Conservatism means: a)not underestimating asset values, when faced with uncertainty about the value of assets and liabilities. b)using the most optimistic measurement when faced with uncertainty about the value of assets and liabilities. c)not overestimating liabilities, when faced with the uncertainty about the value of assets and liabilities. d)using the least optimistic measurement when faced with uncertainty about the value of assets and liabilities.
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- Hedging is matching the maturities of assets and liabilities to reduce risk. Hedging is matching the maturities of assets and liabilities to reduce risk. is it true or false?The role of management's intent increases the risk of material misstatement re: the Existence assertion for financial investments. Question options: True FalseForecasting risk can be defined as the possibility that _____ will lead to incorrect decisions. a. the inclusion of opportunity costs b. erosion c. errors in projected cash flows d. the exclusion of sunk costs e. net working capital costs
- A common approach of estimating the variability of returns involving forecasting the pessimistic, most likely, and optimistic returns associated with the asset is called A. marginal analysis. B. sensitivity analysis. C. break-even analysis. D. financial statement analysis.By choosing assets that do not exhibit a high positive covariance with each other, the systematic risk be partially eliminated? a.false b.trueWhen adding a risky asset to a portfolio of may risky assets, which property of the asset has a greater influence on risk: its standard deviation or its covariance with other assets? Explain
- any risk attached to a financial asset should not be considered when making an investment decision because all financial assets are risky. true or false?A reasonable probability that an investment will produce a loss a. risk b. value c. specualtion d. capital gainWhich of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from short-term investments.c. When the present value of the cashflows is discounted with the appropriate rate end this present value is positive, then the asset providing these cashflows have a value to the investor. d.Cashflows may include depreciatipon expenses and amortization costs.
- The value of an investment can be defined in numerous ways. Which is FALSE? a. It is the value determined by demand and supply. b. It is an objective estimate wherein the risk preference of the investor is considered. c. It is the present value of the cashflows on the investment d. It is dependent on the perceptions of the investor.A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender does. This inequality of information is called O a. adverse selection. b. moral hazard. C. asymmetric information. O d. noncollateralized risk.When comparing NPV and IRR, which is incorrect? With NPV, the discount rate can be adjusted to take into account increased risk and the uncertainty of cash flows With IRR, cash flows can be adjusted to account for risk NPV can be used to compare investments of various size or magnitude Both NPV and IRR can be used for screening decisions