FIN 301
First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made a deposit of $71,000 in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Difference in Accounts =
The total of cash flow to creditors and cash flow to stockholders is called _____. return on equity return on assets debt-to-asset value cash flow from assets
cash flow from assets
What is the future value of $100 compounded for 50 years at 10 percent annual interest? $11,739.09 $14,987.45 $868.85 $500.00
$11,739.09
Which one of the following represents what a firm owns at a given point in time? Its current liabilities Its stockholders' equity Its assets Its long-term debt
Its assets
A partnership must have at least _______ owners.
TWO
Long-term liabilities are not due in the current year (from the date of the balance sheet). True false question. True False
True
In the long run, ________ are variable. some costs all costs no costs
all costs
Corporations in other countries are often called: re-calibrated partnerships. autonomous entities. public limited companies. joint stock companies.
public limited companies, joint stock
Under GAAP, US firms must carry assets at: book value economic value fair value market value
book value
The corporate goal involving bankruptcy avoidance, stability, and safety relate to controlling _______.
Risk
Due to the extreme costs of SOX, hundreds of public firms have chosen to "go _________ ," meaning their shares are no longer traded on the major stock exchanges.
dark
A single cash flow is also known as a: level cash flow terminal cash flow multiple cash flow lump sum
lump sum
The present value of a series of future cash flows is the amount you would need today to _____. break-even on the given exchange rate exactly duplicate those future cash flows exactly half those future cash flows make the future cash flows equal to zero
exactly duplicate those future cash flows
A growing annuity has a(n) ____. finite number of growing cash flows infinite number of constant cash flows finite number of level cash flows infinite number of growing cash flows
finite number of growing cash flows
A dollar received one year from today has _____ value than a dollar received today. more less the same
less
Most investments involve _____ cash flows. multiple no lump sum single
multiple
Noncash items are expenses that directly affect _____ but do not directly affect ______. cash flow; taxes cash flow; net income net income; cash flow cash flow; revenue
net income; cash flow
One method of calculating future values for multiple cash flows is to compound the accumulated balance forward _____ at a time. half a year one year three years two years
one year
The goal of the for-profit business is to maximize _______ equity.
owner's
Stockholders are entitled to only what is left after employees, suppliers, and creditors are paid, which makes them _____ owners. liable residual unaffected unlimited
residual
If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?
$133.10
A ___________ corporation is for profit, and has the legal attributes of accountability, transparency, and purpose.
Benefit
______ refers to the speed and ease with which an asset can be converted to cash.
Liquidity
The aim of the act known as _____ is to protect investors form corporate abuse. TiMid STEM SOX EXON
SOX
A benefit corporation is for profit, and has the legal attributes of accountability, _____, and purpose. transparency cooperation taxation
transparency
Bing, Incorporated, has current assets of $5,000, net fixed assets of $23,000, current liabilities of $3,500, and long-term debt of $7,900. a.What is the value of the shareholders' equity account for this firm? (Do not round intermediate calculations.)b.How much is net working capital? (Do not round intermediate calculations.)
Shareholder's equity = $16,600 NWC = $1,500
The multi-period formula for future value using compounding is FV = (1 + r)t. True false question. True False
False
Which one of the following is true? Multiple choice question. Earnings, net income, and cash flows are identical. Financial statements explicitly show cash flows. Cash flows can be derived from financial statements. Cash flows always exceed earnings.
Cash flows can be derived from financial statements.
A business without separate legal authority formed by two or more people is known as a _____. conglomerate corporation sole proprietorship partnership
Partnership
The possible goal of profit maximization _____. should always be a short-term goal can be achieved by cost-cutting would probably be the most commonly sighted goal for a business avoids maximizing the sales
can be achieved by cost-cutting would probably be the most commonly sighted goal for a business
Future value is the ________ value of an investment at some time in the future. cash interest indirect relational
cash
Which of the following processes can be used to calculate future value for multiple cash flows? Compound the accumulated balance forward one year at a time Calculate the future value of each cash flow first and then add them up Find the future value of a single lump sum amount Discount all of the cash flows back to Year 0
Compound the accumulated balance forward one year at a time Calculate the future value of each cash flow first and then add them up
The Sarbanes-Oxley Act requires corporate officers to do which of the following? Confirm the validity of the annual financial report Limit their compensation and stock options List any deficiencies in internal controls Accept responsibility for material errors in the annual report
Confirm the validity of the annual financial report List any deficiencies in internal controls Accept responsibility for material errors in the annual report
What are the two basic classifications under which most potential financial goals fall? Controlling risk Cutting cost Enhancing dividend Earning or increasing profits
Controlling risk Earning or increasing profits
Joint stock company is another name for what is referred to as a in the United States.
