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1. How does the capital asset pricing model (CAPM) assist in investment decisions?
A) It focuses solely on dividend-paying stocks.
B) It helps in assessing the risk-return trade-off of a stock.
C) It guarantees a certain return on investments.
D) It predicts the exact future price of stocks.
2. Use Whole Pine Inc.'s financial statements for 20X3 below to answer the following question.
What is Whole Pine Inc.'s quick ratio for 20X3?

A) 4.00
B) 2.50
C) 0.65
D) 0.15
3. Why might tax expense on the income statement not reflect the actual taxes paid by a firm?
A) Because tax expenses are always deferred to the next fiscal year
B) Because tax expense is never an estimation and not based on real figures
C) Because all tax expenses on the income statement accurately reflect taxes paid
D) Because there are differences between tax and accrual accounting rules
4. A company is expected to pay a dividend of $2 next year, and dividends are expected to grow at 5% per year indefinitely. The required rate of return on the company's stock is 10%.
What is the value of the stock using the Gordon growth model?
A) $61
B) $20
C) $15
D) $40
5. What is a primary goal of managing accounts receivable through credit policies?
A) To transition all sales to cash-only transactions
B) To maximize sales regardless of cash flow impact
C) To eliminate accounts receivable entirely
D) To balance customer convenience with the firm's cash flow needs
Solutions:
| Question # 1 Answer: B | Question # 2 Answer: B | Question # 3 Answer: D | Question # 4 Answer: D | Question # 5 Answer: D |
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