Indicate Whether Each of the Following Statements Is True or False

question 113

Short Answer

Indicate whether each of the following statements is true or false.
1. If two capital investments both have positive net present values, both offer an actual rate of return that is higher than the required rate of return.
2. Company M has two potential capital investments, each of which has a positive net present value. M can only accept one of the investments. In this situation, it should always accept the project that has the higher net present value.
3. Net present value is calculated by dividing the present value of cash inflows by the present value of cash outflows associated with a capital investment.
4. The present value index can be used to compare different capital investment projects.
5. The higher the present value index, the lower the rate of return per dollar invested in the project.

Distinguish between the corporate structure and other forms of business organizations (proprietorship and partnership) in terms of liability, ease of ownership transfer, attraction of investments, and the principal-agent problem.

Understand the importance of operational efficiency for business owners and its impact on income.

Identify the basic legal forms of business enterprise and their characteristics.

Recognize the characteristics and implications of different ownership structures on liability and income distribution.

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Definitions:

Payout Ratio

The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.

Dividend Payout Ratio

A financial measurement that calculates the percentage of net income distributed to shareholders in the form of dividends.

Retention Ratio

A financial metric indicating the percentage of a company's income retained and reinvested after dividends are paid to shareholders.

Debt-Equity Ratio

A ratio indicating the finance strategy of mixing shareholders' equity and debt for asset acquisition.