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Supervision of Financial Processes

The required rate of return is rs = 10. 1%, and the constant growth rate is g = 4. 0%. What is the current stock price? a. \$23. 11b. \$23. 70c. \$24. 31d. \$24. 93e. \$25. 57e 8- Ratio analysis involves analyzing financial statements in order to appraise a firm’s financial position and strength. | | | a.

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| True| b. | FalseA| 9- Profitability ratios show the combined effects of liquidity, asset management, and debt management on operating results. | | | a. | True| b. | False| A 10 – One problem with ratio analysis is that relationships can be manipulated.

For example, if our current ratio is greater than 1. , then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase. | | | a. | True| b. | False| B| | 11 – Arshadi Corp. ‘s sales last year were \$52,000, and its total assets were \$22,000. What was its total assets turnover ratio? | | | a. | 2. 03| b. | 2. 13| c. | 2. 25| d. | 2. 36| e. | 2. 48| D 12 – Rappaport Corp. ‘s sales last year were \$320,000, and its net income after taxes was \$23,000. What was its profit margin on sales? c| | | a. | 6. 49%| b. | 6. 83%| c. | 7. 19%| d. | 7. 55%| e. | 7. 92%| 3 – The first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast. a.

Trueb. Falsea| 14- According to the Capital Asset Pricing Model, investors are primarily concerned with portfolio risk, not the risks of individual stocks held in isolation. Thus, the relevant risk of a stock is the stock’s contribution to the riskiness of a well-diversified portfolio. a. True b. False a 18 – Diversification will normally reduce the riskiness of a portfolio of stocks. a. True b. False 19- If the returns of two firms are negatively correlated, then one of them must have a negative beta. . True b. False a 20 – Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio? a. Adding more such stocks will reduce the portfolio’s unsystematic, or diversifiable, risk. b. Adding more such stocks will increase the portfolio’s expected rate of return. c. Adding more such stocks will reduce the portfolio’s beta coefficient and thus its systematic risk. d. Adding more such stocks will have no effect on the portfolio’s risk. e. Adding more such stocks will reduce the portfolio’s market risk but not its unsystematic risk. A