Quiz 1 Financial Management (Ch 1 and Ch 4)

Which of the following are advantages of the LLC (limited liability company) form of business ownership? I. limited liability for firm debt II. no corporate income taxes III. easy to raise capital IV. unlimited firm life A.I and II only B.I, II, and III only C.II, III, and IV only D.I, II, III, and IV E.I only

A

Ratio analysis involves analyzing financial statements to help appraise a firm's financial position and strength. A.True B.False

A.

Sally and Alicia currently are partners in a business located in Montevallo, AL. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally. A.limited liability company B.sole proprietorship C.joint stock company D.corporation E.public company

A.

Technology companies tend to have lower debt ratios than utility companies. A.True B. False

A.

The days sales outstanding ratio tells us how long it takes, on average, to collect after a sale is made. The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time. A. True B. False

A.

The market/book (M/B) ratio tells us how much investors are willing to pay for a dollar of accounting book value. In general, investors regard companies with higher M/B ratios as being less risky and/or more likely to enjoy higher growth in the future. A.True B.False

A.

The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher growth in the future. A. True B. False

A.

The return on common equity (ROE) is generally regarded as being more significant, from a stockholder's viewpoint, than the return on total assets (ROA). A. True B. False

A.

Other things held constant, the more debt a firm uses, the higher its return on equity (ROE) will be. A. True B. False

B.

Other things held constant, the more debt a firm uses, the higher its return on total assets (ROA) will be. A. True B. False

B.