I. True (T) or False (F); (20 pts., 2 pts. each) 1) The goal of the firm should
ID: 2782346 • Letter: I
Question
I. True (T) or False (F); (20 pts., 2 pts. each) 1) The goal of the firm should be the maximization of profit. 2) The goal of profit maximization is equivalent to the goal of maximization of share val 3) Shareholder wealth is measured by the market value of the firm's common stock. 4) The agency problem arises due to the separation of ownership and control in a corporation. For the risk-averse financial manager, the more risky a given course of action, the higher the return must be. 5) expected 6) In an efficient market, prices will quickly adjust to new information. 7) Capital markets are markets for short term debt instruments maturing in less than one year, and mone markets are markets for long term debt instruments maturing in more than one year Banks that are financial intermediaries generate earnings when they facilitate the transfer of money from savers to borrowers by paying savers a smaller return than they demand from borrowers. 8) 9) Owners of common stock are the owners of the firm. 10) Each year, shareholders receive a dividend equal to the firm's net earnings divided by the number shares of common stock.Explanation / Answer
1) False and it should be maximization of shareholders wealth
2) False since both mean different
3) True and it is market price multiplied by common shares outstanding
4)True
5)True
6)True
7)False
8)True
9)True
10)False