QUESTION 1

The more risk you take, the higher the return you are certain to earn.

1. True
2. False

QUESTION 2

The wider the risk premium, the lower the price of a promised or expected future cash flow.

1. True
2. False

QUESTION 3

For a given profit margin and turnover ratio, a greater leverage ratio results in a higher ROE.

1. True
2. False

QUESTION 4

If a company fails to sell everything it manufactures, the inventory is a liability on its balance sheet.

1. True
2. False

QUESTION 5

Shareholders of a corporation are owners of the corporation.

1. True
2. False

QUESTION 6

The faster an asset can be depreciated (according to IRS rules), the greater a company's (after-tax) profits.

1. True
2. False

QUESTION 7

The book value of a company equals the value of its assets according to their purchase price.

1. True
2. False

QUESTION 8

The market value of a company equals the number of outstanding shares multiplied by the most recent transaction price per share.

1. True
2. False

QUESTION 9

Steve's Bicycle Repair Shop, Inc., has $150,000 in assets (tools, refurbished bikes, parts).Owners' equity is the full $150,000.Now Steve wants to borrow $10,000 in order to stock new bikes.This will reduce the equity in the company.

1. True
2. False

QUESTION 10

A 10-year annuity is to make an annual payment of $2,500.Its price must be less than $25,000.

1. True
2. False

QUESTION 11

A company cannot pay dividends in excess of its net profits after taxes.

1. True
2. False

QUESTION 12

A company has produced $2 million in profits for the year.The higher the payout ratio, the greater the increase in book value for the start of the next year.

1. True
2. False

QUESTION 13

EBITD is equivalent to profits-before-taxes.

1. True
2. False

QUESTION 14

All else the same, an increase in profit margin raises ROE.

1. True
2. False

QUESTION 15

The higher a company's coverage ratio, the more risk faced by lenders to the company.

1. True
2. False

QUESTION 16

Corporate profits tax is applied to a corporation's profits after dividends have been subtracted.

1. True
2. False

QUESTION 17

ABC Company has cash on its balance sheet.It decides to use the cash to purchase equipment.Compared to the original situation, ABC's leverage ratio is higher.

1. True
2. False

QUESTION 18

For a given amount of profits, the more a company spends on new equipment, the lower retained earnings.

1. True
2. False

QUESTION 19

All else the same, the greater the frequency of compounding, the more the proceeds from a given investment amount.

1. True
2. False

QUESTION 20

Toys-4-U corporation has $5 million in assets and $1 million in debt.Its leverage ratio is 1.25.

1. True
2. False

QUESTION 21

Like common, preferred shareholders are paid from profits, not from revenue.

1. True
2. False

QUESTION 22

A clothing retailer sold all the clothes it purchased from manufacturers this year at a positive profit margin.No customer paid for the clothes - all were sold "on credit" (to be paid next year).The result is zero profits for the retailer this year.

1. True
2. False