Q&A Hero

Q: Funds supplied by common stockholders mainly include capital stock, paid-in capital, and retained earnings, while total equity is comprised of common equity plus preferred stock. a. True b. False

Q: In a perfectly competitive situation, the profit -maximizing hiring situation for all inputs being used is whereA) the MRP of each input is equal to the price of each input.B) the MRP of each input is greater than the price of each input.C) the MRP of each input is less than the price of each input.D) There is no relationship between MRP and the prices of the inputs.

Q: Even if a stock split has no information content, and even if the dividend per share adjusted for the split does not increase, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small. a. True b. False

Q: Refer to the above figure. The firm is operating using MRP0. An increase in demand for the product has occurred. The relevant curve for the firm after the increase in priceA) is MRP0.B) is MRP1. C) is MRP2.D) could be MRP1 or MRP2 depending upon whether the firm was earning a positive profit.

Q: A stock dividend and a stock split should, at least conceptually, have the same effect on shareholders' wealth. a. True b. False

Q: The notion that regulated industry members themselves, sooner or later, are able to control regulatory bodies is referred to asA) consumerism.B) cartelization.C) the capture theory. D) the control theory.

Q: Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time. a. True b. False

Q: For years, your neighbor insisted she had no desire to own a computer. Recently, however, she purchased one and says she did so because all her relatives have computers and she wants to exchange e-mail with them. Your neighborʹs behavior is an example ofA) a switching cost. B) the impact of negative market feedback.C) limited-pricing behavior. D) a network effect.

Q: The times-interest-earned ratio is one indication of a firm's ability to meet both long-term and short-term obligations. a. True b. False

Q: Which of the following statements is generally TRUE about information products?A) High fixed costs and low marginal costs B) High fixed costs and high marginal costs C) Low fixed costs and low marginal costs D) Low fixed costs and high marginal costs

Q: Market value ratios provide management with a current assessment of how investors in the market view the firm's past performance and future prospects. a. True b. False

Q: For a monopolistically competitive market, the number of firms in the market implies that A) each firm faces a perfectly elastic demand. B) all firms will make losses. C) each firm acts independently of other firms. D) firms will collude to set monopoly price and output.

Q: Profitability ratios show the combined effects of liquidity, asset management, and debt management on operations. a. True b. False

Q: A monopolistA) can charge whatever price it wants because it is the only firm producing the good.B) can usually keep price equal to marginal revenue by lowering the price on the last unit sold only.C) faces a demand curve that is more elastic than the demand curve for the industry. D) is constrained in its pricing decisions by the demand curve it faces.

Q: The degree to which the managers of a firm attempt to magnify the returns to owners' capital through the use of financial leverage is captured in debt management ratios. a. True b. False

Q: A law that restricts plant closings willA) make the economy more efficient by slowing down the movement of resources to a more optimal rate.B) make the economy more efficient by reducing poor decisions on the part of entrepreneurs.C) prevent resources from flowing to their highest-valued uses. D) allow profits and losses to provide a signaling function.

Q: Since ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA. a. True b. False

Q: The total revenue of a perfectly competitive firm is calculated by A) multiplying average revenue by price. B) dividing price by quantity. C) multiplying price by quantity. D) multiplying quantity by average total cost.

Q: A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving. a. True b. False

Q: The change in total costs due to a one -unit change in the production rate is A) total fixed cost. B) total variable cost. C) marginal cost. D) average total cost.

Q: The inventory turnover ratio and days sales outstanding (DSO) are two ratios that can be used to assess how effectively the firm is managing its assets in consideration of current and projected operating levels. a. True b. False

Q: A bond isA) a legal claim to a part of a corporationʹs future profits that includes voting rights.B) a legal claim to a part of a corporationʹs future profits that does not include voting rights.C) a legal claim against a firm, providing a fixed annual coupon payment and a lump -sum payment at maturity.D) a nonlegal promise to provide an annual payment to the holder when the corporation makes profits.

Q: If a firm has high current and quick ratios, this always is a good indication that a firm is managing its liquidity position well. a. True b. False

Q: Suppose that you open your own business and earn an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 10 percent, your economic profit isA) $5,000. B) -$5,000. C) $2,000. D) -$2,000.

