1. When company managers decide which assets to invest in, the value that matters is: (Points : 1)
the personal value the manager assigns to the asset.
the economic value (i.e., the value of the economic benefits the asset will produce).
the seller’s asking price.
the value assigned by an appraiser.
Question 2. 2. The income statement shows which of the following? (Points : 1)
A company’s revenues and profits over some time period.
A company’s financial position at a point in time.
The value of inventory.
Accounting results on a cash basis.
Question 3. 3. Wealth is created when a company: (Points : 1)
makes investments that are expected to create value greater than their cost.
has a high stock price.
pays regular dividends.
obtains additional assets.
Question 4. 4. To arrive at a more accurate estimate of cash flow we would add depreciation expense to net income. The next step would be to: (Points : 1)
reduce our estimate by the increases in liabilities.
reduce our estimate by the decreases in assets
increase our estimate by the increases in liabilities.
do nothing more because we have an accurate estimate.
Question 5. 5. The value of an asset is based on four characteristics—cash flows, time, risk, and opportunity costs—but in many situations we can estimate an asset’s value by: (Points : 1)
ignoring risk, which simplifies the calculation.
assigning our personal value to the asset.
adding a risk premium to the current return on US government bonds.
looking at its market price.
Question 6. 6. A key component of a product’s value is: (Points : 1)
the accounting profits the product produces.
the depreciation tax shield the product produces.
the cash flows the product produces.
the market share the product commands.
Question 7. 7. Which is not one of the three principles that accrual accounting is based on? (Points : 1)
The matching principle
First-in, first-out inventory management
Depreciation of long-lived assets
Question 8. 8. Over the past 50 years, stocks listed on the NYSE (New York Stock Exchange) have: (Points : 1)
returned a very steady 12% per year.
never had a single year with a negative return.
never been overpriced or underpriced.
had annual returns ranging from negative 30% to over positive 30%.
Question 9. 9. Suppose two investments produce the same expected cash flows. We would assign a higher value to the investment with: (Points : 1)
higher cash flow variability.
the highest possible cash flows under ideal conditions.
Question 10. 10. Opportunity costs can vary over time and: (Points : 1)
are almost always close to 10%.
represent the highest possible return you can earn on an investment.
are always based on the interest rate offered on bank savings accounts.
set a return that other investments must equal or exceed to be attractive.