final notes BV

final notes BV - Capital gains to stockholders neither...

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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. False The rise of institutional capitalism (as defined in the lecture) has further lessened the pressures on management to maximize shareholder value. False 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. . False When companies rely upon retained earnings to finance expansion, it lessens the influence of capital market forces on those corporate decisions. True 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. False 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. True Profit satisficing, rather than profit maximizing, is more consistent with the increasing rise in the percentage of corporate stock owned by institutional investors. False Excessive management compensation is less likely to occur as the percent of stock owned by institutional investors increases. True In determining accounting profits, to the extent that expenditures generate revenues in future periods, they should be capitalized, not expensed. True Excessive accruals of revenues tend to understate profits, rather than overstate them for a given accounting period. False Failure to accrue expenses that generate revenues in the current period is more likely to overstate profits than to understate them. True A positive cash flow during an accounting period cannot occur unless there are accounting profits for the same period. False If a firm reports accounting profits during a period, there need not be a positive cash flow for the period. True Depreciation is an example of a noncash charge. True Estimates are necessary in capital budgeting based on discounted cash flows, but are not necessary for accounting for profits on an accrual basis. False The market price of a stock is not affected by the expectations of future profits of the firm. False 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. True Market Value Added (MVA) is more dependent upon balance sheet ratios for its determination than is Total Return to Shareholders (TRS). True As interest rates rise persistently and significantly, the rate of discount in determining share price is more likely to be falling than rising. False 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
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This note was uploaded on 02/21/2012 for the course ACT 492 taught by Professor Ngo during the Fall '11 term at Colorado.

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final notes BV - Capital gains to stockholders neither...

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