Sunteți pe pagina 1din 3

Name: ………………………..

FIN202
Fall 2019
Homework 1

Please answer all questions, do not leave any question unanswered. Submit the homework
through LMS only. DO NOT SUBMIT THE H.W. BY HAND OR THROUGH EMAIL.

CH1:
Part 1: True or False
1. In most corporations, the CEO ranks under the CFO
2. The Chairman of the Board must also be the CEO
3. Corporations generally have a tax advantage over partnerships and proprietorships.
4. One advantage of the corporate form of organization is that it avoids double taxation.
5. In order to maximize its shareholders' value, a firm's management must attempt to maximize the
value of the company
6. If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should
be sold.
7. If a firm's board of directors wants to maximize value for its stockholders in general, it should
design an executive compensation system whose focus is on the firm's long-term value.

Part 2: Multiple Choice Questions

1.Which of the following statements is CORRECT?


  a. One advantage of forming a corporation is that equity investors are usually exposed to less
liability than they would be in a partnership.
  b. Corporations face fewer regulations than proprietorships.
  c. One disadvantage of operating a business as a proprietor is that the firm is subject to double
taxation, because taxes are levied at both the firm level and the owner level.
  d. It is generally less expensive to form a corporation than a proprietorship because, with a
proprietorship, extensive legal documents are required.
  e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of
his or her investment in the business.

2. Which of the following statements is CORRECT?


  a. Corporations generally face fewer regulations than proprietorships.
  b. Corporate shareholders are exposed to unlimited liability.
  c. It is usually easier to transfer ownership in a corporation than in a partnership.
  d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax
advantages of incorporation.
  e. There is a tax disadvantage to incorporation, and there is no way any corporation can escape
this disadvantage, even if it is very small.
3. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
  a. Maximize its expected total corporate income.
  b. Maximize its expected EPS.
  c. Minimize the chances of losses.
  d. Maximize the stock price per share over the long run, which is the stock's intrinsic value.
  e. Maximize the stock price on a specific target date.

4. Which of the following actions would be likely to encourage a firm's managers to make decisions that
are in the best interests of shareholders?
  a. The percentage of executive compensation that comes in the form of cash is increased and the
percentage coming from long-term stock options is reduced.
  b. The state legislature passes a law that makes it more difficult to successfully complete a
hostile takeover.
  c. The percentage of the firm's stock that is held by institutional investors such as mutual funds,
pension funds, and hedge funds rather than by small individual investors rises from 10% to
80%.
  d. The firm's founder, who is also president and chairman of the board, sells 90% of her shares.
  e. The firm's board of directors gives the firm's managers greater freedom to take whatever
actions they think best without obtaining board approval.

Part 3: short answers


Q1. What is a firm’s intrinsic value? Is it current stock price? Is the stock’s “true” long-run value
more closely related to its intrinsic value or to its current price?
Q2. Suppose three honest individuals gave you their estimates of Stock X’s intrinsic value. One
person is your current roommate, the second person is a professional security analyst with an
excellent reputation on Wall Street, and the third person is Company X’s CFO. If the three
estimates differed, in which one would you have the most confidence? Why?

Q3. What are the various forms of business organization? What are the advantages and
disadvantages of each?

Q4. What are some actions that stockholders can take to ensure that management’s and
stockholders’ interests are aligned?

CH3:
Part 1: Multiple Choice Questions

1. Other things held constant, which of the following actions would increase the amount of cash on
a company's balance sheet?
  a. The company repurchases common stock.
  b. The company pays a dividend.
  c. The company issues new common stock.
  d. The company gives customers more time to pay their bills.
  e. The company purchases a new piece of equipment.

2. Which of the following items cannot be found on a firm’s balance sheet under current liabilities?
  a. Accounts payable.
  b. Short-term notes payable to the bank.
  c. Accrued wages.
  d. Cost of goods sold.
  e. Accrued payroll taxes.

Part 2: Problems
Q1. The assets of Dallas & Associates consist entirely of current assets and net plant and
equipment. The firm has total assets of $2.5 million and net plant and equipment equals $2
million. It has notes payable of $150,000, long-term debt of $750,000, and total common equity
of $1.5 million. The firm does have accounts payable and accruals on its balance sheet. The firm
only finances with debt and common equity, so it has no preferred stock on its balance sheet.
a. What is the company’s total debt?
b. What is the amount of total liabilities and equity that appears on the firm’s balance
sheet?
c. What is the balance of current assets on the firm’s balance sheet?
d. What is the balance of current liabilities on the firm’s balance sheet?
e. What is the amount of accounts payable and accruals on its balance sheet? [Hint:
Consider this as a single line item on the firm’s balance sheet.]
f. What is the firm’s net working capital?
g. What is the firm’s net operating working capital?

Q2. Harper Industries has $900 million of common equity on its balance sheet; its stock price is
$80 per share; and its Market Value Added (MVA) is $50 million. How many common shares
are currently outstanding?

Part 4: Short Answers


Q1. Who are some of the basic users of financial statements, and how do they use them?

S-ar putea să vă placă și