Q: Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use measures of a firm's liquidity position. a. True b. False

Q: Why does a price increase of a product result in a decrease in the quantity demanded of that product, according to utility analysis?

Q: The current ratio and inventory turnover ratio measure the liquidity of a firm. The current ratio measures the relation of a firm's current assets to its current liabilities and the inventory turnover ratio measures how rapidly a firm turns its inventory back into a "quick" asset or cash. a. True b. False

Q: If you and a group of friends have been consuming large quantities of liquid beverages on a hot summer afternoon and you decide to refrain from any additional consumption, it can be concluded thatA) total utility has reached a minimum and the marginal utility of an additional drink would be large.B) total utility has reached a maximum and the marginal utility of an additional drink would be small.C) total utility has reached a maximum and the marginal utility of an additional drink would be zero.D) total utility has reached a minimum and the marginal utility of an additional drink would be negative.

Q: Ratio analysis involves a comparison of the relationships between financial statement accounts so as to analyze the financial position and strength of a firm. a. True b. False

Q: When there are very few substitutes for a good, the demand for the good will tend to beA) inelastic. B) elastic.C) unitary. D) perfectly elastic.

Q: The cash flow cycle can be described as the way in which net income flows into or out of the firm (i.e., a gain or a loss) during some specified period. a. True b. False

Q: Output/HourPrivate MCMarginal BenefitExternal Marginal Costs1$10$200.20210.4018.500.40310.90170.70411.5016.501.20512.2014.001.80613.0013.002.80714.4012.004.00Use the above table. What will the tax be when external costs are internalized?A) $14 B) $13 C) $12.20 D) $1.80

Q: Taxes, payment patterns, and reporting considerations, as well as credit sales and non-cash costs, are reasons why operating cash flows can differ from accounting profits. a. True b. False

Q: The Social Security system is financed by A) a tax on individual retirement accounts. B) a payroll tax paid only by employers. C) a payroll tax paid by both employers and employees. D) a tax on luxury goods.

Q: Non-cash assets are expected to produce cash over time but the amount of cash they eventually produce could be higher or lower than the values at which the assets are carried on the books. a. True b. False

Q: The monopsonistic exploitation of labor refers toA) the reduction in total output from monopoly in the product market. B) the union wage differential.C) workers being paid a wage less than their marginal revenue product. D) the reduction in employment resulting from union wage setting.

Q: When a firm pays off a loan using cash, the source of funds is the decrease in the asset account, cash, while the use of funds involves a decrease in a liability account, debt. a. True b. False

Q: Profit-maximizing employment is the quantity of labor at which A) marginal revenue product is equal to marginal factor cost. B) marginal revenue product is equal to product price.C) marginal factor cost is equal to marginal revenue. D) marginal factor product is equal to product price.

Q: If a firm borrows money from a bank or reduces its level of inventory, these are both examples of sources of funds. a. True b. False

Q: Refer to the above figure. MRP0 representsA) the supply curve for the product. B) the supply curve for labor. C) the demand curve for the product. D) the demand curve for labor.

Q: Depreciation, as shown on the income statement, is regarded as a use of cash because it is an expense. a. True b. False

Q: Which of the following refers to the capture hypothesis of regulation?A) The ability of the government to capture monopoly profits B) The control of regulatory agencies by firms in an industry C) Consumer cost savings captured through regulationD) Horizontal mergers

Q: An increase in an asset account is a source of cash, whereas an increase in a liability account is a use of cash. a. True b. False

Q: When a consumerʹs willingness to buy a good or service is influenced by the number of people who have purchased that good or service, this is calledA) a switching cost. B) an opportunity cost.C) a network effect. D) an advertising gimmick.

Q: On the balance sheet, total assets must always equal total liabilities. The amount remaining is what is used to finance the firm and includes equity and long-term debt. a. True b. False

Q: A good that entails relatively high fixed costs associated with the use of knowledge and other information-intensive inputs as key factors of production isA) a logo good. B) a search good.C) a persuasive good. D) an information product.

