FIN202_True_False_Total

A

1. The financial manager is responsible for making decisions that are in the best interest of the firm's owners. A) True B) False

A

1. The role of the financial system is to gather money from people and businesses that have funds to invest and to channel money to those that need it. A) True B) False

B

10. Preparing a market-value balance sheet is rather straightforward because it is easy to obtain market values for all assets and liabilities. A) True B) False

A

10. The existence of an active secondary market for a security will help enhance the price for a security in the primary market. A) True B) False

A

10. The financing decision determines how firms raise cash to pay for their investments. A) True B) False

B

11. The dollar difference between current assets and total liabilities is called working capital. A) True B) False

B

11. The law that barred commercial banks from investment banking activities is the Financial Services Modernization Act of 1999. A) True B) False

B

11. The net cash flow from operating activities (NCFOA) is another term for net income. A) True B) False

B

12. A sole proprietorship is an owner's only business. A) True B) False

A

12. The income statement identifies the major sources of revenues generated by the firm and the corresponding expenses that were needed to generate those revenues. A) True B) False

A

12. Today, large money center banks have been allowed back into the investment business. A) True B) False

A

13. Accounting profits include noncash revenues (e.g., prepaid rent) and noncash expenses (e.g., depreciation), whereas cash flows do not include these items. A) True B) False

B

13. The downside to a private placement transaction is that it does not require the fees and expenses associated with an SEC registration. A) True B) False

A

14. Brokers are market specialists who do not bear risk. A) True B) False

A

14. The key financial statement that ties the other three statements together is the balance sheet, which summarizes the firm's investment and financing activities at a point in time. A) True B) False

A

15. The average tax rate is the total taxes divided by taxable income. It takes into account the taxes paid at all levels of income, and therefore it will usually be lower than the marginal tax rate, which is the rate that is paid on the last dollar of income earned. A) True B) False

A

15. The term money market reflects the idea that the instruments traded in the money market are highly marketable and easily converted into cash. A) True B) False

B

16. Depreciation and amortization are examples of prepaid expenses. A) True B) False

A

16. Equities are generally traded in the capital market. A) True B) False

A

17. Cash flows from operations are the net cash flows that support a firm's principal business activities. A) True B) False

B

17. LIBOR refers to the rate that U.S. banks quote to each other for overnight borrowing. A) True B) False

B

18. Corporations do not have their income subject to double taxation. A) True B) False

B

18. Rent and insurance are examples of depletion expenses. A) True B) False

A

18. The method that most individuals use to fund their needs is through indirect financing. A) True B) False

B

19. Cash flows from operating activities relate to the buying and selling of long-term assets. A) True B) False

A

19. Privately held corporations are allowed to have shareholders. A) True B) False

A

19. The elimination of small financial institutions is primarily a by-product of deregulating the financial markets. A) True B) False

B

2. GAAP principles determine the rules for how a company can issue stock to raise money. A) True B) False

A

2. The demand for a potential business product, as well as the identification of what product or services is to be produced, are both contained in a business plan. A) True B) False

B

2. The financial system is nothing more than a collection of financial markets. A) True B) False

B

20. Business finance companies obtain the majority of their funds by selling equity. A) True B) False

B

20. Making and collecting loans, issuing and paying out on insurance contracts, and buying and selling debt or equity instruments of other firms are examples of financing activities. A) True B) False

A

20. The treasurer of a corporation usually reports to the CFO of the firm. A) True B) False

B

21. The external auditors of the firm report their findings directly to the CFO of the firm. A) True B) False

B

21. The nominal rate of interest is indirectly related to real rates. A) True B) False

A

21. Typical financing activities include cash payments on the principal of long-term debt, cash payments of dividends to shareholders, and cash purchases of treasury stock. A) True B) False

B

22. Maximizing revenue should be the goal of the firm. A) True B) False

B

22. Real rates of interest are perfectly observable. A) True B) False

B

22. The going concern assumption states that a business will be shutting down its operation in the near future. A) True B) False

B

23. An agency problem can arise when the agent of the firm is the sole owner of the firm. A) True B) False

A

23. In a rising price environment, a company using the LIFO method assumes that the sale of a product is from the newest, highest-cost inventory. A) True B) False

B

23. It is impossible for the nominal rate of interest to be below the real rate of interest. A) True B) False

B

24. If a company values its inventory using the FIFO method, when the firm makes a sale in a rising price environment, it assumes the sale is from the newest, highest-cost inventory. A) True B) False

B

24. The owners of a firm are unaffected by agency costs. A) True B) False

B

25. Corruption in business does not affect the functioning of the financial markets. A) True B) False

B

3. The cost principle assumes that both parties to a transaction are economically rational and are free to act independently of each other. A) True B) False

B

3. The local Republican Party is a stakeholder in a local firm that makes no political donations to either party. A) True B) False

A

3. Without a financial market, purchasing a house would require a cash purchase. A) True B) False

A

4. A patent is a productive asset for a technology-based firm. A) True B) False

B

4. Governments are the principal lender-savers in the economy. A) True B) False

A

4. The balance sheet identifies the productive resources (assets) that a firm uses to generate income, as well as the sources of funding from creditors (liabilities) and owners (shareholders' equity) that were used to buy the assets. A) True B) False

A

5. Businesses are the principal borrower-spenders in the economy. A) True B) False

B

5. Intangible assets generate most of a manufacturing firm's cash flows. A) True B) False

A

5. The balance sheet identity can be stated as Total assets = Total liabilities + Total stockholders' equity. A) True B) False

A

6. Direct financial markets could be broadly labeled as wholesale markets for funding. A) True B) False

A

6. The balance sheet identity can be stated as Total assets - Total liabilities = Total stockholders' equity. A) True B) False

A

6. The most fundamental way that a business can grow in size is from the reinvestment of cash flows or earnings. A) True B) False

B

7. A privately held corporation securing a loan from its regional commercial bank is an example of a direct market transaction. A) True B) False

A

7. Book value is the amount a firm paid for its assets at the time of purchase. A) True B) False

B

7. When bankruptcy occurs, the firm will always be liquidated. A) True B) False

B

8. A primary market is any financial market in which owners of outstanding securities can resell them to other investors. A) True B) False

B

8. Capital assets are generally short term in nature. A) True B) False

A

9. A good capital budgeting decision is one in which the benefits are worth more to the firm than the cost of the asset. A) True B) False

A

9. The current market value of an asset is the amount that a firm would receive for the asset if it was sold on the open market. A) True B) False

A

9. The vast preponderance of securities sales on the New York Stock Exchange are classified as secondary market transactions. A) True B) False

A

1. GAAP represents a set of rules and procedures that define accounting practice at a particular point in time. A) True B) False

A

Note: Incorrect answer 8. The book value of an asset is the historical cost of the asset less the accumulated depreciation. A) True B) False