Answer Options:
a. True
b. False
Answer: b. False
Question: Ratio analysis involves analyzing financial statements to help appraise a firm’s financial position and strength. a. True b. False
Answer Options:
a. True
b. False
Answer: True
Question: Which of the following statements is CORRECT? a. A time line is not meaningful unless all cash flows occur annually. b. Time lines are not useful for visualizing complex problems prior to doing actual calculations. c. Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. d. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities. e. Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity. Correct Answer: c
Answer:
Question: If investors expect the rate of inflation to increase sharply in the future, then we should not be surprised to see an upward-sloping yield curve.
Answer Options:
a. True
b. False
Answer: a
Question: Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value. a. True b. False Correct Answer: b
Answer:
Question: Other things held constant, a decline in sales accompanied by an increase in financial leverage must result in a lower profit margin.
Answer Options:
a. True
b. False
Answer: b. False
Question: If a firm declares a 20:1 stock split, and the pre-split price was $500, then we might expect the post-split price to be $25. However, it often turns out that the post-split price will be higher than $25. This higher price could be due to signaling effects investors believe that management split the stock because they think the firm is going to do better in the future. The higher price could also be because investors like lower-priced shares.
Answer Options:
a. True
b. False
Answer: a. True
Question: Your firm uses the residual dividend model to set dividend policy. Market interest rates suddenly rise, and stock prices decline. Your firm’s earnings, investment opportunities, and capital structure do not change. If the firm follows the residual dividend model, then its dividend payout ratio would increase.
Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm’s fixed assets turnover ratio is significantly higher than its industry average, this could indicate that it uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets. a. True b. False
Answer: True
Question: Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts. a. True b. False Correct Answer: b
Answer:
Question: The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) inflation.
Answer Options:
a. True
b. False
Answer: a
Question: Other things held constant, the higher a firm’s total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + common equity)], the higher its TIE ratio will be.
Answer Options:
a. True
b. False
Answer: b. False
Question: You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? a. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000. b. The discount rate increases. c. The riskiness of the investment’s cash flows decreases. d. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years. e. The discount rate decreases. Correct Answer: b
Answer: