Q1.

Intrinsic value of a share is commonly taken to be indicated by its:

a) Book value
b) Market value
c) DCF value
d) Optimal value
Q2. The mirror image of a purchase of a division or plant or unit is:
a) Amalgamation
b) Divestiture
c) Takeover
d) Merger
Q3. The purpose of corporate valuation is to:
a) Determine true value of a firm
b) To estimate precise market value of a firm
c) To estimate fair market value of a firm
d) To calculate the correct book value of a firm
Q4. In the free cash flow to equity model, the discounting factor used is the WACC
a) True
b) False
Q5. A market is said to be efficient if the market value of a company’s equity share is equal to its intrinsic value:
a) True
b) False
Q6. The intensity of rivalry in an industry tends to be high when:
a) The number of competitors is few
b) The industry growth rate is high
c) There is chronic under capacity in the industry
d) The level of fixed costs is high
Q7. Entry barriers are low when economies of scale are enjoyed by the industry:
a) True
b) False
Q8. Industry profitability is a function of
a) Rivalry among new firms
b) Risk of substitute products
c) Bargaining power of customers
d) b and c
e) All of the above

Q9. Value chain analysis is particularly relevant for businesses engaged in:
a) Horizontally integrated activities
b) Vertically integrated activities
c) Both of the above
d) None of the above
Q10. When the substitute products are being produced by industries earning low profits, the threat to the firms’ profitability tends to be
high:
a) True
b) False
Q11. Mandatory publication of audited financial statements is an imperfect solution to incentive and information problems between
managers and investors because
a) Accounting profits are typically less informative about firms’ economic performance than cash flows
b) The accounting standards governing the preparation of such financial statements are typically too loosely defined
c) Managers unintendedly as well as strategically introduce noise into reported accounting performance through their accounting
decisions
d) None of the above
Q12. The outcomes of the strategy analysis affect the accounting analysis because
a) The strategy analysis also includes an analysis of the firm’s accounting strategy
 b) Firms with poor strategies are more likely to have low-quality financial statements than firms with successful strategies
c) A firm’s industry and competitive strategy affect which accounting choices are appropriate
d) None of the above
Q13. Which of the following industry factors does not affect the threat of new firms entering the industry?
a) Legal barriers
b) Ratio of fixed to variable costs
c) Price sensitivity of buyers
d) None of the above
Q14. Two reasons for why financial statements tend to be less useful in the analysis of privately held businesses than in the analysis of
publicly held businesses:
a) (i) Private firm’s financial statements are strongly influenced by tax rules and (ii) managers of private firms have less incentive
to prepare informative financial statements than managers of public firms
b) Private firm’s financial statements (i) do not comply with tax rules and (ii) are not publicly available
c) Private firm’s (i) financial reporting is unregulated and (ii) financial statements are not publicly available
d) None of the above
Q15. Lemons problems arise in capital markets when:
a) Managers are better informed about the value of their business ideas than investors
b) Managers have an incentive to understate the value of their business ideas
c) Managers and investors have conflicting interests
d) All of the above
e) a and c
Q16. Consider the following statement: “Accounting conventions and regulations that leave management no accounting discretion lead
to more useful financial statements than accounting conventions and regulations that do grant accounting discretion.” This statement is
a) True
b) False
Q17. Which of the following industry factors does not affect the nature of rivalry among existing firms in the industry?
a) Ratio of fixed to variable costs
b) Concentration of competitors
c) Industry growth
d) First mover advantage
Q18. European airlines’ structural excess capacity (i.e., low load factors) negatively affected the average profitability in the European
airline industry between 1995 and 2004. This is an example of how
a) The threat of new entrants affects industry profitability
b) The threat of substitute products affects industry profitability
c) The rivalry among existing firms affects industry profitability
d) None of the above
Q19. The objective of accounting analysis is typically not to:
a) Identify areas in the financial statements that are most strongly affected by management’s discretionary accounting choices
b) Assess whether the financial statements fully comply with accounting conventions and regulations
c) Identify accounting choices that are most critical to a firm’s accounting performance
d) Understand management’s reporting incentives and strategy
Q20. Which of the following statements is correct?
a) Revenues cannot be recognized before cash is collected
b) Expenses cannot be recognized before the cash outflow has occurred
c) Revenues cannot be recognized if cash collection is uncertain
d) Expenses will always be recognized before or when the cash outflow occurs