Q 1: True or false

1) A firm is a business organization that sells goods and services.

2) In finance we say that the goal of the firm ought to be to maximize profits.

3) Other things being equal, it is better to receive money sooner rather than later.

4) If a firm earns a profit, it will necessarily also generate a positive cash flow.

5) If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning the highest possible returns on its investments.

6) In the most recent year, two different companies generated the same earnings per share. The stocks of these two companies should trade at the same price.

7) One reason that firms exist is that most investors are risk averse, so they are not willing to make the kinds of risky investments that firms typically undertake.

8) The wealth of corporate owners is measured by the share price of the stock.

9) Risk, the magnitude and timing of cash flows are the key determinants of share price, which represent the wealth of the owners in the firm.

10) A higher earnings per share (EPS) does not necessarily translate into a higher stock price.

11) The Financial Accounting Standards Board (FASB) is the federal regulatory body that governs the sale and listing of securities.

12) GAAP is the accounting profession's rule-setting body.

13) Generally accepted accounting principles are authorized by the Financial Accounting Standards Board (FASB).

14) The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB) which is a not-for-profit corporation that oversees auditors of public corporations.

15) The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict-of-interest problems of corporations.

16) The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.

17) Publicly owned corporations with more than $5 million assets are required by the Securities and Exchange Commission (SEC) to provide their stockholders with an annual stockholders' report.

18) The letter to stockholders is the primary communication from management in an annual report.

19) Common stock dividends paid to stockholders is equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.

20) The income statement is a financial summary of a firm's operating results during a specified period while the balance sheet is a summary statement of a firm's financial position at a given point in time.

21) The common stock entry in balance sheet is the par value of common stock.

22) Paid-in capital in excess of par represents the proceeds in excess of par value received from the original sale of common stock.

23) For any positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

24) Future value is the value of a future amount at the present time, found by applying compound interest over a specified period of time.

25) The greater the interest rate and the longer the period of time, the higher the present value.