Need help with midterm. attached are 25 questions. any assistance is appreciated.

Which of the following statements is CORRECT? If expected inflation increases, interest rates are likely to increase. If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. If companies have fewer good investment opportunities, interest rates are likely to increase. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. Which of the following is a primary market transaction? You sell 200 shares of Johnson & Johnson stock on the NYSE through your broker. Johnson & Johnson issues 2,000,000 shares of new stock and sells them to the public through an investment banker. You buy 200 shares of Johnson & Johnson stock from your younger brother. You just give him cash and he gives you the stockthe trade is not made through a broker. One financial institution buys 200,000 shares of Johnson & Johnson stock from another institution. An investment banker arranges the transaction. You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of Johnson & Johnson shares on the NYSE. Which of the following statements is CORRECT? If Apple issues additional shares of common stock through an investment banker, this would be a secondary market transaction. If you purchased 100 shares of Apple stock from your sister-in-law, this would be an example of a primary market transaction. The IPO market is a subset of the secondary market. Only institutions, and not individuals, can participate in derivatives market transactions. As they are generally defined, money market transactions involve debt securities with maturities of less than one year. Which of the following statements is CORRECT? It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. Corporations face fewer regulations than sole proprietorships. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. Which of the following statements is CORRECT? While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. A security whose value is derived from the price of some other "underlying" asset is called a liquid security. Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks. Money markets are markets for common stocks and long-term debt. The NYSE operates as an auction market, whereas the Nasdaq is a dealer market. 2 points Which of the following statements is CORRECT? One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer one's ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote." Corporations of all types are subject to the corporate income tax. Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? Corporations generally find it relatively difficult to raise large amounts of capital. Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership. Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization. Corporate investors are exposed to unlimited liability. Corporations generally face relatively few regulations. Which of the following statements is CORRECT? It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. Corporate shareholders are exposed to unlimited liability. Corporations generally face fewer regulations than sole proprietorships. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. Shareholders in a regular corporation (not an S corporation) pay higher taxes than owners of an otherwise identical proprietorship. Which of the following statements is CORRECT? It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. Corporate shareholders are exposed to unlimited liability. Corporations generally face fewer regulations than sole proprietorships. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. Shareholders in a regular corporation (not an S corporation) pay higher taxes than owners of an otherwise identical proprietorship. Which of the following statements is CORRECT? If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative. Since depreciation is a source of funds, the more depreciation a company has, the larger its retained earnings will be, other things held constant. A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments. Common equity includes common stock and retained earnings, less accumulated depreciation. The retained earnings account as shown on the balance sheet shows the amount of cash that is available for paying dividends. Which of the following statements is CORRECT? Net cash flow (NCF) is defined as follows: NCF = Net income - Depreciation and Amortization. Changes in working capital have no effect on free cash flow. Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T) + Depreciation and Amortization - Capital expenditures required to sustain operations - Required changes in net operating working capital. Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T)+ Depreciation and Amortization + Capital expenditures. Net cash flow is the same as free cash flow (FCF). For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT? The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements. The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units. The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide. The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP. The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to "adjust" the results to make earnings look better. Which of the following statements is CORRECT? All corporations other than non-profit corporations are subject to corporate income taxes, which are 15% for the lowest amounts of income and 35% for the highest amounts of income. The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes. Thus, the federal government receives no tax revenue from these businesses. All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code. Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm's income as personal income and pay taxes on that income. Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the income and stockholders were taxed again on the income when it was paid to them as dividends. 2 points The LeMond Corporation just purchased a new production line. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. LeMond's tax liability for the year will be lower. LeMond's taxable income will be lower. LeMond's net fixed assets as shown on the balance sheet will be higher at the end of the year. LeMond's cash position will improve (increase). LeMond's reported net income after taxes for the year will be lower. Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance? The company's operating income declined. The company's expenditures on fixed assets declined. The company's cost of goods sold increased. The company's depreciation and amortization expenses declined. The company's interest expense increased. Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation? The company issued new long-term debt. The company cut its dividend. The company made a large investment in a profitable new plant. The company sold a division and received cash in return. The company issued new common stock. Which of the following statements is CORRECT? The income statement for a given year, say 2012, is designed to give us an idea of how much the firm earned during that year. The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks." The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP). The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC). If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow. If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT? Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm. The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm. Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm. Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm. The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm. Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher price. Which of the following statements is CORRECT? Company A trades at a higher P/E ratio. Company A probably has fewer growth opportunities. Company A is probably judged by investors to be riskier. Company A must have a higher market-to-book ratio. Company A must pay a lower dividend. Which of the following statements is CORRECT? "Window dressing" is any action that improves a firm's fundamental, long-run position and thus increases its intrinsic value. Borrowing by using short-term notes payable and then using the proceeds to retire longterm debt is an example of "window dressing." Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of "window dressing." Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of "window dressing." Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of "window dressing." Using some of the firm's cash to reduce long-term debt is an example of "window dressing." A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger? Increase inventories while holding sales and cost of goods sold constant. Increase accounts receivable while holding sales constant. Increase EBIT while holding sales constant. Increase accounts payable while holding sales constant. Increase notes payable while holding sales constant. Which of the following statements is CORRECT? If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease. A reduction in inventories held would have no effect on the current ratio. An increase in inventories would have no effect on the current ratio. If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. A reduction in the inventory turnover ratio will generally lead to an increase in the ROE. Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company Heidee has the higher debt ratio. Which of the following statements is CORRECT? Company Heidee has a lower operating income (EBIT) than Company LD. Company Heidee has a lower total assets turnover than Company Leaudy. Company Heidee has a lower equity multiplier than Company Leaudy. Company Heidee has a higher fixed assets turnover than Company Leaudy. Company Heidee has a higher ROE than Company Leaudy. You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT? Its total assets turnover must equal the industry average. Its total assets turnover must be above the industry average. Its return on assets must equal the industry average. Its TIE ratio must be below the industry average. Its total assets turnover must be below the industry average. If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant. The division's DSO (days' sales outstanding) is 40, whereas the average for its competitors is 30. The division's basic earning power ratio is above the average of other firms in its industry. The division's total assets turnover ratio is below the average for other firms in its industry. The division's debt ratio is above the average for other firms in the industry. The division's inventory turnover is 6, whereas the average for its competitors is 8