1. A company incurs costs of financial distress only after declaring bankruptcy   False
2. A company’s assets-to-equity ratio will always equal or exceed its return on assets   True
3. A company’s collection period should always be less than its payables period   False
4. A company’s current ratio must always equal or exceed its acid-test ratio   True
5. A company’s market value of equity must always be higher than its book value of equity   False
6. A company’s return on equity will always equal or exceed its return on assets   True
7. All else equal, a firm would prefer to have a higher asset turnover ratio   True
8. All else equal, increasing the projected amount of accounts receivable in a financial forecast will increase external funding required   True
9. An annual financial forecast for 2018 showing no external funding required assures a company that no cash shortfalls are likely to occur during 2018   False
10. Companies often buy back their stock because managers believe the shares are undervalued   True
11. Debt financing results in lower after-tax earnings relative to equity financing   True
12. Estimates of external funding required based on cash flow forecasts are usually higher than estimates based on pro forma financial statements   True
13. If a company gets into financial difficulty, it can use some of its shareholders’ equity to pay its bills for a time   False
14. If a company increases its dividend, its net income will decrease   False
15. If a fast-growing company can’t increase profit margin, retention ratio, or asset turnover, it will end up increasing leverage    True
16. If the maturity of a company’s liabilities is less than that of its assets, the company incurs a financing risk   True
17. If the return on invested capital is greater than the after-tax interest rate, then a higher debt-to-equity ratio increases return on equity   True
18. Ignoring taxes and transactions costs, unrealized paper gains are less valuable than realized cash earnings.    False
19. In some instances, additional debt financing can encourage managers to act more in the interests of owners   True
20. Increasing growth increases stock price   False
21. Inflation benefits borrowers only if the inflation is unexpected   True
22. It is impossible for a firm to have a negative book value of equity without the firm going into bankruptcy   False
23. Only rapidly growing firms have growth management problems   False
24. Share repurchases usually decrease earnings per share as shown in the case of Marriott’s repurchase program    False
25. Share repurchases usually increase earnings per share   True
26. The “goodwill” account on the balance sheet is an attempt by accountants to measure the benefits that result from a company’s public relations efforts in the community   False
27. The interest tax shield reduces a firm’s taxes by the amount of interest on its debt   False
28. The only way a company can grow at a rate above its current sustainable growth rate is by issuing new stock   False
29. The stock market is a ready source of new capital when a company is incurring heavy losses   False
30. The sustainable growth rate, is the ratio of the change in equity to equity at the beginning of the period   True
31. Two firms can have the same earnings yield but different price-to-earnings ratios   False
32. When a company is in financial distress, its shareholders may have an incentive to undertake excessively risky investments    True
33. Without planning, companies can “grow broke”   True
34. You can construct a sources and uses statement for 2017 if you have a company’s balance sheets for year-end 2016 and 2017   True

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