Corporation
For financial analysis, financial statements and accounting numbers are more important than cash flows. True false question. True False
False
Small changes in the interest rate affect the future value of a small-term investment more than they would affect the value of a long-term investment. True false question. True False
False
The Sarbanes-Oxley Act provides incentives for companies to go public in US markets. True false question. True False
False
Under SOX, corporate officers must declare annual reports contain zero omissions. True or False
False
The use of financial leverage can: Increase the chance of financial distress and business failure. Greatly magnify both gains and losses. Decrease the non-cash expenses incurred by the firm. Increase the potential reward for investors
Increase the chance of financial distress and business failure. Greatly magnify both gains and losses. Increase the potential reward for investors
A corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons. retributive patriotic illegal legal
Legal
Nataro, Incorporated, has sales of $680,000, costs of $342,000, depreciation expense of $86,000, interest expense of $53,000, and a tax rate of 23 percent. What is the net income for this firm? (Do not round intermediate calculations.)
Net Income = $153,300
A sole proprietorship is a business owned by ______ person(s).
ONE
Which of the following are real-world examples of annuities? Common stock dividends Mortgages Pensions
Pensions Mortgages
Which of the following should be valued using a perpetuity formula? Preferred stock Cash flows from a product whose sales are expected to remain constant forever A consol (bond that pays interest only and does not mature) An amortized loan with a set amount over a period of time
Preferred stock Cash flows from a product whose sales are expected to remain constant forever A consol (bond that pays interest only and does not mature)
How is income defined? Revenue minus expenses Revenue plus expenses Retained earnings minus dividends Change in cash and equivalents
Revenue minus expenses
In addition to the importance of finance for marketing, accounting, and management careers, finance is also now considered a _____ discipline, especially at the graduate level.
STEM
Which one of the following parties would be the last party to receive payment if a firm were to close? Assume all parties have a legitimate claim on the firm's assets. Bondholders Government Chief executive officer Shareholders
Shareholders
When a corporation is formed, it is granted which of the following rights?
The ability to issue stock Legal powers to sue State citizenship for jurisdictional purposes
On which side of the balance sheet do liabilities appear? Multiple choice question. Neither side The right side The left side
The right side
Which is true of taxes? They are not mandatory for most small firms due to low earnings. Firms can select to pay them in advance or in arrears, with no penalties or benefits. They are typically a very small expenditure for the firm. They can be one of the largest cash outflows a firm experiences.
They can be one of the largest cash outflows a firm experiences.
What is the main goal of financial management? To maximize current value per share of existing stock To maximize share of the stock holdings of managers of the company To maximize profits To minimize expenses
To maximize current value per share of existing stock
Why is a dollar received today worth more than a dollar received in the future? Today's dollar can be reinvested, yielding a greater amount in the future. A dollar will be worth as much in the future as it is today. A dollar today is not worth more than a dollar in the future.
Today's dollar can be reinvested, yielding a greater amount in the future.
Given the same rate of interest, more money can be earned with compound interest than with simple interest. True false question.TrueFalse
True
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley? Multiple select question. Tyco Disney Enron WorldCom
Tyco Enron WorldCom
Assets can be described as items that _____. Multiple select question. are always the same amount as a firm's liabilities a firm owns provide market value to the firm generate revenue
a firm owns provide market value to the firm generate revenue
Net income refers to money earned ______. before interest and taxes net of operating and administrative costs after interest and taxes prior to taxes
after interest and taxes
The __________ percentage rate is the interest rate charged per period multiplied by the number of periods in a year. Listen to the complete question
annual
Liquidity refers to the ease of changing _____. assets to cash liabilities to assets cash to liabilities cash in to other assets
assets to cash
On the balance sheet, assets are listed at their _____ value. book estimated market economic
book
Cash flow to stockholders equals ____. dividends paid minus net new equity raised stock repurchased plus dividends paid net new equity raised minus dividends paid dividends paid plus net new equity raised
dividends paid minus net new equity raised
In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the _____ of each period. beginning end middle
end
The present value of a series of __________ cash flows is the amount you would need today to exactly duplicate those future cash flows.
