Question 1

The maximization of profit in the long-term equates to the maximization of the firm's value, where this value is equal to the Net Present Value of the firm's projected future cash flows

Accepted Answer

This is true as the Net Present Value (NPV) of a firm's expected future cash flows reflects the firm's ability to generate profits in the long run. By maximizing profits, a firm increases its cash flows which in turn increases the firm's value (NPV) in the long term.

Question 2

Time is an essential factor in assessing a firm's current performance, and its expected future performance

Accepted Answer

Time is crucial in evaluating a firm's current status, including its financial position, market position, and overall competitiveness. Additionally, forecasting future performance requires an analysis of trends and projections over time. Therefore, time is a critical factor in assessing current and future performance.

Question 3

There are different ways of assessing firms' performance under the central assumption of profit maximization. The very choice of one way instead of another may significantly change the result of firms' performance rankings

Accepted Answer

Different performance measures (such as return on assets, profit margin, etc.) may prioritize different aspects of firms' activities, leading to different rankings.

Question 4

Economic profit is a better indicator of firms' performance than accounting profit because economic profit takes into account the normal expected return to capital.

Accepted Answer

Accounting profit only considers explicit costs such as wages, rent, and materials. Economic profit, on the other hand, deducts both explicit and implicit costs including the opportunity cost of using capital. Therefore, economic profit is a more accurate representation of a firm's true profitability because it takes into account the forgone return to capital that could have been earned in its next best alternative use.

Quiz 2: Goals, Values and Performance

The maximization of profit in the long-term equates to the maximization of the firm's value, where this value is equal to the Net Present Value of the firm's projected future cash flows

Time is an essential factor in assessing a firm's current performance, and its expected future performance

There are different ways of assessing firms' performance under the central assumption of profit maximization. The very choice of one way instead of another may significantly change the result of firms' performance rankings

Economic profit is a better indicator of firms' performance than accounting profit because economic profit takes into account the normal expected return to capital.