
Final Exam Word Problems
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1.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which one of the following statements correctly applies to a sole proprietorship?
The business entity has an unlimited life.
The ownership can easily be transferred to another individual.
The owner enjoys limited liability for the firm's debts.
Debt financing is easy to arrange in the firm's name.
Obtaining additional equity is dependent on the owner's personal finances.
2.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which one of the following actions best matches the primary goal of financial
management?
increasing the size of the company by acquiring another firm in a different industry
decreasing the variable costs while increasing the fixed costs per unit sold
increasing the market value of the equity by improving the efficiency of operations
decreasing the liquidity of the firm while increasing the long-term debt
increasing the net working capital while maintaining the same level of sales
3.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Net working capital is defined as:
the depreciated book value of a firm's fixed assets.
the value of a firm's current assets.
available cash minus current liabilities.
total assets minus total liabilities.
current assets minus current liabilities.
4.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which one of the following statements is NOT correct?
Highly liquid assets can be sold quickly at fair value.
Financial leverage increases the potential return to the shareholders.
The market value tends to provide a better guide to the actual worth of an asset than does
the book value.
On the balance sheet, assets are listed in descending order of liquidity.
None of the above
5.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which one of the following statements is correct?
high P/E ratio indicates a brighter future for the firm anticipated by the market.
A M/B ratio lower than 1 could mean that the firm is not creating value for its
stockholders.
A high EPS is typically desirable for stockholders.
All of the above.
6.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which one of the following statements is NOT correct?
High profit margin is desirable, everything else is constant.
Return for shareholder’s equity is the bottom line measure of performance in the
accounting sense.
Market to book value ratio indicates how aggressively the market valuates the firm.
High P/E ratio indicates low growth potential for the firm.
7.
MULTIPLE CHOICE QUESTION
30 sec • 1 pt
Which one of the following statements regarding the assets performance over the last 100 years is not correct?
Long-term government bonds underperformed long-term corporate bonds.
the risk premium on stocks exceeded the risk premium on bonds
U.S. Treasury bill had the lowest standard deviation of returns
Annual nominal rate of return on U.S. Treasury bills have had a positive rate of return for
every year in the period
None of the above
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