BUS320 T/F Test 1

compounding refers to the growth process that turns $1 today into a greater value several periods in the future.

true

the interest factor for the future value of a single sum is equal to (1+n)^i

false

the time value of money is not a useful concept in determining the value of a bond or in capital investment decisions

false

The interest factor for a future value (FVif) is equal to (1+i)^n

true

higher interest rates reduce the present value amount

true

the farther into the future any given amount is received, the larger its present value

false

an annuity is a series of consecutive payments of equal amount

true

the amount of annual payment necessary to repay a mortgage loan can be found by reference to the present value of an annuity table 

true 

the income statement is the major device for measuring the profitability of a firm over a period of time

true

the income statement shows the amount of profits earned based on any one given day

false

asset accounts are listed in order of their liquidity

true

marketable securities are short term investments and are valued on the balance sheet at their original purchase price

false

book value per share of stock and market value per share of stock are usually the same dollar amount

false

retained earnings shown on the balance sheet represents profits generated from prior year’s earnings less any prior dividends

true

cash flow from operations is equal to earnings before taxes minus depreciation

false

an increase in assets represents a positive source of funds

false

interest expense is deductible before taxes and therefore has an after-tax cost equal to interest paid times (1-tax rate)

true

a cash flow statement is considered correct if the change in cash flow plus the beginning balance ties to the ending cash balance

true

liquidity ratios indicate how fast a firm can generate cash to pay bills

true

the DuPont system of analysis emphasizes that profit generated by assets can be derived by a combination of profit levels and how fast an asset can turnover

true

return on equity will be higher than return on assets if there is higher amounts of debut in the capital structure

true

a current ratio of 2 to 1 is always acceptable for a company in any industry

false

asset utilization ratios can be used to measure the effectiveness of a firms managers 

true 

profitability ratios are distorted by inflation because profits are stated in current dollars, while assets and equity are stated in historical dollars.

true

the stock market tends to move up when inflation goes up

false

during disinflation, stock prices tend to go up because the investors required rate of return goes down

true 

a company can improve its return on equity (ROE) by changing its capital structure

true

times interest earned is an example of a profitability ratio

false

compounding refers to the growth process that turns $1 today into a greater value several periods in the future

true

the interest factor for the future value of a single sum is equal to (1+n)^i

false

the time value of money is not a useful concept in determining the value of a bond or in capital investment decisions

false

the interest factor for a future value (FVif) is equal to (1+i)^n

true

higher interest rates reduce the present value amount

true

the farther into the future any given amount is receives, the larger its present value

false

an annuity is a series of consecutive payments of equal amount

true

the amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table

true