The y come more time to pay their hulle . The company purchases on piece of equipment 30. Which of the following dems NOT omally considered the current Accounts hen dah Short-term, highly marthe securities 21. Which of the following statements is CORRECT" dy The reported tricks techni c al principles GAAP). The reported income of the otherwise identical firms must be the firm e publicly owned provided the follow process that by the Secon d Exchange Commission (SEC) ifa fimm follows enerally accepted accounting principles GAAP, then its reported net income will be identical to its reported cash flow The income statement for a given year, say 2011. is designed to give us an idea of how much the firm earned during that year d Which of the following woments is most correct? Corporations are allowed to exclude 70% of their interest income from corporate taxes h Corporations are allowed to exclude 70 of their dividend income from corporate Individuals ay an y of the income realized from municipal bonds fadividuals we allowed to exclude 70of the rest come from the taxes Individuals are allowed to exclude 70% of their dividend income from their tanes Must be carried foranless the company has 2 years Can be carried years, the carried for and up to 20 years following the Can be carried years and forward 3 years Cannot be we to reduce taxes in other your set with special permission from the TRS Can be carried hack years or forward 10 years, whichever is me a nt to the IDEA rest of a Decrease the rise of restrictive covenants in bond spreements Take actions that reduce the possibility of a hostile takeover lect a bow of th e freedom are the option s the poput that has Eliminate a requirement that wambers of the board of directors have w ant investment in the stock Which of the following mess CORRECT Well designed bond onenants are useful for reducing potential conflicts between holders and The bid price in a hostile takeover is generally show the price before the ever attempt is announced because otherwise there would he ne incentive for the stockholders to sell to the hostile bidder and the lover me d probably fail Stockholders in general would he hatter off if m o rdicl a bles and therefore caused the price of the ch a pelet value d Takeovers are most likely to be attempted if the art firm's stock price is above intrinsic value The efficiency of the US. economy would probably be increased if hostile takov were absolutely forbidden 10. Which of the following statements is CORRECT? a Because hankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk high return projects rather than low risku low retur projects b Since bondholders receive fixed payments, they do not share in the ins if risky projects turn out to be highly successful However, they do share in the losses if risky peoyats fail and drive the firm into bankruptcy. Therefore, bondholders general prefer to see corporate managers invest in low risk/low return projects rather than high rish high return projects One advantage of operating a business as a corporation is that stockholders can dedust their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in a partnership d One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a sole proprietor Potential conflicts between stockholders and bondholders are increased if a firm's bonds we convertible in its common stock ID: A 24 Which of the following statements is CORRECT Typically, afirm's DPS should need its EPS Typically, afirm's net income should exceed its EBIT If a firm is more profitable than average, we would normally expect to see its stock price exceed is a value share If a firm is more profitable than most other firms, we would normally expect to see it book value per share exceed its stock price, especially after several years of high inflation The more depreciation a firm has in a given year, the higher its EPs, other things held constant 25. Which of the following statements is CORRECT? a. The more depreciation a firm reports, the higher its tax bill other things held constant h. People sometimes talk about the firm's cash flow, which is shown as the lowest entry on the income statement, hence it is often called the bottom line," Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's cash flow. d. Operating income is derived from the firm's repular core business. Operating incorveis calculated as Revenues less Operating costs. Operating costs do not include interest of taxes. Depreciation is not a cash charge, so it does not have an effect on a firm's reported profits 26. Which of the following statements is CORRECT? a. The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. b. The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital d. The statement of cash flows reflects cash flows from operations and from borrow gs. but it does not reflect cash obtained by selling new common stock The statement of cash flows shows how much the firm's cash--the total of currency, bank deposits, and short-term liquid securities for cash equivalents)-increased or decreased during a given year