Answer Options:
a. True
b. False
Answer:
a. True
Question: Last year Besset Company’s operations provided a negative cash flow, yet the cash shown on its balance sheet increased. Which of the following statements could explain the increase in cash, assuming the company’s financial statements were prepared under generally accepted accounting principles (GAAP)? A) The company repurchased some of its common stock. B) The company dramatically increased its capital expenditures. C) The company retired a large amount of its long-term debt. D) The company sold some of its fixed assets. E) The company had high depreciation expenses.
Answer:
D
Question: The firm’s cost of external equity raised by issuing new stock is the same as the required rate of return on the firm’s outstanding common stock. a. True b. False
Answer:
b. False
Question: The cost of common equity obtained by retaining earnings is the rate of return the marginal stockholder requires on the firm’s common stock. a. True b. False
Answer:
a. True
Question: Austin Financial recently announced that its net income increased sharply from the previous year, yet its net cash provided from operations declined. Which of the following could explain this performance? a. The company’s dividend payment to common stockholders declined. b. The company’s expenditures on fixed assets declined. c. The company’s cost of goods sold increased. d. The company’s depreciation expense declined. e. The company’s interest expense increased.
Answer Options:
a. The company’s dividend payment to common stockholders declined.
b. The company’s expenditures on fixed assets declined.
c. The company’s cost of goods sold increased.
d. The company’s depreciation expense declined.
e. The company’s interest expense increased.
Answer:
d
Question: If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested, the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.
Answer Options:
a. True
b. False
Answer:
a. True
Question: The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis. a. True b. False
Answer:
b. False
Question: Each stock’s rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A simple average of those returns (which gives equal weight to each company in the S&P 500) is then calculated. That average is called “the return on the S&P Index,” and it is often used as an indicator of the “return on the market.”
Answer Options:
a. True
b. False
Answer:
b. False
Question: Depreciation reduces a firm’s cash balance, so an increase in depreciation would normally lead to a reduction in the firm’s cash flow. a. True b. False c. Depreciation is derived from the firm’s regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes. d. Depreciation is not a cash charge, so it does not have an effect on a firm’s reported profits.
Answer Options:
a. True
b. False
c. Depreciation is derived from the firm’s regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes.
d. Depreciation is not a cash charge, so it does not have an effect on a firm’s reported profits.
Answer:
d
Question: Which of the following statements is NOT CORRECT?
Answer Options:
a. When a corporation’s shares are owned by a few individuals, we say that the firm is “closely, or privately, held.”
b. “Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.
c. The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC.
d. When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public, or an IPO,” and the market for such stock is called the new issue or IPO market.
e. It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.
Answer:
b. “Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.