Reference no: EM13572740

1.Capital gains to stockholders neither enter into the calculation of the value of the firm, nor the value of the common stock of the firm.
A) True
B) False

2.The rise of institutional capitalism (as defined in the lecture) has further lessened the pressures on management to maximize shareholder value.
A) True
B) False

3.The SEC ruling in the early '90s pertaining to stock owned by financial institutions reduced the ability of those institutions to influence the governance of the corporation in which they owned stock.
A) True
B) False

4.When companies rely upon retained earnings to finance expansion, it lessens the influence of capital market forces on those corporate decisions.
A) True
B) False

5.Allowing dividends to be deducted from profits to arrive at taxable income, just as interest on debt has been treated, will tend to reduce the dividend payment from after-tax profits.
A) True
B) False

6.Allowing dividends to be deducted from profits to arrive at taxable income, just as interest on debt has been treated, will tend to reduce the degree of financial or debt leverage employed by corporations.
A) True
B) False

7.Profit satisficing, rather than profit maximizing, is more consistent with the increasing rise in the percentage of corporate stock owned by institutional investors.
A) True
B) False

8.Excessive management compensation is less likely to occur as the percent of stock owned by institutional investors increases.
A) True
B) False

9.In determining accounting profits, to the extent that expenditures generate revenues in future periods, they should be capitalized, not expensed.
A) True
B) False

10.Excessive accruals of revenues tend to understate profits, rather than overstate them for a given accounting period.
A) True
B) False

11.Failure to accrue expenses that generate revenues in the current period is more likely to overstate profits than to understate them.
A) True
B) False

12.A positive cash flow during an accounting period cannot occur unless there are accounting profits for the same period.
A) True
B) False

13.If a firm reports accounting profits during a period, there need not be a positive cash flow for the period.
A) True
B) False

14.Depreciation is an example of a noncash charge.
A) True
B) False

15.Estimates are necessary in capital budgeting based on discounted cash flows, but are not necessary for accounting for profits on an accrual basis.
A) True
B) False

16.The market price of a stock is not affected by the expectations of future profits of the firm.
A) True
B) False

17.The rate of discount used to determine the value of an average share of stock would be higher than the rate of discount on the average bond.
A) True
B) False

18.Market Value Added (MVA) is more dependent upon balance sheet ratios for its determination than is Total Return to Shareholders (TRS).
A) True
B) False

19.As interest rates rise persistently and significantly, the rate of discount in determining share price is more likely to be falling than rising.
A) True
B) False

20.If the Efficient Market Hypothesis (EMH) is valid, the use of historical data by stock analysts is more likely to improve the accuracy of his or her recommendation than if he or she did not use it.
A) True
B) False

21.The validity of indexing a portfolio to improve long-term rates of return is proven to be unjustified to the extent that the Efficient Market Hypothesis (EMH) is valid.
A) True
B) False

22.The greater depreciation expense is, the lesser are a firm's profits and the cash flow for the period in question.
A) True
B) False

23.Efficient diversification by investors reduces a stock's systematic risk but does not affect its unsystematic risk.
A) True
B) False

24.The higher a firm's use of debt or financial leverage, the more volatile is the firm's return on equity.
A) True
B) False

25.Firms that operate in highly cyclical markets tend to have higher costs of capital than do firms that operate in markets that are not significantly affected by business fluctuations.
A) True
B) False