BUS 401 Week 1 Quiz

1.    Question : The financial goal of a for-profit business is:

Student Answer:

profit maximization.

owner wealth maximization.

cash flow maximization.

utility maximization.

Points Received: 1 of 1

2.    Question : Suppose two investments produce the same expected cash flows.  We would assign a higher value to the investment with:

Student Answer:

lower risk.

higher cash flow variability.

higher risk.

the highest possible cash flows under ideal conditions.

Points Received: 1 of 1

3.    Question : Opportunity costs can vary over time and:

Student Answer:

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.

Points Received: 1 of 1

4.    Question : Time is a factor when determining the value of a possible investment.  As investors, all else being equal, we value investments:

Student Answer:

more the longer we have to wait for the payoff.

less the longer we have to wait for the payoff.

with predefined wait times for payoff.

regardless of time because a dollar is always a dollar.

Points Received: 1 of 1

5.    Question : An investment, such as a bond, will have a higher expected return (or yield) if it:

Student Answer:

has a higher purchase price.

holds a higher rating, such as AAA or AA.

carries greater risk.

has been issued by a well-known company.

Points Received: 1 of 1

6.    Question : 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:

Student Answer:

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.

Points Received: 1 of 1

7.    Question : Over the past 50 years, stocks listed on the NYSE (New York Stock Exchange) have:

Student Answer:

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%.

Points Received: 1 of 1

8.    Question : The accounting method you use in your checkbook is best described as:

Student Answer:

cash accounting.

accrual accounting.

deficit reduction.

balance sheet accounting.

Points Received: 1 of 1

9.    Question : On the typical balance sheet, the right-hand side shows:

Student Answer:

the book value of plant, property, and equipment.

the market value of liabilities.

the accounting value of liabilities and equity.

the market value of common stock

Points Received: 1 of 1

10.                    Question : To arrive at a more accurate estimate of cash flow we would add depreciation expense to net income. The next step would be to:

Student Answer:

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.

Points Received: 1 of 1