Name 1. The number one goal of any corporation should be; A. To maximize market
ID: 2820307 • Letter: N
Question
Name 1. The number one goal of any corporation should be; A. To maximize market share B. To pay steadily increasing dividends to shareholders C. To produce the highest possible operating profit D. To increase shareholder wealth 2. All publicly traded corporations endeavor to determine their Cost of Capital. That number is determined by the following equation. A. Interest costs less federal income taxes B. Cost of Equity plus Treasury Stock C. Cost of Equity plus Cost of debt D. Common Stock plus Preferred Stock Give an example of an action that would increase short term profits but might erode the value of the company going forward and thereby its stock price (could be more than one). A. Issue a Christmas bonus to all employees B. Significant cutbacks in staffing levels. C. Moving to alternative, less expensive, raw materials D. Taking out a loan E. Issuing more stock 3. 4. Which of the following are ways that a corporation can raise capital? (circle all that apply). A. Take out a line of credit with a bank B. Pay dividends to shareholders C. Produce an operating profit D. Sell shares of stock E. Pay off an outstanding loan.Explanation / Answer
1. The corporation is formed from its shareholders, and hence the main purpose of any corporation should be maximise the wealth of its shareholders.
2. The company's capital consists of equity i.e. owned capital and debt capital. So, cost of capital will be cost of equity plus cost of debt.
3. If the firm start using cheaper raw materials, the cost of manufacturing will reduce and hence it will increase profits in short term. But, because using cheaper materials will lead to bad quality products, the demand for such products will fall in market and also name of the company in the market will go down because of manufacturing inferior products and hence it will erode the value of the company going forward and thereby its stock price. So answer is c.
4. Corporations can raise capital either by issue of debt or by issue of equity. So answers will be A and D.
A will lead to more debt in the company and D will lead to more equity in the company.
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