problem 1. Money markets are markets for:

- Foreign stocks.
- Consumer automobile loans.
- U.S. stocks.
- Short-term debt securities.

Problem 2. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to:

- Maximize the stock price per share over the long run, which is the stock?s intrinsic value.
- Maximize the firm's expected EPS.
- Minimize the chances of losses.
- Maximize the firm's expected total income.

Problem 3. Which of the following statements is CORRECT?

- Sole proprietorships and partnerships generally have a tax advantage over many
- corporations, especially large ones.
- Sole proprietorships are subject to more regulations than corporations.
- In any type of partnership, every partner has the same rights, privileges, and liability
- exposure as every other partner.
- Corporations of all types are subject to the corporate income tax.

Problem 4. Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?

- Corporations generally find it relatively difficult to raise large amounts of capital.
- Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership.
- Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization.
- Corporate investors are exposed to unlimited liability.

Problem 5. Which of the following statements is CORRECT?

- If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.
- If you purchased 100 shares of Disney stock from your brother-in-law, this would be an example of a primary market transaction.
- The IPO market is a subset of the secondary market.
- As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

Problem 6. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

- $205.83
- $216.67
- $228.07
- $240.08
- $252.08

Problem 7. How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?

- $1,067.95
- $1,124.16
- $1,183.33
- $1,245.61
- $1,311.17

Problem 8. Which of the following statements is CORRECT?

- The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
- If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
- The cash flows for an annuity due must all occur at the ends of the periods.
- The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

Problem 9. Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

- The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
- The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.
- The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
- The periodic rate of interest is 3% and the effective rate of interest is 6%.
- The periodic rate of interest is 6% and the effective rate of interest is also 6%.

Problem 10. A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

- The annual payments would be larger if the interest rate were lower.
- If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.
- The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.
- The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
- The proportion of interest versus principal repayment would be the same for each of the 7 payments.

Problem 11. Which of the following items is NOT included in current assets?

- Accounts receivable.
- Inventory.
- Bonds.
- Cash.

Problem 12. Which of the following items cannot be found on a firm's balance sheet under current liabilities?

- Accounts payable.
- Short-term notes payable to the bank.
- Accrued wages.
- Cost of goods sold.

Problem 13. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

- The company repurchases common stock.
- The company pays a dividend.
- The company issues new common stock.
- The company gives customers more time to pay their bills.

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