Question

1. Which is of the following is not a part of fundamental screen?

1. Price-to-earning screen.
2. Price-to-book value screens.
3. Small-stocks screen.
4. All of the above.

2. Which of the following statement is not true?

1. Earnings can be viewed as being composed of a cash component and an accruals component.
2. Earnings with a larger component of accrual would be more persistent and thus of high quality.
3. Earnings with a larger component of cash flow would be more persistent.
4. All of them.

3. Which of the following is not correct about asset-based valuation technique?

1. Asset-based valuation attempts to redo the balance sheet by getting current market values for assets and liabilities listed on balance sheet.
2. Asset-based valuation attempts to redo the balance sheet by identifying omitted assets and assigning a market value to them.
3. Getting the value of operating assets when there is no market for them is a potential limitation of asset-based valuation technique.
4. Asset-based valuation is not suitable for firms such as oil and gas and mineral products.

4. Coroner Corporation had a current ratio of 2.0 at the end of 2017. Current assets and current liabilities increased by equal amounts during 2018. The effects on net working capital and on the current ratio, respectively, were:

1. No effect; increase.
2. Decrease; decrease.
3. No effect; decrease.
4. No effect; no effect.

Answer 1

Q1:

C: Small-stocks screen is not a part of fundamental screen

Q2:

Statement B is Note True as Earnings with a larger component of accrual would be less persistent.

Q3.

Statement D is not correct as Asset-based valuation is suitable for firms such as oil and gas and mineral products.

Q4:

C. No effect; Decrease

Net working capital would not change as the same amount of Current assets and current liabilities increased would cancel out each other. But in the case of the current ratio, the effect of an increase in the denominator will be higher so the current ratio will decrease. For example, if initially, 8/4 = 2 , Suppose there is an increase of 3 in both then- 11/7 < 2.