future
When valuing cash flows, you can either value multiple cash flows or a single sum, also known as a(n) _____ sum. stair-step inflated reduced lump
lump
The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.
matching
The goal of a for-profit business is to ______ existing owners' equity. maintain dilute maximize minimize
maximize
Net working capital equals current assets ______ current liabilities. Multiple choice question. divided by minus plus times
minus
The basic present value equation underlies many of the _____. most important ideas in corporate finance basic principles of the US tax code most crucial ideas about portfolio risk
most important ideas in corporate finance
You invest $500 at 10 percent interest. At the end of 2 years with simple interest you will have ____ and with compound interest you will have ____.
$600; $605
Which of the following is equal to an effective annual rate of 12.36 percent? 12%, compounded semiannually 12%, compounded monthly 12%, compounded quarterly 12%, compounded annually
12%, compounded semiannually
The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income. Multiple choice question. 0% 39% 35% 21%
21%
An effective annual rate of 7.12 percent is equal to 7 percent compounded ______. semiannually daily quarterly continuously
semiannually
Interest earned on the original principal amount invested is called _____. simple interest compound interest interest yield
simple interest
The difference between _______ interest and compound interest is that the amount of compound interest earned gets (bigger or smaller) ___________ every year. discount; bigger interest; smaller simple; bigger
simple; bigger
An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____. balance sheet income statement statement of cash flows cash and equivalents report
statement of cash flow
The primary responsibility of financial managers is to increase the value of _____. the existing shares of stock future profits current earnings their total compensation package.
the existing shares of stock
When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year. stair-stepped the same different regressing
the same
The financial manager acts in the shareholders' best interests by making decisions that increase the value of _____. pensions the stock managers' salaries
the stock
Most importantly, assets provide ______ to the firm. depreciation expenses value leverage
value
Another name for short-term financial management is ___ management. total earnings current liability working capital current asset
working capital
The statement of cash flow explains changes in _____. retained earnings non-cash items net income cash and equivalents
cash and equivalents
Noncash items do not affect _____. net income cash flow retained earnings earnings per share
cash flow
The cash flow identity reflects the fact that: cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. a firm generates cash through its various activities. operating cash flow is the same as operating income. cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.
cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. a firm generates cash through its various activities. cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.
The idea behind ______ is that interest is earned on interest. simplification compounding rebounding reinsurance
compounding
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called ___________.
compounding
A long-term liability represents a(n) _____. Multiple choice question. debt that must be paid within the year obligation of the firm lasting over 1 month debt that is not due in the coming year obligation of the firm lasting over 90 days
debt that is not due in the coming year
A bad financial decision is defined as a decision that ______ owners' equity. Multiple choice question. maximizes decreases does not affect increases
decreases
The more debt a firm has, the greater its: book value degree of operating leverage retained earnings degree of financial leverage
degree of financial leverage
A good financial decision aims at which of the following? Increase the cost of capital Increase the current dividends per share Increase the market value of shareholders' equity Increase the value of the firm's existing stock
Increase the market value of shareholders' equity Increase the value of the firm's existing stock
The five main areas of finance are corporate finance, _____, financial institutions, international finance, and fintech.
Investments
A sole proprietorship is a business that _______.
Is owned by one person
Which of the following, according to the textbook, are possible financial goals for a company? Minimize costs Maximize profits Incur bankruptcy Survival
Minimize costs, max profits, survival
The matching principle of GAAP requires revenues be matched with _____. cash receipts retained earnings expenses net income
expenses
Because shareholders get paid last after all other obligations are satisfied, they are often called _____. stakeholders preferred shareholders creditors residual owners
residual owners