Pearson Finance Lab Chapter 1 Assignment

Q1. The long-run goal of the firm is to

• maximize shareholder wealth
• hold large quantities of cash
• increase sales regularly.
• maximize earnings per share

Q2. Maximizing shareholder wealth means maximizing the

• market value of the firm’s common stock
• value of the firm’s investments.
• value of the firm’s cash.
• value of the firm’s assets
• value of the​ firm’s profits.

Q3. Advantages of the corporation include

• transferability of ownership.
• unlimited liability.
• ability of the corporation to raise capital.
• double taxation of dividend income.

Q4. Disadvantages of the partnership are

• expense of formation.
• lack of permanence.
• double taxation of income.
• unlimited liability.

Q5. According to Principle​ 3, how should investors decide where to invest their​ money?

• By determining if the return is more than expected given the level of risk
• By determining the lowest return
• By determining the highest return.
• By determining the expected EPS.

Q6. Why is it so hard to find extremely profitable​ projects?

• To find high profit​ projects, you must locate imperfections in the market that are not currently being taken advantage of.
• If an industry is generating large​ profits, then new entrants are​ attracted, driving down profits.
• To find high profit​ projects, the product or service must be differentiated​ and/or have a cost advantage over the competition.
• All of the above.