The final stage in the interview process for an assistant financial analyst at Caledonia Products involves a test of your understanding of basic financial concepts. You are given the following memorandum and asked to respond to the questions. Whether you are offered a position at Caledonia will depend on the accuracy of your response.

To: Applicants for the position of Financial Analyst

From: Mr. V. Morrison, CEO, Caledonia Products

Re: A test of your understanding of basic financial concepts and of the corporate tax code Please respond to the following questions:

• a. What is the appropriate goal for the firm and why?
• b. What does the riskreturn trade-off mean?
• c. Why are we interested in cash flows rather than accounting profits in deter-mining the value of an asset?
• d. What do ethics and ethical behavior have to do with finance?