Question

1. In serving its stockholders, the primary operating goal of a publicly-owned firm should be to:

Select one:

a. Maximize its expected total corporate income.

b. Maximize its expected EPS.

c. Minimize the chances of losses.

d. Maximize the stock price per share over the long run, which is the stock's intrinsic value.

e. Maximize the stock price on a specific target date.

2. Which of the following has the highest Present Value?

Select one:

a. $800/yr. for 9 years discounted at 9%.

b. $800/yr. for 9 years discounted at 7%.

c. $600/yr. for 9 years discounted at 9%.

d. $600/yr. for 9 years discounted at 7%.

e. $800/yr. for 10 years discounted at 7%.

3. What's the present value of $10,225 discounted back 5 years if the appropriate interest rate is 4.5%?

Answer 1

1	d. Maximize the stock price per share over the long run, which is the stock's intrinsic value.
Explanation:	Primary objective of public firms are shareholders wealth maximization, and it is only possible with increase in shares intrinsic value
2	e. $800/yr. for 10 years discounted at 7%.
Explanation:	Present value is greater with lower discount rate, if other things held constant
	Present value is greater with higher amount annuity, if other things held constant
	Present value is greater with higher period annuity , if other things held constant
	With option c and d, is removed prima facie since lower amount
	Again option a is removed since higher discount rate
	Again option b is removed since period is lower than option e
3	Present value = FV/(1+r)^n
		10225/(1+4.5%)^5
		$8,205.06