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

Question 1.Time is a factor when determining the value of a possible investment.  As investors, all else being equal, we value investments:  

  •   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.   

 

Question 2.The income statement shows which of the following? 

  •   A company’s revenues and profits over some time period.   
  •   A company’s financial position at a point in time.   
  •   The value of inventory.   
  •   Accounting results on a cash basis.   

 

Question 3.Opportunity costs can vary over time and:

  •   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.   

 

Question 4.A key component of a product’s value is: 

  •   the accounting profits the product produces.   
  •   the depreciation tax shield the product produces.   
  •   the cash flows the product produces.   
  •   the market share the product commands.   

 

Question 5.The accounting method you use in your checkbook is best described as:

  •   cash accounting.   
  •   accrual accounting.   
  •   deficit reduction.   
  •   balance sheet accounting.   

 

Question 6.In an efficient market most investors earn: 

  •   higher than average returns because of low transaction costs.   
  •   above average returns by following buy-and-hold strategies.   
  •   average returns because efficiency makes earning higher returns difficult.   
  •   returns of over 12% on NYSE stocks.   

 

Question 7.To test the theory of market efficiency, economists:

  •   look for a trading rule that produces returns higher than the market average.   
  •   look for trading rules that can repeatedly produce returns higher than the market average.   
  •   use statistical correlations over returns over time.   
  •   must have good luck because such results are difficult to find.   

 

Question 8.Markets are said to be efficient if they: 

  •   have very low transaction costs.   
  •   quickly process and include new information in prices.   
  •   tend to average out overpricing and underpricing.   
  •   can forecast the future accurately.   

 

Question 9.Suppose two investments produce the same expected cash flows.  We would assign a higher value to the investment with: 

  •   lower risk.   
  •   higher cash flow variability.   
  •   higher risk.   
  •   the highest possible cash flows under ideal conditions.   

 

Question 10.Wealth is created when a company:

  •   makes investments that are expected to create value greater than their cost.   
  •   has a high stock price.   
  •   pays regular dividends.   
  •   obtains additional assets.   

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