Business Analysis & Valuation (IFRS Edition) Text and
Cases 3e Krishna Palepu Paul Healy Erik Peek (Test Bank
All Chapters, 100% Original Verified, A+ Grade)
Chapter 1 – A Framework for Business Analysis and Valuation Using
Financial Statements
Chapter 1 Quiz
1. 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. ? A, B, and C
E. ? A and C
2. Consider the following statement: “In countries with a model of strong legal protection of
investors’ rights, information intermediaries play a bigger role in preventing lemons problems than
in countries with a model of weak legal protection of investors’ rights.” This statement is:
A. ? True
B. ? False
3. 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 unintentionally as well as strategically introduce
noise into reported accounting performance through their
accounting decisions
D. ? None of the above
,4. Which of the following items is not a required component of European public firms’ financial
statements?
A. ? A comprehensive income statement (or statement of total recognized
income and expense)
B. ? An income statement
C. ? A cash flow statement (or statement of cash flows)
D. ? A balance sheet (or statement of financial position)
E. ? All of the above items are required components
5. Consider the following statement: “An economic resource whose future benefits cannot be
measured with a reasonable degree of certainty is not considered to be an asset for accounting
purposes.” This statement is:
A. ? True
B. ? False
6. 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.
E. ? None of the above.
7. Consider the following statement: “The extent to which financial statements accurately reflect the
consequences of managers’ operating, investment and financing decisions is a function of
characteristics of the accounting environment and managers’ accounting strategy.” This
statement is:
, A. ? True
B. ? False
8. 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
9. Consider the following statement: “Financial reports of publicly listed firms are prepared using
accrual accounting rather than cash accounting.” This statement is:
A. ? True
B. ? False
10. Which of the following statements is true?
A. ? The implementation of the Eight Company Law Directive in the
European Union has removed all systematic differences in the
effectiveness of external auditing across countries.
B. ? One of the objectives of the Eight Company Law Directive in the
European Union is to set minimum standards for public audits that
improve auditor independence.
C. ? All audits of public firms within the European Union must be carried
out in accordance with the set of Generally Accepted Auditing Standards,
as promulgated by the Public Company Accounting Oversight Board.
D. ? None of the above
11. Which of the following statements is true?
, A. ? Managerial legal liability regimes are equally strict across the
member states of the European Union.
B. ? Under a strict legal liability regime, managers tend to provide more
forward-looking disclosures than under a loose regime.
C. ? Managerial legal liability regimes are less strict in Germany and
the UK than in the US.
D. ? None of the above
12. One of the primary tasks of the Committee of European Securities Regulators is to:
A. ? Improve the consistency of public enforcement activities across
European countries.
B. ? Publicly disclose all European public enforcement decisions.
C. ? Develop a set of International Public Enforcement Standards.
D. ? Discipline European public companies for violations of International
Financial Reporting Standards.
13. Consider the following statement: “The outcomes of business strategy analysis affect the financial
and prospective analyses but have no relevance for the accounting analysis.” This statement is:
A. ? True
B. ? False
14. Which of the following statements is correct?
A. ? The accounting analysis follows the financial analysis
B. ? The prospective analysis precedes the strategy analysis
C. ? The prospective analysis follows the financial analysis
D. ? The financial analysis precedes the strategy analysis
Cases 3e Krishna Palepu Paul Healy Erik Peek (Test Bank
All Chapters, 100% Original Verified, A+ Grade)
Chapter 1 – A Framework for Business Analysis and Valuation Using
Financial Statements
Chapter 1 Quiz
1. 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. ? A, B, and C
E. ? A and C
2. Consider the following statement: “In countries with a model of strong legal protection of
investors’ rights, information intermediaries play a bigger role in preventing lemons problems than
in countries with a model of weak legal protection of investors’ rights.” This statement is:
A. ? True
B. ? False
3. 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 unintentionally as well as strategically introduce
noise into reported accounting performance through their
accounting decisions
D. ? None of the above
,4. Which of the following items is not a required component of European public firms’ financial
statements?
A. ? A comprehensive income statement (or statement of total recognized
income and expense)
B. ? An income statement
C. ? A cash flow statement (or statement of cash flows)
D. ? A balance sheet (or statement of financial position)
E. ? All of the above items are required components
5. Consider the following statement: “An economic resource whose future benefits cannot be
measured with a reasonable degree of certainty is not considered to be an asset for accounting
purposes.” This statement is:
A. ? True
B. ? False
6. 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.
E. ? None of the above.
7. Consider the following statement: “The extent to which financial statements accurately reflect the
consequences of managers’ operating, investment and financing decisions is a function of
characteristics of the accounting environment and managers’ accounting strategy.” This
statement is:
, A. ? True
B. ? False
8. 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
9. Consider the following statement: “Financial reports of publicly listed firms are prepared using
accrual accounting rather than cash accounting.” This statement is:
A. ? True
B. ? False
10. Which of the following statements is true?
A. ? The implementation of the Eight Company Law Directive in the
European Union has removed all systematic differences in the
effectiveness of external auditing across countries.
B. ? One of the objectives of the Eight Company Law Directive in the
European Union is to set minimum standards for public audits that
improve auditor independence.
C. ? All audits of public firms within the European Union must be carried
out in accordance with the set of Generally Accepted Auditing Standards,
as promulgated by the Public Company Accounting Oversight Board.
D. ? None of the above
11. Which of the following statements is true?
, A. ? Managerial legal liability regimes are equally strict across the
member states of the European Union.
B. ? Under a strict legal liability regime, managers tend to provide more
forward-looking disclosures than under a loose regime.
C. ? Managerial legal liability regimes are less strict in Germany and
the UK than in the US.
D. ? None of the above
12. One of the primary tasks of the Committee of European Securities Regulators is to:
A. ? Improve the consistency of public enforcement activities across
European countries.
B. ? Publicly disclose all European public enforcement decisions.
C. ? Develop a set of International Public Enforcement Standards.
D. ? Discipline European public companies for violations of International
Financial Reporting Standards.
13. Consider the following statement: “The outcomes of business strategy analysis affect the financial
and prospective analyses but have no relevance for the accounting analysis.” This statement is:
A. ? True
B. ? False
14. Which of the following statements is correct?
A. ? The accounting analysis follows the financial analysis
B. ? The prospective analysis precedes the strategy analysis
C. ? The prospective analysis follows the financial analysis
D. ? The financial analysis precedes the strategy analysis
