Please answer 1 through 5 and explain why you picked that answer.
FIN 350 | FALL 2018 PRACTICE ExAM 1 1. If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized. a. True b. False 2. The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer a. True b. False 3. An increase in accounts payable represents an increase in net cash provided by operating activities just like borrowing money from a bank. An increase in accounts payable has an effect similar to taking outa new bank loan. However, these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities a. True b. False 4. Suppose all firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. However, firms face different operating conditions because, for example, the grocery store industry is different from the airline industry. Under these conditions, firms with high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios. a. True b. False 5. The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other things held constant. a. True b. False FIN 350 | FALL 2018 PRACTICE ExAM 1 1. If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized. a. True b. False 2. The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer a. True b. False 3. An increase in accounts payable represents an increase in net cash provided by operating activities just like borrowing money from a bank. An increase in accounts payable has an effect similar to taking outa new bank loan. However, these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities a. True b. False 4. Suppose all firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. However, firms face different operating conditions because, for example, the grocery store industry is different from the airline industry. Under these conditions, firms with high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios. a. True b. False 5. The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other things held constant. a. True b. False
