Why is the price/earnings ratio a common and popular technique for evaluating stocks? Why do fast growing firms have higher P/E ratios? What is a long-run average P/E ratio for larger publicly traded firms in the United States? What are some limitations to using this technique to evaluate stock prices? ANSWER P/E ratios […]
The real rate of return is the return earned above the A) variability of returns measured by standard deviation. B) inflation risk premium. C) risk-adjusted return. D) default risk premium. ANSWER B
David started a public accounting firm. David is concerned that accountants on his staff may give incorrect accounting advice, and the accounting firm may be sued. What type of liability insurance should David purchase to protect against such claims? A) errors and omissions insurance B) directors and officers liability insurance C) general liability insurance D) […]
Which of the following statements is (are) true with respect to the treatment of legal defense costs under the ISO Commercial General Liability policy? I. Legal defense costs usually are counted against the policy limit. II. Once the insurer has paid out the applicable limit of liability, the insurer’s duty to defend ends. A) I […]
Jennifer was just asked to serve on the Board of an insurance company. Jennifer is concerned that if the company is mismanaged, the policyowners, stockholders, and employees might sue the management team. What type of liability insurance will protect Jennifer from such claims if she accepts a position on the insurance company’s Board? A) commercial […]
Is it possible for a company that has negative net income and negative operating cash flow to end the year with an increase in cash and an increase in stock price? Explain your answer. What will be an ideal response? ANSWER Yes! Many start-up companies or research companies in high growth industries are […]
This form of business ownership does NOT avoid double taxation. A) Limited partnership B) “S” corporation C) “C” corporation D) Limited liability company ANSWER C
As an initial assumption, it is reasonable to assume that firms are reluctant to do all of the following EXCEPT: A) purchase new fixed assets. B) issue new equity. C) change dividend policy. D) change debt policy. ANSWER A
The ________ is the maximum a firm can grow with internally generated equity and new borrowing sufficient to maintain the current long-term-debt to equity ratio. A) internal growth rate B) sustainable growth rate C) return on equity D) return on assets ANSWER B
All of the following forms of business organizations provide limited liability to all owners EXCEPT A) S-type corporation. B) limited partnership. C) limited liability company. D) corporation. ANSWER B
