Mg360 Midterm Exam Solution

MG360 Midterm Exam Solution

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MG360 Midterm Exam Solution

Ture and False

1. It is important to evaluate all financial decisions by measuring how they affect a firm’s stock price, hence ensuring maximization of shareholder wealth.
2. One advantage of organized stock exchanges is increased stock price volatility resulting from the efficient exchange of pricing information.
3. Real assets are tangible, whereas financial assets merely reflect claims for future payment on other economic units.
4. If two companies have the same revenues and operating expenses, their net incomes will still be different if one company finances its assets with more debt and the other company with more equity.
5. If a company’s cash balance increases during the year, and the company also reports positive net income, then the company’s retained earnings balance must increase.
6. A car manufacturer offers either $2,000 cash back or zero percent financing for 5 years. A rational consumer will always take the cash back because money received today is worth more than money received in the future.
7. If an asset is sold for a price above its book value, the difference is considered taxable income to the firm.
8. Equity is a measure of the monetary contributions that have been made either directly or indirectly on behalf of the owners of the company.
9. The total assets of a firm are financed with liabilities and stockholder’s equity.
10. A firm’s cash borrowing needs can be reduced if its inventory turnover rate can be increased, other things remaining constant.
11. Profitability ratios are distorted by inflation because profits are stated in current dollars and assets and equity are stated in historical dollars.
12. Operating profit is essentially a measure of how efficient management is in generating revenues and controlling expenses.
13. When the inflation...