Question 39 1 pts Which of the following statement is incorrect? O The balance sheet shows the firm's assets, liabilities, and equity at a given point in time. After we subtract all operating expenses, financing expenses, and taxes from revenues, we arrive at the firm's net income (NI). The straight line depreciation method involves dividing the cost of the asset (less salvage value) by its useful economic life. Most of the answers are correct. The income statement records the assets, liabilities, and equity accounts at one point in time, usually at the end of the accounting period. Question 37 1 pts Which of the following statement is incorrect? The agency problem exists when the interests of a firm's managers (the agents) are in conflict with those of the firm's owners (the principals). Cash outflows expected sooner result in a lower stock price. Larger future cash outflows lower the stock price. Most of the answers are correct. Bondholders usually take an active role in the management of the business and they are represented by the board of directors. Question 29 1 pts Which of the following statement is incorrect? Stockholders are not concerned with the amount of debt a business has because stockholders are paid before bondholders. The return on assets (ROA) ratio is equal to Net Income divided by Total Assets, and indicates how much income each dollar of assets produces on average. A low times interest earned ratio signals that the company may have insufficient operating income to pay interest as it becomes due. Most of the answers are correct. Bankers and other lenders use liquidity ratios to see whether to extend short-term credit to a firm. Question 23 1 pts Which of the following statement is incorrect? T-notes have initial maturities from 2,3, or 10 years. Bonds are essentially TOUs that promise to pay their owners a certain amount of money on some specified date in the future and in most cases, interest payments at regular intervals until maturity. Short-term securities, a maturity of one year or less, are traded in the capital market. Most of the answers are correct. Treasury bills are safe because the U.S. government could print up all the dollars it needs to pay off its obligations. Question 20 1 pts Which of the following statement is incorrect? The firm's investment in Fixed Assets reflects its long-term capital base and these assets are primarily composed of Gross Plant and Equipment. Most of the answers are correct. Because depreciation is tax deductible, it affects cash flow and therefore the greater a firm's depreciation, the greater its cash flow. Net profits after taxes is considered as the sources of cash and thus it increases the firm's cash. Long-term liabilities are usually due within one year. Question 18 1 pts Which of the following statement is incorrect? Smaller future cash inflows lower the stock price. o o An insurance company known as AIG collected fees and sold way more credit default swaps than it could pay off and went bankrupt during the 2008 financial crisis. Most of the answers are correct. O o The managing director is the agent and the common stockholder owners are the principals of the corporation. When firms spend time and money to monitor and reduce agency problems, we call these outlays of time and money as principal benefits
