True/False Indicate whether the statement is true or f

29 Jun True/False Indicate whether the statement is true or f

True/False

Indicate whether the statement is true or falsewith A for true and B for false.

____

1.

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not

deductible. This treatment, other things held constant, tends to encourage the use of debt financing by

corporations.

____

2.

According to the Capital Asset Pricing Model, investors are primarily concerned with portfolio risk, not the

risks of individual stocks held in isolation. Thus, the relevant risk of a stock is the stock’s contribution to the

riskiness of a well-diversified portfolio.

____

3.

The major advantage of a regular partnership or a corporation as a form of business organization is the fact

that both offer their owners limited liability, whereas proprietorships do not.

____

4.

Midway through the life of an amortized loan, the percentage of the payment that represents interest is equal

to the percentage that represents principal repayment. This is true regardless of the original life of the loan.

____

5.

The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how

effectively a firm is managing its assets.

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 6. You recently sold to your brother 200 shares of Disney stock, and the transfer was made through a broker, and the trade occurred on the NYSE. This is an example of:

a. A futures market transaction.

b. A primary market transaction.

c. A secondary market transaction.

d. A money market transaction.

e. An over-the-counter market transaction.

____ 7. Ten years ago, Levin Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate in Levin’s earnings per share (EPS) over the 10-year period?

a. 15.17%

b. 15.97%

c. 16.77%

d. 17.61%

e. 18.49%

____ 8. Amram Company’s current ratio is 1.9. Considered alone, which of the following actions would reduce the company’s current ratio?

a. Borrow using short-term notes payable and use the proceeds to reduce accruals.

b. Borrow using short-term notes payable and use the proceeds to reduce long-term debt.

c. Use cash to reduce accruals.

d. Use cash to reduce short-term notes payable.

e. Use cash to reduce accounts payable.

____ 9. Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm’s ROE?

a. 12.79%

b.

13.47%

c.

14.18%

d.

14.88%

e.

15.63%

____

10. Ripken Iron Works believes the following probability distribution exists for its stock. What