1. Securtiy analysis is typically conducted with an eye toward identifying mispriced securities in the hopes of generating returns that more than adequately compensate the investor for risks being taken.
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False
2. "Unavoidable risk" is that which cannot be "diversified away" by merely holding a portfolio of many different securities.
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False
3. Fundamental analysis attempts to evaluate a company's current market price relative to projections of the firm's future eanrings and cash-flows.
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False
4. The final product of security analysis is a recommendation to buy, sell or hold the stock of a particular company.
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False
5. In making a recommendation to buy or sell a stock, the analyst need not be concerned with the investment time horizon required to capitalize on the recommendation.
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False
6. Predicting the likelihood that a company could face financial distressis not part of the typical credit analysis process.
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False
7. Debt financing focuses management on the creation of value, thereby reducing conflicts of interest between managers and shareholders.
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False
8. Firms with a high concentration of intangible assets is less likely to be highly leveraged that firms whose assets are mostly tangible in nature.
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False
9. In private debt markets, credit analysis rarely involves any explicit attempt to estimate the value of the company's equity.
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False
10. In order to be considered investment grade,a company must achieve a debt rating of "B" or higher.
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False
11. Firms that are flush with cash but have few new profitable investment opportunities are prone to using their surplus cash to make acquisitions.
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False
12. The best way to assess whether an acquiring company is overpaying for a target company is to compare the premium being offered to those offered in similar transactions.
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False
13. The most popular methods of valuation used for mergers and acquisitions are earnings multiples and discounted cash flows.
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False
14. Computing the value of an acquisition target as anindependent firm provides a way of checking whether the valuation assumptions are reasonable.
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False
15. Demands by the shareholders of an acquisition target to be paid in cash could leave the acquiring company with a postacquisition captial structure that could potentially reduce their shareholder value by increasing the risk of financial distress.
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False
16. In evaluating a purchase offer, a primary consideration for the target shareholders should be the tax implications and transaction costs associated with the offer.
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False
17. The United States has a specific inter-agency committee that reviews foreign takeovers of U.S. companies on the basis of fair value.
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False
18. Outside investors require access to reliable information on a company's performance merely to measure the incentives paid to management.
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False
19. Internal governance agents, such as corporate boards, audit committees and internal auditors, are responsible for monitoring a firm's management.
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False
20. Accounting reports merely provide a record of past transactions and do not reflect management estimates and forecasts of the future.
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False
21. Uniform accounting standards attempt to reduce managers' ability to record similar economic transactions in different ways, either over time or across companies.
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False
22. Increased dividend payouts is proof positive of a company's current and future profitability.
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False