Exam (elaborations) FIN 605 (FIN605) Quiz 1 Answered Fall 2024.

Quiz 1 Insider trading is defined as  a zero-plus game  an individual buying or selling on the basis of material nonpublic information  an individual buying or selling using non-SEC disclosure rules  an individual using proper trading rules The primary objective of the firm is:  social responsibility  profit maximization  long run survival  shareholder wealth maximization If a firm shows an accounting net income, then  it will be able to repay all current liabilities on time  it will not have a problem obtaining a bank loan  it will not have a cash flow problem  none of the above ____ are largely outside of the direct control of managers.  Investment strategies  Economic environmental factors  Dividend policies  Major policy decisions The major factors that determine the market value of a company’s shares of stock include the ___  Risk of its cash flows  Timing of its cash flows  Book value of its assets  Risk of it’s cash flows and the timing of its cash flows Shareholder wealth is measured by the __ of the shareholders’ common stock holdings.  Historic value  Market value  Compound value  Book value A major advantage of the corporate form of business over both sole proprietorships and partnerships is the  Reduction in taxes  Ease of formation  Limited liability This study source was downloaded by from CourseH on :09:55 GMT -05:00 Money markets deal in securities having maturities of ___; capital market securities have maturities _____.  Less than 18 months, greater than 18 months  Less than 9 months, greater than 9 months  Less than 6 months, greater than 6 months  One year or less, greater than one year The fact that no investor can expect to earn excess returns based on an investment strategy using only historical stock price or return information is an example of ____ market efficiency.  Strong-form  Weak-form  Semiweak-form  Semistrong-form _______ arise from the divergent objectives between owners and managers.  Shareholder relationships  Creditor problems  Agency problems  Stakeholder problems The U.S. financial markets are said to be highly informational efficient. This means  The market provides quick access to a firm’s financial statements  They quickly reflect information relevant to determining stock value  They process stock trades accurately and quickly  Accurate stock quotes are quickly available to all investors The shareholder wealth maximization goals states that management should seek to maximize the _____ of the expected future returns to the owners of the firm.  Present value  Future value  Percentage value  Compound value The limitations of the profit maximization goal include:  It fails to consider risk  The definition of profit is ambiguous  It lacks a time dimension (i.e., it is static)  All of the above limitations A major advantage of using the maximization of shareholder wealth as the primary goal of the firm is that this goal considers  The timing and the risk of the expected benefits to be received This study source was downloaded by from CourseH on :09:55 GMT -05:00  The value of closely held partnerships  All of the above The success of a firm is linked to its stakeholders. This group includes:  Suppliers  Community neighbors  Employees  All of the above