Question 1. When an investment banker acts as an "underwriter" he:
- gives a "firm commitment" to purchase the securities from the corporation at a set price.
- the company suffers a decline in earnings after taxes.
- may sell as many securities as possible and return the rest unsold.
- may give advice to management.
Question 2. Dilution of earnings occurs because
- a new issue of common stock creates more shares outstanding which reduces earnings per share temporarily.
- the company suffers a decline in earnings after taxes.
- the investment banker collects an underwriting fee.
- all of the above.
Question 3. A firm has $1,000,000 in its common stock account and $2,500,000 in its paid-in capital account. The firm issued 100,000 shares of common stock. What was the original issue price if only one stock issue has ever been sold?
- $35 per share
- $25 per share
- $10 per share
- Not enough information to tell
Question 4. The ______________ method of inventory costing is least likely to lead to inflation-induced profits.
- FIFO
- LIFO
- Weighted average
- Lower of cost or market
Question 5. Total asset turnover indicates the firm's
- liquidity.
- debt position.
- ability to use its assets to generate sales.
- profitability.
Question 6. Which of the following is a potential problem of utilizing ratio analysis?
- trends and industry averages are historical in nature.
- financial data may be distorted due to price-level changes.
- firms within an industry may not use similar accounting methods.
- all of the above