All of the following statements about agency problems are true EXCEPT A) Agency problems result from the separation of management and the ownership of a firm. B) Agency problems interfere with the goal of maximizing shareholder value. C) Agency costs are paid by the managers who do not act in the shareholders’ best interest. D) […]
An income statement may be represented as follows: A) Revenues – Liabilities = Net Income. B) Sales – Expenses = Profits. C) Sales – Liabilities = Profits. D) Sales – Expenses = Retained Earnings. ANSWER B
Borrowing more money will always increase a company’s return on equity because the company is using financial leverage, but it also adds to the riskiness of the company. Indicate whether the statement is true or false ANSWER FALSE
When using a financial calculator, cash outflows generally have to be entered as negative numbers, because a financial calculator sees money “leaving your hands.” Indicate whether the statement is true or false ANSWER TRUE
An example of a primary market transaction is A) AT&T repurchasing its own stock from a stockholder. B) a sale of some outstanding common stock of AT&T by an investor. C) a new issue of common stock by AT&T. D) all of the above ANSWER C
How does a firm use financial ratios? Who else might use financial ratios and why? What will be an ideal response? ANSWER Financial analysis is not just a tool for financial managers but also can be used effectively by investors, lenders, suppliers, employees, and customers. Within the firm, managers use financial ratios to: […]
When solving a problem involving an annuity due, you must select the “beg” or beginning mode on your financial calculator. Indicate whether the statement is true or false ANSWER TRUE
The stock market with the most stringent listing requirements is the A) NASDAQ Stock Market. B) American Stock Exchange (AMEX). C) New York Stock Exchange (NYSE). D) All organized exchanges have the same listing requirements in order to make trading fair for all investors. ANSWER C
Company A reports sales of $100,000 and net income of $15,000. Company B reports sales of $100,000 and net income of $10,000. Therefore A) Company B is creating less value for its shareholders than Company A. B) Company A’s cash flow may be higher or lower than Company B’s cash flow even though A’s net […]
A company with a current ratio higher than industry average must also have a quick ratio higher than industry average because both ratios measure liquidity. Indicate whether the statement is true or false ANSWER FALSE
