TRUE/FALSE (A = TRUE, B = FALSE) 1. Inventory turnover is a liquidity ratio. 2. An increase in account receivables will increase a company's current ratio. 3. A high current ratio always means that a company is efficiently utilizing its current asset 4. You are able to buy a stock at $14 where as its intrinsic value (or fair value) is $14.01. You have indeed bought this stock at a bargain price. 5. Company ABC is expected to pay a dividend of $1.00 per year forever. You should be willing to pay up to $5 to buy a share of this company if your required return is 20%. 6. A company is expected to pay a dividend of $2/share at the end of year 1 and no dividend thereafter. You will be willing to pay up to $1.81 for one share if your required return is 10%. 7. You will write (sell) a call option if you are confident that the stock will not go up and unsure whether it will fall. 8. You are writing (selling) a put option on underlying British Pounds. It means, you are taking a long position. 9. Under constant growth DCF model growth rate can exceed the required return. 10. Writing (shorting) put option on an underlying index limits your profit to premium received, but the risk increases as stock rises. MULTIPLE CHOICE (Please choose the best answer) 11. A firm has a net profit margin of 4%, a total asset turnover ratio of 10, and an equity multiplier of 2.40. Its return on equity is a. 16.7% b. 96%