Q: The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time. a. True b. False

Q: Which of the following assumptions is true about monopolistic competition? A) The firmʹs products are differentiated. B) There are few producers of the product. C) Firms will not advertise. D) It is difficult for firms to enter this industry.

Q: The income statement measures the flow of funds into (i.e. revenue) and out of (i.e. expenses) the firm over a certain time period. It is always based on accounting data. a. True b. False

Q: Which of the following statements about the elasticity of demand for a monopolist is TRUE? A) Since a monopolist produces a good with no close substitutes, the price elasticity of demand for the good is zero. B) A monopolist produces a good with demand that is perfectly inelastic because people can not do without the good. C) Since every good has some substitute, even if imperfect, the demand for a good produced by a monopolist will not have zero price elasticity. D) Since the demand curve of a monopolist is downward sloping, the demand for the good must be inelastic.

Q: The ____ provides a good indication of the firm's ability to meet its current obligations. a. debt ratio b. profit margin c. days sales outstanding d. quick ratio e. return on equity

Q: Economic profits and losses are true market signals because they A) convey information in an asymmetrical fashion. B) convey information about rewards people should anticipate experiencing by shifting resources from one activity to another. C) convey information to public officials about where to encourage people to invest and what skills people should develop. D) cause people to move into careers in both undesirable and desirable industries with equal ease.

Q: Bender Corporation had sales of $250,000 last year. They had operating costs of $100,000, an interest expense of $15,000, and had an average tax 32%. Assuming Bender wants to have a 60% payout ratio and has 1,000 shares outstanding, what is Bender's expected dividend per share? a. $235.00 b. $102.00 c. $91.80 d. $55.08

Q: For a firm in a perfectly competitive market, average revenue equalsA) average cost. B) the change in total revenue.C) the market price. D) price divided by quantity.

Q: The ____ is a statement reporting the effects of a firm's operating, investing, and financing activities on cash flows over an accounting period. a. income statement b. balance sheet c. statement of cash flows d. statement of retained earnings

Q: The change in total variable cost which accompanies one extra unit of output isA) the average total cost. B) the average variable cost.C) the average fixed cost. D) marginal cost.

Q: From management's standpoint, financial statement analysis is useful a. both as a way to anticipate future conditions and, more important, as a starting point for planning actions. b. as a way to anticipate future conditions, but not for current planning. c. for planning activities, but not as a way to anticipate future conditions. d. For meeting government requirements, but not for anticipating future conditions or planning actions.

Q: Which of the following is not a principal method of financing today?A) Common stock B) BondC) Reinvestment D) The entrepreneurʹs wealth

Q: In the event of a firm's liquidation, the order in which claimholders are paid off is a. debtholders, common stockholders, preferred stockholders b. common stockholders, preferred stockholders, debtholders c. debtholders, preferred stockholders, common stockholders d. common stockholders, debtholders, preferred stockholders

Q: Suppose that you open your own business and earn an accounting profit of $30,000 per year. When you started your business, you left a job that paid you a $25,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 5 percent, your economic profit isA) $5,000. B) -$1,500. C) $1,500. D) -$5,000.

Q: ____ is a residual that represents the amount that stockholders would receive if all of the firm's assets could be sold at their book values and all of their liabilities could be paid at their book values. a. Net worth b. Retained earnings c. Paid-in-capital d. Total assets

Q: If you could pay for a product according to the marginal utility that you gain from additional consumption, then as you consume more of a product the price you pay wouldA) remain the same. B) increase. C) be deferred. D) decline.

Q: The ____ shows the investments made by the firm in the form of assets and the means by which the assets were financed. a. income statement b. balance sheet c. statement of cash flows d. statement of retained earnings

Q: If the commercial is correct that every additional bite tastes as good as the first, the marginal utility from consuming more of the advertised product must beA) increasing. B) decreasing. C) constant. D) zero.

Q: The accrual method of accounting recognizes revenue when ____, and recognizes expenses when ____. a. they are earned; cash is paid b. cash is received; they are incurred c. they are earned; they are incurred d. cash is received; cash is paid

Q: When numerous but imperfect substitutes exist for a good, the demand for the good will tend to beA) inelastic. B) elastic.C) unitary. D) perfectly elastic.

