Question

١.Which of the following goals of the firm is equivalent to the maximization of shareholder wealth?
Select one:
a. Maximization of the total market value of the firm's common stock
b. Stakeholder wealth maximization
c. Risk minimization
d. Profit maximization

2.Noncash items refer to:
Select one:
a. the ownership of intangible assets such as patents.
b, expenses which do not directly affect cash flows.
c accrued expenses.
d. inventory items purchased using credit.

Answer 1

ANSWER NO-1) a) MAXIMIZATION OF THE TOTAL MARKET VALUE OF THE FIRM'S COMMON STOCK.

EXPLANATION- THE MAIN OBJECTIVE OF THE FIRM IS TO MAXIMIZE THE WEALTH OF ITS SHAREHOLDERS AND THIS DECISION LED THEM TO INCREASE THE VALUE OF THE FIRMS AND ITS STOCK.

b) IT'S INCORRECT BECAUSE STAKEHOLDERS NOT ONLY INCLUDE SHAREHOLDERS BUT ALSO THE HOLDERS LIKE CREDITORS,DEBENTUREHOLDER, PREFERENCE SHAREHOLDER ETC SO IN QUESTION IT'S ONLY MENTION ABOUT THE SHAREHOLDERS OF THE FIRM.

c) IT'S ALSO NOT CORRECT BECAUSE RISK MINIMIZATION IS A PART OF RISK MANAGEMENT AND MAINLY THIS APPROACH IS FOR RISK AVERSION.

d) IT'S ALSO NOT CORRECT AS PROFIT MAXIMIZATION IS TO DETERMINE THE PRICE,INPUT AND OUTPUT LEVEL THAT LEADS TO A HIGHEST PROFIT BUT IN SHORT TERM WHEREAS WEALTH MAXIMIZATION FOCUS IS ON INCREASING THE OVERALL VALUE OF THE FIRM.

ANSWER NO-2) b) EXPENSES WHICH DO NOT DIRECTLY AFFECT CASH FLOWS.

EXPLANATION- NON CASH ITEM REFERS TO AN EXPENSES LIKE CAPITAL DEPRECIATION, INVESTMENT GAINS OR LOSSES WHICH DOESN'T AFFECT CASH FLOW UNDER INCOME STATEMENT.

a) IT'S NOT CORRECT BECAUSE THE PATENTS OR ANY OTHER INTANGIBLE ASSEST IS AN INTELLECTUAL PROPERTY OR IT HAS NOT PHYSICAL NATURE BUT REPRESENTS IN VALUE FOR THE COMPANY.

c) IT'S ALSO NOT CORRECT AS ACCRUED EXPENSE ARE THE LIABILITIES THAT HAVE BUILT UP OVER A PERIOD OF TIME AND IS PAYABLE ON DUE DATE. IT'S APPEAR IN INCOME STATEMENT UNDER HEAD EXPENSES AND CHARGES AGAINST INCOME.

d) IT'S ALSO NOT CORRECT AS INVENTORY ITEM IS PURCHASED IN CREDIT SO IN FUTURE WE HAVE TO PAYIT, AND IT COMES UNDER THE CASH ITEM HEAD.