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Unformatted text preview: Name: ____ Roketa Tanner & Lisa Dang _______________ Date: 9/22/2010 1. Proper risk-return management means that A) the firm should take as few risks as possible. B) consistent with the objectives of the firm, an appropriate trade-off between risk and return should be determined. C) the firm should earn the highest return possible. D) the firm should value future profits more highly than current profits. 2. Agency theory assumes that corporate managers act to increase the wealth of corporate shareholders. T or F? 3. Which of the following is not a primary source of capital to the firm? A) assets B) common stock C) preferred stock D) bonds 4. The residual income of the firm belongs to A) creditors. B) preferred stockholders. C) common stockholders. D) bondholders. 5. The best indication of the operational efficiency of management is A) net income. B) earnings per share. C) earnings before interest and taxes (EBIT). D) gross profit. 6. Which account represents the cumulative earnings of the firm since its formation, minus dividends paid? A) Paid-in capital B) Common stock C) Retained earnings D) Accumulated depreciation 7. The major limitation of financial statements is A) in their complexity. B) in their lack of comparability. C) in their use of historical cost accounting. D) in their lack of detail. 8. The orientation of book value per share is __________, while the orientation of market value per share is ___________. A) short term, long term B) future, historical C) historical, future Page 1 D) long term, short term 9. A firm with earnings per share of $5 and a price-earnings ratio of 15 will have a stock price of A) $20.00 B) $75.00 C) $3.00 D) the market assigns a stock price independent of EPS and the P/E ratio. 10. Which of the following is an outflow of cash? A) profitable operations B) the sale of equipment C) the sale of the company's common stock D) the payment of cash dividends 11. Which of the following is an inflow of cash? A) funds spent in normal business operations B) the purchase of a new factory C) the sale of the firm's bonds D) the retirement of the firm's bonds 12. Depreciation is a source of cash inflow because A) it is a tax-deductible noncash expense. B) it supplies cash for future asset purchases. C) it is a tax-deductible cash expense. D) it is a taxable expense. 13. Assuming a tax rate of 35%, depreciation expenses of $400,000 will A) reduce income by $140,000. B) reduce taxes by $140,000. C) reduce taxes by $400,000. D) have no effect on income or taxes, since depreciation is not a cash expense....
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This note was uploaded on 10/14/2010 for the course BUS 5243 taught by Professor Nowacki during the Fall '09 term at Texas Woman's University.
- Fall '09