Finance midterm.docx - Question 1 4 out of 4 points The...

Question 1
4 out of 4 points
The primary operating goal of a publicly-owned firm interested in serving its stockholders should be
to
Selected
Answer:
a.
Maximize the stock price per share over the long run, which is the stock's
intrinsic value.
Correct Answer: a.
Maximize the stock price per share over the long run, which is the stock's
intrinsic value.
Question 2
4 out of 4 points
You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family
reunion. At the reunion your brother gave you a check for the stock and you gave your brother the
stock certificates. Which of the following statements best describes this transaction?
Selected Answer: c.
This is an example of a direct transfer of capital.
Correct Answer: c.
This is an example of a direct transfer of capital.
Question 3
4 out of 4 points
If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the
common stock and thus shareholders' wealth.
Selected Answer: False
Correct Answer: False
Question 4

4 out of 4 points
Which of the following statements is CORRECT?
Selected
Answer:
a.
Attracting large amounts of capital is more difficult for partnerships than for
corporations because of such factors as unlimited liability, the need to reorganize
when a partner dies, and the illiquidity (difficulty buying and selling) of partnership
interests.
Correct
Answer:
a.
Attracting large amounts of capital is more difficult for partnerships than for
corporations because of such factors as unlimited liability, the need to reorganize
when a partner dies, and the illiquidity (difficulty buying and selling) of partnership
interests.
Question 5
4 out of 4 points
Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a
new business in the chemical waste management field. She will be the sole owner, and she has
enough funds to finance the operation. The business will have a relatively high degree of risk, and it
is expected that the firm will incur losses for the first few years. However, the prospects for growth
and positive future income look good, and Jane plans to have the firm pay out all of its income as
dividends to her once it is well established. Which of the legal forms of business organization would
probably best suit her needs?
Selected Answer: e.
S corporation, to gain some tax advantages and also to obtain limited liability.
Correct Answer: e.
S corporation, to gain some tax advantages and also to obtain limited liability.
Response
Feedback:
Rationale:
The S corporation would allow her to take early losses as deductions against her
other income, hence save some taxes. Then, when the firm became profitable, she
would receive dividends and pay taxes on them, but the firm itself would avoid

corporate taxes and double taxation.