1. Which of the following statements is correct?
The primary goal for a firm’s management is the maximization of expected net income.
Most business in the U.S. is conducted by corporations, and corporations’ popularity results primarily from their favorable tax treatment.
Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.
Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
For a stock to be in equilibrium, its intrinsic value must be greater than its actual market price.
2. Which of the following is correct?
A) When calculating net present value, all cash flows are considered, even those at t = 0.
B) In the net present value calculation, r is greater if there is more risk involved.
C) The net present value calculation tells you how much greater or less your wealth would be by taking on an investment.
D) All of the answers are correct.