1) The firm’s total investment in current assets should be financed with temporary
sources of financing.
2) Financial ratios that are higher than industry averages may indicate problems that are
as detrimental to the firm as ratios that are too low.
3) Analysis of dividend policy begins with the basic assumption that shareholder wealth
maximization is the primary goal, and therefore dividends should be of primary concern
even if their payment results in capital rationing.
4) The profitability index is the ratio of the company’s net income (or profits) to the
initial outlay or cost of a capital budgeting project.
5) When using the pvs (present value) function in Excel to calculate bond values, the
bond’s coupon rate is entered as the Rate variable.
6) The residual dividend theory implies that internally generated funds (i.e., retained
earnings) should be used to fund all new investment projects before the company uses
any additional debt.
7) If the stock market is efficient, then investors do not need to read the Wall Street
Journal or research companies before they select which stocks to buy because market
prices already reflect all publicly available information.
8) Financial management deals with the maintenance and creation of economic value or
wealth.
9) The negotiated purchase is the most prevalent method of securities distribution in the
private sector.
10) Commercial paper is an unsecured form of credit.
11) A company with a current ratio higher than industry average must also have a quick
ratio higher than industry average because both ratios measure liquidity.