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500f_exam_1 - Finance MBA 500 Fall 2005 Please indicate...

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Finance MBA 500 Fall 2005 Please indicate your choice on each of the following questions by placing a T for True or an F for False in the appropriate space. Each T/F question has a value of 1 point 1. T One advantage of forming a corporation is that you have limited liability 2. T It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship 3. F Bondholders generally want managers to select risky projects, but shareholders prefer that managers select safe projects. 4. T Last year Neil Co. had negative net cash flow, yet its cash on the balance sheet increased. Neil issued long-term debt or Neil sold some of its assets. 5. F Last year, Sewickley Shoes had negative net cash flow; however, cash on its balance sheet increased so, the company had large depreciation and amortization expenses. 6. F Accounts payable is included as part of a company’s current assets? 7. F On its 2001 balance sheet, Sherman Books had retained earnings equal to $510 million. On its 2002 balance sheet, retained earnings were also equal to $510 million. The company did not pay dividends in 2002. 8. F Increasing the number of years over which fixed assets are depreciated will result in a net increase in a company’s cash flow for the current year? 9. F If a company has no debt, its EVA equals its net income. 10 . T Company J and Company K each recently reported the same earnings per share (EPS). Company J’s stock, however, trades at a higher price. Company J must have a higher P/E ratio 11 . T Spontaneously generated funds are best defined as: Funds that are obtained automatically from routine business transactions. 12 . T Inherent in the AFN formula is the assumption that each asset item must increase in direct proportion to sales increases and that spontaneous liability accounts also grow at the same rate as sales. 13 . T Company X has a higher ROE than Company Y, but Company Y has a higher ROA than Company X. Company X also has a higher total assets turnover ratio than Company Y; however, the two companies have the same total assets. Therefore, Company X has a lower profit margin and a lower net income than Company Y.
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