Question

In: Finance

1- Partnerships and proprietorships generally have a tax advantage over corporations.

Q1- Multiple choice Question and True and False:

a. True

b. False

2- If the discount (or interest) rate is positive, the future value of an expected series of

payments will always exceed the present value of the same series.

a. True

b. False

3- The primary operating goal of a publicly-owned firm interested in serving its

stockholders should be to

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.

position well.

4- High current and quick ratios always indicate that the firm is managing its liquidity

a. True

b. False

5- You plan to invest some money in a bank account. Which of the following banks

provides you with the highest effective rate of interest?

a. Bank 1; 6.1% with annual compounding.

b. Bank 2; 6.0% with monthly compounding.

c. Bank 3; 6.0% with annual compounding.

d. Bank 4; 6.0% with quarterly compounding.

e. Bank 5; 6.0% with daily (365-day) compounding.

Solutions

Expert Solution

Q1.Corporations have double taxation on Income , once at corporate level and next when dividends are issued to shareholders, these are taxed at individual level.

Partnerships and sole proprietorships are taxed only once at individual level.

Partnerships and sole proprietorships generally have tax advantage over corporations.

a.True

Q2.. Future Value of Cash Flow=(Present Value)*((1+i)^N)

i=discount rate, N=Number of years

Hence, if i is positive,

Future Value of payments will always be greater than the present Value

a.True

Q3.Primery operating goal should be to maximize shareholders wealth.

Shareholders wealth can be maximized by maximizing Earning per share.(EPS)

b. Maximize its expected EPS

Q4.Current Ratio=Current Assets/Current Liabilities.

It indicates ability of corporation to meet its liablities of payment'

Quick Ratio=Quick assets/Current Liabilities

It indicates ability of corporation to meet its immediate liquidity needs

High current and quick ratios indicate that the firm is managing its liquidity position well

a. True

Q5.

Effective annual interest rate for 6% with daily compounding =((1+(0.06/365))^365)-1=0.061831=6.1831%

This is higher than 6.1% annually.

Daily compounding will give higher effective annual interest than monthly or quarterly compounding

All other effective interest rates are lower than 6.1831%

e.Bank5. 6% with daily compounding

jeff jeffy answered 2 years ago

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