Name: 12. The ereater the number of compounding periods within a year, then (I) the greater the future value of a lump sum in future date. latement at Time O and (2) the smaller the present value of a given lump sum to be received at some The balance sheet measures the flow of funds into and out of various accounts over time, while the income 13. statement measures the firm's financial position at a point in time. 14. A disadvantage of the corporate form of organization is that corporat e stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership. 15. In order to maximize its shareholders value, a firm's management must attempt to in the long run, or the stock's "intrinsic value". 16. The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher growth in the future. 17. Profitability ratios show the combined effects of liquidity, asset management, and debt management on a 18. Companies typically provide four basic financial statements: the fixed income statement, the current income 19. A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and firm's operating results. statement, the balance sheet, and the cash flow statement. its liquidity position, i.e., that it is becoming more liquid. 20. If the discount (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series. It is generally harder to transfer one's ownership interest in a partnership than in a corporation. when inflation is declining. 21. 22. During periods when inflation is increasing, interest rates tend to increase, while interest rates tend to fall 23. If investors expect a zero rate of inflation, then the nominal rate of return on a very short-term U.S. Tre bond should be equal to the real risk-free rate, r* The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation. 24