Economics and Maximization

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1. The goal of the firm should be the maximization of profit. (True/False) TRUE
It should be FALSE. The goal of the firm should be maximization of shareholder wealth.

2. For the risk-averse financial manager, the more risky a given course of action, the higher the expected return must be. (True/False) TRUE

3. The corporation is the best form of organization in terms of raising capital? True/False TRUE

4. The owners of a corporation enjoy unlimited liability.(True/False) FALSE

5. Financial management is concerned with the maintenance and creation of wealth.(True/False) TRUE

6. Shareholder wealth is measured by the market value of the firm’s common stock. (True/False) TRUE

7. Which of the following statements best represents what finance is about? C
a. How political, social, and economic forces affect corporations
b. Maximizing profits
c. Creation and maintenance of economic wealth
d. Reducing risk

8. The goal of the firm should be: A
a. Maximization of profits.
b. Maximization of shareholder wealth.
c. Maximization of consumer satisfaction.
d. Maximization of sales.

9. Consider the timing of the profits of the following certain investment projects: B Profit L S
Year 1 $ 0 $ 3000
Year 2 $ 3000 $ 0
a. Project S is preferred to Project L.
b. Project L is preferred to Project S.
c. Projects S and L are equally desirable.
d. A goal of profit maximization would favor Project S only.

10. Which of the following best describes the goal of the firm? B
a. The maximization of