A. TRUE / FALSE QUESTIONS

Enter True or False on the blank preceding each question.

______ 1. Finance can be defined as the art and science of managing money.

______ 2. The field of Finance is an outgrowth of philosophy, which dates back to the 16^th century.

______ 3. The primary principle used by financial managers when making decisions is marginal

cost/benefit analysis.

______ 4. The Sarbanes-Oxley Act of 2002 established an oversight board to monitor the accounting

industry.

______ 5. A disadvantage of the sole proprietorship form of business organization is that it is more

expensive to organize a business in this way vs. the other forms of business organization.

______ 6. Among all of the firms in the U.S., nearly three-fourths of them are organized as corporations.

______ 7. Earnings of corporations in the U.S. are now taxed at a flat 21% rate.

______ 8. A capital gain results when a firm sells an investment for less than its original purchase price.

______ 9. For corporations only, 10% of the dividend income received from investment in the stock of

another corporation is excluded from taxation.

______ 10. A corporations financial statements are prepared according to the requirements of the Generally

Accepted Accounting Principles (GAAP).

______ 11. Both the Current Ratio and the Quick Ratio measure a firms liquidity.

______ 12. For both the firms Inventory and its Accounts Receivable, it is desirable for the turnover rates

of these accounts to have low values.

______ 13. The less debt a corporation uses to finance its Total Assets, the greater its financial leverage.

______ 14. Most managers are risk-averse, as for a given increase in risk, they require an increase in

return.

______ 15. The standard deviation can be used to measure the risk associated with a given asset. It

measures the dispersion of the assets possible returns around the assets expected return.

______ 16. In general, the higher the positive correlation between the returns for a given set of assets, the

greater the reduction In risk that the investor can achieve by investing in these assets.