Studies of the Small-Firm Effect Indicate There May Be Superior

question 28

Multiple Choice

Studies of the small-firm effect indicate there may be superior return potential in investing in smaller-capitalization firms because:

• A)The high P/E ratios of many of these firms eventually lead to superior returns
• B)Smaller firms have less expenses,therefore,making more money for their investors
• C)There is less efficiency in this segment of the market due to minimal institutional participation
• D)Smaller firms are always growing,along with the returns that their investors receive

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Definitions:

Double-Declining-Balance Method

A method of accelerated depreciation that doubles the rate at which an asset's book value depreciates.

Salvage Value

The projected amount an asset is expected to yield when it is sold after its period of usability has ended.

Book Value

The value of an asset according to its balance sheet account balance, which accounts for the cost of the asset minus any depreciation, amortization, or impairment costs.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal installments.