Test 1B Chapters 1 -5 - Exam:1A Chapters 1 - 5 Course:...

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Exam:1A Chapters 1 - 5 Course: Principles of Finance Instructor: Jason Ahrenholtz TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) In the statement of cash flows, cash flows from operating activities are cash flows directly related to purchase and sale of fixed assets. 1) 2) In general, with an amortized loan, the payment amount remains constant over the life of the loan, the principal portion of each payment grows over the life of the loan, and the interest portion of each payment grows over the life of the loan. 2) 3) Finance is concerned with the process institutions, markets, and instruments involved in the transfer of money among and between individuals, businesses and government. 3) 4) The liquidity of a business firm refers to the solvency of the firm's overall financial position. 4) 5) The balance sheet is a statement which balances the firm's assets (what it owns) against its debt (what it has borrowed). 5) 6) In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners. 6) 7) The depreciable life of an asset can significantly affect the pattern of cash flows. The shorter the depreciable life of an asset, the more quickly the cash flow created by the depreciation write - off will be received. 7) 8) The more certain the return from an asset, the less variability and therefore the less risk. 8) 9) Since individuals are always confronted with opportunities to earn positive rates of return on their funds, the timing of cash flows does not have any significant economic consequences. 9) 10) In S corporations, stockholders receive all of the organizational benefits of a corporation and the tax advantages of a partnership, but lose certain tax advantages related to pension plans that are available to traditional corporations. 10) 11) The number and type of intervals in the cash budget depend on the nature of the business. The more seasonal and uncertain a firm's cash flows, the greater the number of intervals and the shorter time intervals. 11) 12) The accrual method recognizes revenue at the point of sale and recognizes expenses when incurred. 12) 13) The annual percentage yield (APY) is the effective rate of interest that must be disclosed to customers by banks on their savings products as a result of "truth in savings laws." 13) 1
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14) Everything else being equal, the higher the interest rate, the higher the future value. 14) 15) The goal of ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice. 15)
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This note was uploaded on 02/02/2009 for the course BUSG 1303 taught by Professor Schwartz during the Fall '08 term at University of Cincinnati.

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Test 1B Chapters 1 -5 - Exam:1A Chapters 1 - 5 Course:...

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