true or false ‏____ 5. One key value of limited liability is that it lowers owners'...

true or false

‏____ 5. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.

‏____ 6. If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth.

‏____ 7. If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary.

‏____ 8. If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.

‏____ 9. Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors. This is a primary market transaction.

‏____ 10. One of the functions of NYSE specialists is to facilitate trading by keeping an inventory of shares of the stocks in which they specialize, buying when investors want to sell and selling when they want to buy. They change the bid and ask prices of the securities so as to keep supply and demand in balance.

‏____ 11. The disadvantages associated with a proprietorship are similar to those under a partnership. One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets. As a result, partnerships do not have difficulty raising large amounts of capital.

‏____ 12. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensivel

Solutions

Expert Solution

Liabilities are the obligations that need to be paid by the firm in future, hence there is always a risk associated in holding large amount of liabilities by the company so firm generally prefers to hold limited liabilities so that the owner's risk is reduced and value of the firm is increased. Therefore, the statement 5 is TRUE.

Increase in the price of the stock to increase the earnings per share is never a good idea as the prices of the shares are determined by the market forces it means the demand and supply of the shares and if the shares are overvalued then no one will be willing to buy them. Therefore, statement 6 is FALSE.

Financial intermediary is basically the institution that collects the funds from the individuals and invest the collected funds to buy the assets from some other individuals or the institutions. Therefore, the statement 7 is TRUE.

Primary market is a market where shares of the company are issued for the first time by the issuer whereas outstanding stocks are generally traded in the secondary market. Therefore, the statement 8 is FALSE.

jeff jeffy answered 1 year ago

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