This document provides a summary of a 10 question quiz for BUS 401 that covers key concepts related to financial goals of businesses, investment risk and return, time value of money, accounting methods, and components of a basic balance sheet. The quiz questions test understanding of topics like the primary financial goal of for-profit businesses being profit maximization, higher risk investments requiring higher returns, opportunity costs varying over time, and investments being less valuable the longer the wait for payoff.
1. BUS 401 Week 1 Quiz
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1.The financial goal of a for-profit business is:
profit maximization.
owner wealth maximization.
cash flow maximization.
utility maximization.
2.) 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.
2. 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.
4.) 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.
5.) An investment, such as a bond, will have a higher expected return (or
yield) if it:
has a higher purchase price.
holds a higher rating, such as AAA or AA.
carries greater risk.
has been issued by a well-known company.
3. 6.) The value of an asset is based on four characteristics—cash flows,
time, risk, and opportunity costs—but in many situations we can
estimate an asset’s value by:
gnoring risk, which simplifies the calculation.
assigning our personal value to the asset.
adding a risk premium to the current return on US government bonds.
looking at its market price.
7.) Over the past 50 years, stocks listed on the NYSE (New York Stock
Exchange) have:
returned a very steady 12% per year.
never had a single year with a negative return.
never been overpriced or underpriced.
had annual returns ranging from negative 30% to over positive 30%.
8.) The accounting method you use in your checkbook is best described
as:
cash accounting.
accrual accounting.
deficit reduction.
balance sheet accounting.
9.) On the typical balance sheet, the right-hand side shows:
the book value of plant, property, and equipment.
4. the market value of liabilities.
the accounting value of liabilities and equity.
the market value of common stock
10.) To arrive at a more accurate estimate of cash flow we would add
depreciation expense to net income. The next step would be to:
reduce our estimate by the increases in liabilities.
reduce our estimate by the decreases in assets
increase our estimate by the increases in liabilities.
do nothing more because we have an accurate estimate.
