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Value of a stock

True or False questions.
1. Dividends reinvested are not subject to federal income tax.
2. The value of a stock depends in part on future dividends and on the investors' required return
3. The value of a stock should increase if investors' require rate of return declines.
4. Valuation of stock depends on past dividends.
5. An increase in the required return on the market will tend to decrease stock prices.
6. If management increases a firm's dividends, its growth rate should increase.
7. If a firm sells inventory at cost for cash, its total assets rise.
8. If a firm has earnings, it has an equal amount of cash.
9. Retained earnings represent the earnings accumulated by the firm over its life, less any distributions made to stockholders.
10. Accounts receivable are adjusted for doubtful accounts (i,e. accounts that may not be paid).
11. If a firm's current assets and current liabilities decline, the firm has a cash inflow.
12. If accounts receivable are collected, the quick ratio increase.
13. If inventory i sold on credit, the quick ratio declines.
14. The numerical value of the quick ratio can never exceed the numerical value of the current ratio.
15. The more rapidly receivables turn over, the more funds the firm has tied up in accounts receivable.
16. Leverage ratios indicate the extent to which the firm uses debt financing.
17. An undercapitalized firm has excessive debt relative to equity.

Solution Preview

True or False questions.
1. Dividends reinvested are not subject to federal income tax.
False
2. The value of a stock depends in part on future dividends and on the investors' required return
True

3. The value of a stock should increase if investors' require rate of return declines.
True as opportunity cost declines

4. Valuation of stock depends on past dividends.
False, it depends on future dividends

5. An increase in ...

Solution Summary

Response explains about value of a stock

$2.19