Corporate Finance

Correct Answer: Maximizing shareholder wealth through effective financial decision-making

The primary objective of corporate finance is maximizing shareholder wealth through effective financial decision-making. This involves making strategic decisions related to capital budgeting, capital structure, and working capital management to increase the value of the company and ultimately benefit the shareholders. Minimizing the company's tax liability, while important, is not the primary objective of corporate finance. It is a secondary goal that supports the main objective of maximizing shareholder wealth. Maintaining a high credit rating is also not the primary objective, but rather a means to secure favorable borrowing terms, which in turn helps the company make better financial decisions and maximize shareholder value.

Correct Answer: In a perfect capital market, a firm's value is unaffected by its capital structure.

The Modigliani-Miller theorem states that in a perfect capital market, a firm's value is not affected by its capital structure. In other words, the choice between debt and equity financing does not impact the overall value of the company. Answer 255523 is incorrect because according to the Modigliani-Miller theorem, the cost of equity does change as the firm's debt-to-equity ratio changes. As the firm takes on more debt, the cost of equity increases to compensate for the higher financial risk. Answer 255525 is incorrect because the Modigliani-Miller theorem does not address dividend policy. The irrelevance of dividend policy is a separate concept, which states that in a perfect capital market, the dividend policy of a firm does not affect its value.

Correct Answer: Accounts payable

The correct answer is Accounts payable. Accounts payable represents short-term obligations that a company owes to its suppliers, vendors, or other parties. These are typically due within a short period, such as 30, 60, or 90 days. Accounts payable is considered a source of short-term financing and is part of a company's current liabilities on its balance sheet. Issuance of common stock and long-term debt, such as corporate bonds, are both primary sources of long-term financing for a company. Issuing common stock allows a company to raise equity capital from investors, while long-term debt provides a company with borrowed funds that are repaid over an extended period.