QUESTION 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.

True

False

4 points

QUESTION 2

"Unavoidable risk" is that which cannot be "diversified away" by merely holding a portfolio of many different securities.

True

False

4 points

QUESTION 3

Fundamental analysis attempts to evaluate a company's current market price relative to projections of the firm's future eanrings and cash-flows.

True

False

4 points

QUESTION 4

The final product of security analysis is a recommendation to buy, sell or hold the stock of a particular company.

True

False

4 points

QUESTION 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.

True

False

4 points

QUESTION 6

Predicting the likelihood that a company could face financial distressis not part of the typical credit analysis process.

True

False

4 points

QUESTION 7

Debt financing focuses management on the creation of value, thereby reducing conflicts of interest between managers and shareholders.

True

False

4 points

QUESTION 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.

True

False

4 points

QUESTION 9

In private debt markets, credit analysis rarely involves any explicit attempt to estimate the value of the company's equity.

True

False

4 points

QUESTION 10

In order to be considered investment grade,a company must achieve a debt rating of "B" or higher.

True

False

4 points

QUESTION 11

Firms that are flush with cash but have few new profitable investment opportunities are prone to using their surplus cash to make acquisitions.

True

False

4 points

QUESTION 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.

True

False

4 points

QUESTION 13

The most popular methods of valuation used for mergers and acquisitions are earnings multiples and discounted cash flows.

True

False

4 points

QUESTION 14

Computing the value of an acquisition target as anindependent firm provides a way of checking whether the valuation assumptions are reasonable.

True

False

4 points

QUESTION 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.

True

False

4 points

QUESTION 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.

True

False

4 points

QUESTION 17

The United States has a specific inter-agency committee that reviews foreign takeovers of U.S. companies on the basis of fair value.

True

False

4 points

QUESTION 18

Outside investors require access to reliable information on a company's performance merely to measure the incentives paid to management.

True

False

4 points

QUESTION 19

Internal governance agents, such as corporate boards, audit committees and internal auditors, are responsible for monitoring a firm's management.

True

False

4 points

QUESTION 20

Accounting reports merely provide a record of past transactions and do not reflect management estimates and forecasts of the future.

True

False

4 points

QUESTION 21

Uniform accounting standards attempt to reduce managers' ability to record similar economic transactions in different ways, either over time or across companies.

True

False

4 points

QUESTION 22

Increased dividend payouts is proof positive of a company's current and future profitability.

True

False