Question

In: Finance

From a finance perspective, which of the following is the most appropriate goal for corporate management?...

From a finance perspective, which of the following is the most appropriate goal for corporate management?

Maximizing the market value of the company’s shares.

Maximizing the company’s market share.

Maximizing the current profits of the company.

Minimizing the company’s liabilities.

Maximizing the value of the company’s operating assets.

A project's opportunity cost of capital is:

designed to be less than the project's IRR.

designed to be greater than the project's IRR

the return earned by investing in the project.

equal to the average return on all company projects.

the foregone return from investing in the project.

A stock’s estimated β provides an estimate of the stock’s:

unsystematic risk

systematic risk

total risk

As the hurdle rate (i.e., the opportunity cost of capital) is increased, the NPV of a specific project will:

stay the same

increase

decrease

decrease to zero, then remain constant

increase to zero, then remain constant

Which one of the following firms' common stocks is likely to have the lowest beta (i.e., systematic risk)?

Southwest Airlines (airline company)

Anaconda Steel (steel manufacturer)

Fiat Group (automobile manufacturer)

Dominion Power (electric utility)

Solutions

Expert Solution

Answer to the first question

Maximizing the market value of the company’s shares.

This is because an increase in value of the shares would result in shareholder wealth maximization which is the ultimate objective of the firm.

Answer to second question

the foregone return from investing in the project.

Opportunity cost is the cost of benefit foregone for the next best alternative.

Answer to third question

Systematic risk

Systematic risk is represented by Beta.It is the risk that is a result of factors that affect the market as a whole.

Answer to question 4

decrease

This is because an increase in cost of capital would result in the decrease in present value of cash flows,since (NPV=PV of inflows-initial) the NPV will decrease.

Answer to Q5

Dominion Power (electric utility)

This is because the systematic risk refers to the risk that affects the market as a whole.Regardless of the market situation(boom or recession) individuals will need electricity as it's a basic utility.Utilities are least affected by the market situation.Airline steel and automobile manufacturing will be affected adversely if there is a recession.

jeff jeffy answered 1 year ago

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