Question 6. Maximizing firm value and maximizing stockholder wealth are the same

Question

Question 6. Maximizing firm value and maximizing stockholder wealth are the same objective?

Question 6 options:

Question 7. Credible academic work provides evidence that companies committed to responsible business practices outperform and have fewer legal issues

Question 7 options:

Question 8. Warren Buffet has been quoted as saying in the near term the market is a voting machine; in the long-term it is a weighing machine.

Question 8 options:

Question 9. The stock market has many participants with competing views, goals and investment objectives. Security price is the weighted judgment at that price time of the value of future cash flow.

Question 9 options:

Question 10. Under which of these circumstances would you recommend proceeding with a project?

Question 10 options:

Hurdle rate is 9% and expected return is 7%.

Expected return is 7% and hurdle rate is 9%.

Expected return is 8% and hurdle rate is 9%.

Hurdle rate is 7% and expected return is 9%.

Explanation / Answer

Answer 6:

A firm’s value and the stockholder’s wealth are interlinked with one another. Hence if the firm’s value is maximized then automatically the wealth of the shareholder will be maximized too. So the statement is true.

Answer 7:

As per the credible academic work, a company which is responsible for outperforming its business practices does have fewer legal issues. So the statement is correct.

Answer 8:

“In the near term the market is a voting machine; in the long-term, it is a weighing machine” has been famously quoted by “Benjamin Graham” and not by “Warren Buffett”. So the statement is “False”.

Answer 9:

When a security is valued it is dependent on factors such as competition, goals and investment objectives, along with future cash flows of the firm. So the statement is True.

Answer 10:

To proceed with a project expected rate of return must be equal to or greater than hurdle rate as hurdle rate is the minimum rate that the project must have to recover its costs in the project. So the correct option is Hurdle rate is 7% and expected return is 9%.

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