Which of the following statements is/are CORRECT? O 1) Capital budgeting evaluates timing and risk of future cash flows, except f size of cash flows. O 2) Corporate shareholders have the lowest claim to a firm's cash flows. O 3) The primary goal of financial management is to maximize stock price. O 4) Both a and c are correct. 5) Both b and c are correct.

Which of the following statements is/are CORRECT? O 1) Capital budgeting evaluates timing and risk of future cash flows, except f size of cash flows. O 2) Corporate shareholders have the lowest claim to a firm's cash flows. O 3) The primary goal of financial management is to maximize stock price. O 4) Both a and c are correct. 5) Both b and c are correct.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 1QE

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Which of the following statements is TRUE? a. The primary goal of financial management is to maximize the firm's profit and creditors' wealth Ob. The capital budgeting decision deals with how the firm obtains financing to support short-term investments. c. The observed market price of a company's stock is the stock's "true" value based on accurate risk and return data. Od. Shareholders elect the board of directors, who in turn create a management team to run the company and achieve corporate goals. e. Security analysis and portfolio theory are in the area of corporate finance.
(b) Kindly Provide brief answers to the following:i. What is the difference between systematic and unsystematic risk?ii. What is strategic business plan and why it is important for the success of a firm? Explain in your own words.iii. Explain for which types of projects, a detailed capital budgeting analysis is required and why?iv. What do you mean from retained earnings breakpoint? Explain in your own words with an example.
Which of the following is NOT a true statement about the goal of maxinmizing shareholders' wealth? A. It takes into account the timing of cash flows. B. It is a short-run point of view which takes risk into account. C. It considers risk as a factor. D. None of the above. 5. A use of cash would be in fixed assets or in short-term debt. A. a decrease; a decrease an increase; a decrease C. a decrease; an increase B. D. an increase; an increase 6.
Which of the following statements are not true Select one: a. Profitability Index is a discounted technique b. Capitalisation are the total securities issued by a company c. Cash flows occurs over a series of years in capital budgeting decisions d. Some investment decisions are irreversible e. Borrowing is cheap compared to equity
12. The validity of MM theorem arises from A. managers maximizing shareholder value B. managers following the correct capital budgeting decisions C. the principle of no-arbitrage in perfect market D. managers optimizing firms' capital structures
Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting? a. Accounts payable. b. Preferred stock. c. Common stock raised by new issues. d. Long-term debt. e. Common stock "raised" by reinvesting earnings.
Select all that is true about the role of financial managers and the types of financial decisions they make. Select one or more: a. Capital structure describes the mix of short-term liabilities a firm uses to finance its short-term assets. b. The optimal financial management strategy of a financial manager is to reduce the overall risk level of the firm. c. The duties of the financial manager includes determining the capital structure and which projects the firm should undertake. Od. Size and timing of cash flows is unimportant in a capital budgeting decision. e. Capital Budgeting function involves planning and determining the firm's short term investments. Of. Determining the appropriate level of inventory is a working capital management function. ZA do W X L
4. Pecking order in the context of corporate finance and funding... : A. ... in theory, implies debt is the first preferred source of funds due to convenience and lower costs B. ... empirically reflects debt is the first preferred source of funds due to convenience and lower costs C. . in theory, implies equity is the last preferred source of funds due to inconvenience and higher costs D. ... empirically, implies equity is the last preferred source of funds due to inconvenience and higher costs E. . supports the Bird-in-Hand theory of seed capital ...
Dividend Decision and Capital Budgeting 1. Dividends: (Essay) a. Define what is Dividend b. Enumerate the types of dividend and define each. c. In your point of view, why is Dividend Decision an important role for Finance Managers. Explain your answer accordingly.
Which of the following is not a reason for risk and uncertainty in capital budgeting? a. Decisions are based on expected cash flows b. All decisions are based on forecasts c. Decisions are based on past cash flows d. All forecasts are subject to uncertainty Clear my choice
Which of the following is NOT a conclusion drawn from M&M's Propositions 1 and 2? a. Shareholder's required return rises with leverage. b. The WACC does not change as capital structure change. c. Firm value is determined by the left hand of the balance sheet the firm's assets, and the cash flow generated by them. d. The WACC is determined by the riskiness of the company's business (assets). e. A firm can change its market value by splitting its cash flows into different streams.
he concept of market efficiency underpins almost all financial theory and decision models. When financial markets are efficient, the price of a security—such as a share of a particular corporation’s common stock—should be (equal to or more than) the present value estimate of the firm’s expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock). Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to “beat” the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices. Identify the form of capital market efficiency under the efficient market hypothesis…