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    Publicly-owned firms and measuring wealth of stockholders

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    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

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    Solution Preview

    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.

    Maximize the stock price per share. : This will lead to shareholder's wealth maximization.

    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
    False: It will be maximizing the cash flows of the firm.

    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 ...

    Solution Summary

    The publicly-owned firms and measuring wealth of stockholders are discussed.

    $2.19

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