Answer Options:
a. True
b. False
Answer: b. False
Question: If we were describing the income statement and the balance sheet, it would be correct to say that the income statement is more like a video while the balance sheet is more like a snapshot.
Answer Options:
a. True
b. False
Answer: a. True
Question: The cost of perpetual preferred stock is found as the preferred’s annual dividend divided by the market price of the preferred stock. No adjustment is needed for taxes because preferred dividends, unlike interest on debt, are not deductible by the issuing firm.
Answer Options:
a. True
b. False
Answer: a. True
Question: Two metrics that are used to measure a company’s financial performance are net income and cash flow. Accountants emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on cash flows as they do on net income.
Answer Options:
a. True
b. False
Answer: a. True
Question: Dimon Products’ sales are expected to be $5 million this year, with 90% on credit and 10% for cash. Sales are expected to grow at a stable, steady rate of 10% annually in the future. Dimon’s accounts receivable balance will remain constant at the current level, because the 10% cash sales can be used to support the 10% growth rate, other things held constant.
Answer Options:
a. True
b. False
Answer: b. False
Question: Because the U.S. tax system is a progressive tax system, a taxpayer’s marginal and average tax rates are the same.
Answer Options:
a. True
b. False
Answer: b. False
Question: The maturity of most bank loans is short term. Bank loans to businesses are frequently made as 90-day notes which are often rolled over, or renewed, rather than repaid when they mature. However, if the borrower’s financial situation deteriorates, then the bank may refuse to roll over the loan.
Answer Options:
a. True
b. False
Answer: a. True
Question: For a zero-growth firm, it is possible to increase the percentage of sales that are made on credit and still keep accounts receivable at their current level, provided the firm can shorten the length of its collection period sufficiently.
Answer Options:
a. True
b. False
Answer: a. True
Question: The statement of cash flows has four main sections, one each for operating, investing, and financing activities, and one that shows a summary of the cash and cash equivalents at the end of the year.
Answer Options:
a. True
b. False
Answer: a. True
Question: The higher the firm’s flotation cost for new common equity, the more likely the firm is to use preferred stock, which has no flotation cost, and retained earnings, whose cost is the average return on the assets that are acquired.
Answer Options:
a. True
b. False
Answer: b. False