1. Which of the following characteristics of a firm would limit the firms attractiveness as a potential LBO candidate?

1. Substantial tangible assets
2. High reinvestment requirements
3. High R&D requirements
4. B and C
5. All of the above

1. Which of the following is not true about generally accepted accounting principles (GAAP)?

1. GAAP provide specific guidelines as to how to account for specific events impacting the financial

performance of the firm

2. The scrupulous application GAAP accounting rules does ensure consistency in comparing one

firms financial performance to another

3. It is customary for definitive agreements of purchase and sale to require that a target company

represent that its financial books are kept in accordance with GAAP.

d. GAAP guarantees that a firms financial books are accurate.

e. Differences between how a firm records actual financial transactions and how they should be recorded based on GAAP may indicate fraud or mismanagement.

2. Which of the following is not true about common size financial statements?

1. Such statements are used to uncover data irregularities.
2. Such statements are constructed by calculating the percentage each line item of the income statement, balance sheet, and cash flow statement is of annual sales.
3. Such statements are useful for comparing businesses of different sizes in the same industry at different moments in time.
4. Common size statements applied over a number of consecutive periods may be used to determine if the target firm is deferring necessary spending.
5. Common size statements may be calculated for both quarterly and annual financial data.