Question 1.The accounting method you use in your checkbook is best described as: (Points : 1)

cash accounting. accrual accounting. deficit reduction. balance sheet accounting.

Question 2.The value of an asset is based on four characteristicscash flows, time, risk, and opportunity costsbut in many situations we can estimate an assets value by: (Points : 1)

ignoring risk, which simplifies the calculation. assigning our personal value to the asset. adding a risk premium to the current return on US government bonds. looking at its market price.

Question 3.Over the past 50 years, stocks listed on the NYSE (New York Stock Exchange) have: (Points : 1)

returned a very steady 12% per year. never had a single year with a negative return. never been overpriced or underpriced. had annual returns ranging from negative 30% to over positive 30%.

Question 4.Opportunity costs can vary over time and: (Points : 1)

are almost always close to 10%. represent the highest possible return you can earn on an investment. are always based on the interest rate offered on bank savings accounts. set a return that other investments must equal or exceed to be attractive.

Question 5.Why is depreciation expense added back to net income to get a rough estimate of cash flow? (Points : 1)

Depreciation is a negative cost. Depreciation is a noncash charge against income. Depreciation is imaginary, so it has no effect on cash flow or profits. Depreciation is simply an accounting issue, so it should be ignored.

Question 6.On the typical balance sheet, the right-hand side shows: (Points : 1)

the book value of plant, property, and equipment. the market value of liabilities. the accounting value of liabilities and equity. the market value of common stock

Question 7.In publicly traded corporations the goal of the financial manger would be: (Points : 1)

profit maximization. manager wealth maximization. stock price maximization. shareholder wealth maximization.

Question 8.To arrive at a more accurate estimate of cash flow we would add depreciation expense to net income. The next step would be to: (Points : 1)

reduce our estimate by the increases in liabilities. reduce our estimate by the decreases in assets increase our estimate by the increases in liabilities. do nothing more because we have an accurate estimate.

Question 9.Wealth is created when a company: (Points : 1)

makes investments that are expected to create value greater than their cost. has a high stock price. pays regular dividends. obtains additional assets.

Question 10.Time is a factor when determining the value of a possible investment. As investors, all else being equal, we value investments: (Points : 1)

more the longer we have to wait for the payoff. less the longer we have to wait for the payoff. with predefined wait times for payoff. regardless of time because a dollar is always a dollar.

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