Q: A(n) ____ is a statement summarizing the firm's revenue and expenses over an accounting period. a. income statement b. balance sheet c. statement of cash flows d. statement of retained earnings

Q: Output/HourPrivate MCMarginal BenefitExternal Marginal Costs1$10$200.20210.4018.500.40310.90170.70411.5016.501.20512.2014.001.80613.0013.002.80714.4012.004.00Use the above table. What will the price be when external costs are internalized with a tax?A) $14 B) $13 C) $12.20 D) $1.80

Q: On its December 31st balance sheet, LCG Company reported gross fixed assets of $6,500,000 and net fixed assets of $5,000,000. Depreciation for the year was $500,000. Net fixed assets a year earlier on December 31st, had been $4,700,000. What figure for "Cash Flows Associated with Long-Term Investments (Fixed Assets)" should LCG report on its Statement of Cash Flows for the current year? a. $500,000 b. $600,000 c. $700,000 d. $800,000 e. $900,000

Q: The lowest percentage of the U.S. population in poverty is found when using which measurement of household resources? A) Private income only B) Private income plus cash benefits C) Private income with cash and in-kind benefits D) Private income with Social Security payments subtracted

Q: Given the following information, calculate the market price per share of WAM Inc. Earnings after interest and taxes = $200,000 Earnings per share = $2.00 Stockholders' equity = $2,000,000 Market/Book ratio = 0.20 a. $20.00 b. $8.00 c. $4.00 d. $2.00 e. $1.00

Q: Which statement best describes the behavior of the monopsonist in the labor market? A) It restricts its output to keep the product price high. B) It hires less labor but pays the perfectly competitive wage rate. C) It must pay different amounts to each unit of labor hired. D) It hires less labor and pays a lower wage rate than in the perfectly competitive case.

Q: Harvey Supplies Inc. has a current ratio of 3.0, a quick ratio of 2.4, and an inventory turnover ratio of 6. Harvey's total assets are $1 million and its debt ratio is 0.20. The firm has no long-term debt. What is Harvey's sales figure if the total cost of goods sold is 75% of sales? a. $960,000 b. $720,000 c. $1,620,000 d. $120,000 e. $540,000

Q: If a firm wants to maximize profits, it should hire workers up to the point at whichA) total factor cost = total revenue.B) marginal factor cost = marginal revenue product.C) marginal utility = marginal cost.D) total social benefit = total social costs.

Q: A firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000. If the firm pays 8 percent interest on its long-term debt, what rate of interest does it pay on its notes payable? a. 8.2% b. 13.1% c. 16.8% d. 18.0% e. 15.3%

Q: If the wage rate doesnʹt change but a profit -maximizing competitive firm hires fewer workers, we know thatA) the price of the product increased.B) technical change occurred that increased labor productivity, reducing the firmʹs demand for labor.C) demand for the product fell or there has been a reduction in labor productivity. D) marginal factor cost increased.

Q: Aurillo Equipment Company (AEC) projected that its ROE for next year would be just 6%. However, the financial staff has determined that the firm can increase its ROE by refinancing some high interest bonds currently outstanding. The firm's total debt will remain at $200,000 and the debt ratio will hold constant at 80%, but the interest rate on the refinanced debt will be 10%. The rate on the old debt is 14%. Refinancing will not affect sales which are projected to be $300,000. EBIT will be 11% of sales, and the firm's tax rate is 40%. If AEC refinances its high interest bonds, what will be its projected new ROE? a. 3.0% b. 8.2% c. 10.0% d. 15.6% e. 18.7%

Q: In some cases, social regulation may alter individualsʹ behavior. For example, there is evidence to indicate that as more automobile safety regulations have been introduced, more individuals have begun to drive recklessly. This phenomenon is known asA) the feedback effect. B) the share-the-gains effect. C) the share-the-pains effect. D) the capture effect.

Q: The Amer Company has the following characteristics: Sales: $1,000 Total Assets: $1,000 Total Debt/Total Assets: 35% EBIT: $200 Tax rate: 40% Interest rate on total debt: 4.57% What is Amer's ROE? a. 11.04% b. 12.31% c. 16.99% d. 28.31% e. 30.77%

Q: Why do cartels often break down?