1) Corporate governance issues have become less important to the financial community during the first decade of the new millennium. TRUE/FALSE 2) A major focus of the Sarbanes-Oxley Act is to make sure that publicly traded companies accurately present their assets, liabilities, and income in their financial statements. TRUE/FALSE 3) The indirect method of preparing the Cash Flow Statement basically adjusts the net income to reflect what the financials would have looked like if cash basis was used instead of accrual basis. TRUE/FALSE 4) Depreciation is an accrual accounting entry that does not affect the cash account so it needs to be adjusted for when using the indirect method of the Cash Flow Statement. TRUE/FALSE 5) Asset utilization ratios can be used to measure the effectiveness of a firm's managers. TRUE/FALSE 6) LIFO inventory pricing does a better job than FIFO in equating current costs with current revenue. TRUE/FALSE 7) Linear break-even analysis assumes that the change in costs have the same relationship with the change in volume. TRUE/FALSE 8) As mergers, acquisitions, and restructuring have increased in importance, agency theory has become more important in assessing whether A) a stock repurchase should be undertaken. B) shareholder goals are truly being achieved by managers in the long run. C) managers are actually agents or only employees of the firm. D) managers are owners of the company and act the same with the same interests. 9) A corporation is A) owned by stockholders who enjoy the privilege of limited liability. B) easily divisible between owners. C) a separate legal entity with unlimited life. D) All of the above 10) Agency theory would imply that conflicts are more likely to occur between management and shareholders when A) the company is owned and operated by the same person. B) management acts in the best interests of maximizing shareholder wealth. C) the chairman of the board of directors is also the chief executive officer (CEO). D) the board of directors exerts strong and involved oversight of management. 11) The financial markets allocate capital to corporations by A) reflecting expectations of the market participants in the price of the corporation's stock. B) requiring higher returns from companies with lower risk than their competitors. C) rewarding companies with expected high returns with lower relative stock prices. D) relying on the opinion of investment bankers. 12) Farah Snack Co. has earnings after taxes of $150,000. Interest expense for the year was \$20,000; preferred dividends paid were $20,000; and common dividends paid were $30,000. Taxes were $22,500. The firm has 100,000 shares of common stock outstanding. Earnings per share on the common stock was A) $1.30. B) $1.10. C) $0.75. D) $0.80. 13) Increasing interest expense will have what effect on Eamings Before Interest and Taxes (EBIT)? A) Increase it. B) Decrease it. C) It will have no effect. D) There is not enough information to tell
