Business Law Case Study

1. Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of

merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full

for the merchandise during the year, it has yet to collect at year end from the customer. The net

profit and cash flow from this sale for the year are

A) $3,000 and $10,000, respectively.

B) $3,000 and -$7,000, respectively.

C) $7,000 and -$3,000, respectively.

D) $3,000 and $7,000, respectively.

2. The wealth of the owners of a corporation is represented by

A) profits.

B) earnings per share.

C) share value.

D) cash flow.

3. As the risk of a stock investment increases, investors'

A) return will increase.

B) return will decrease.

C) required rate of return will decrease.

D) required rate of return will increase

4. A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset

costs $35,000 and is expected to provide earnings over a three -year period as described below.

Asset Year 1 Year 2 Year 3

1 $21,000 $15,000 $6,000

2 9,000 15,000 21,000

3 3,000 20,000 19,000

4 6,000 12,000 12,000

Based on the profit maximization goal, the financial manager would choose

A) Asset 1.

B) Asset 2.

C) Asset 3.

D) Asset 4.

5. A financial manager must choose between three alternative investments. Each asset is expected

to provide earnings over a three-year period as described below. Based on the wealth

maximization goal, the financial manager would

Year Asset 1 Asset 2 Asset 3

1 $21,000 $ 9,000 $15,000