1. According to the discounted free cash flow valuation model, the market value of common shares depends upon investors': 

       current expectations about the prospects of current free cash flows.
       current expectations about the prospects of future free cash flows.
       future expectations about the prospects of current free cash flows.
       future expectations about the prospects of future free cash flows.


2. Recent research indicates that stock returns correlate better with: 

       accrual earnings than realized operating cash flows.
       cash basis earnings than realized operating cash flows.
       future operating cash flows than accrual earnings.
       realized operating cash flows than accrual earnings

3. If firm ABC currently earns $12.00 per share, and has a risk-adjusted cost of equity capital of 12.5%, a share of common stock should theoretically sell for __________. 
       $1.50
       $12.00
       $40.00
       $96.00

9. The assessment of earnings quality is best accomplished through the use of the: 

       balance sheet and cash flow statement.
       multi-step income statement, balance sheet, and cash flow statement.
       single-step financial statements.
       single-step income statement, balance sheet, and cash flow statement.


10. According to the abnormal earnings approach of equity valuation, investors willingly pay a premium for those firms that: 

       earn an amount equal to the equity cost of capital.
       earn less than the cost of equity capital.
       produce negative abnormal earnings.
       produce positive abnormal earnings.

15. According to the SEC, any breach of a loan covenant that existed at the balance sheet date that has not been subsequently cured should: 

       be disclosed in the audit report.
       be disclosed in the notes to the financial statements.
       be recorded as an adjustment to the financial statements.
       not be disclosed.


16. When a debt covenant is violated, the related debt must be classified as current if it is: 

       likely that the borrower will not be able to cure the default in the next twelve months.
       possible that the borrower will not be able to cure the default in the next twelve months.
       probable that the borrower will not be able to cure the default in the next twelve months.
       reasonably likely that the borrower will not be able to cure the default in the next twelve months.

19. The widespread use of accounting-based incentives for executive compensation is controversial for which one of the following reasons?

       Accounting based incentive plans can encourage managers to adopt a long-term business focus.
       Earnings growth does not automatically increase shareholder value.
       Executives cannot use their discretion over the accounting policies.
       Managers do not have accounting flexibility.


20. Regulatory Accounting Principles (RAP) are important to those outside the regulatory agencies because: 

       GAAP does not allow reporting for assets and liabilities consistent with the way in which regulators establish rates.
       GAAP may allow reporting for assets and liabilities consistent with the way in which regulators establish rates.
       Regulatory Accounting Principles are not compatible with GAAP.
       they are required by the SEC.