FIN 301 Test Quiz Answers

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what should not be capitalized on the balance sheet

SG&A

how did enron get caught

Sherron wright was a snitch

CCC of 40 days means

after suppliers are paid, it is 40 days until cash is received from customers

which activity would most increase shareholder value

allocating capital to investments with the highest risk adjusted return

definition of goodwill

amount paid for a company acquisition in excess of book value

which should not be disclosed

amounts expected to be paid for labor for future sales

where do capitalized expenses go

balance sheet

what is true about specialized financial statements

banks may have debt equal to 95% of total assets

what has Heinz done

been purchased by private euqity

which of the following responsibilities fall under the CFO's role as company treasurer

capital expenditures

what is not on cash flows from financing activities

cash

which of the following is an example of a short term asset

cash

where would you expect to find stock buybacks in financial statements

cash from financing

which of the following do government battles result from

challenges to corporate, companies not being managed in the interest of owners, firms not adhering to rules

Warren Buffett likes what

companies with free cash flow

what is the current trend of corporate governance

company buyouts by hedge funds and private equity are becoming more prevalent

DSO of over two years means

company's customers are not paying their bills

controller is responsible for

compiling financial statements

which of the following CFO roles pertain to the accounting department

controller

long run stock prices are driven by

corporate earnings

what is not a tool of finance

cost benefit analysis

what represents successful shareholder value creation

cost of capital < ROI

world's largest market

currencies

liquidity ratios

current and quick ratio

what is the theory of efficient capital markets

current stock prices reflect all publicly available information

what is working capital

day to day financial activities

the random walk hypothesis states that

day to day stock prices move randomly and independently from one another

what is true of debt v equity financing

debt financing provides a tax shelter because interest payments are tax deductible

what is true about the balance sheet

deferred taxese can be an asset or liability

who is known for CCC

dell

whose operating cycle is lower dell or boeing

dell

net fixed assets on the balance sheet are net of which of the following items

depreciation

to achieve the highest level of return you have to

diversify your investment into different asset classes

dividend divided by EPS

dividend payout ratio

what are on cash flows from financing activities

dividends, changes in long term borrowing, changes in capital stocks

what is true about stock buybacks

does not commit company to pay dividends

the hostile takeovers in the 80s were made possible by

easy financing with junk bonds

what is the advantage of equity financing

equity has no fixed repayment obligation

what is a common element in a financial crisis

excessive investment in an asset class

cash flows from operations are a use of cash on the cash flow statement

false

companies are managed according to the interest of the majority owner in the Japanese model of corporate governance

false

what is true regarding capital budgeting

first step is strategic planning, evaluation of discounted cash is necessary, cash flows are negative at first, ROI > COC ideally NOT negative NPV will always occur when initial cash flows are negative

what is the ultimate financial shenanigan

fraud

which model is best described as dedicated capital

germany

what is known as the fear index

gold price

how can you improve CCC

grant discounts for paying in cash

what is an element of the new corporate finance environment

greater economic volatility and risk

what has a higher asset turnover: utility or groceries

groceries

Japanese companies

have fewer takeovers than US companies

why has herbalife been in the news

hedge fund managers have been fighting over their investment positions in the company

companies report what for the IRS

higher depreciation and lower net income using accelerated depreciation for fixed assets

days payable outstanding means

how long it takes for a company to pay bills

examples of capital budgeting

if ford invests in a new plant to manufacture the new F150

Which of the following would reduce returns of your investment portfolio

increase in brokerage commissions

an increase in accounts receivable

increases a cash flow

What happens to the cost of capital after a company reaches an optimal capital structure and continues take on debt?

increases due to the cost of financial distress

what would make a profitable company run out of cash

increasing inventory for a sales increase

what are examples of working capital management

increasing inventory turnover by carefully monitoring specific product categories lowering days payable by keeping up to date supply chain information lowering outstanding inventory by selling it in bulk to retail customers

what is one of three primary areas of finance

institutions and markets

the primary business of Berkshire Hathaway is

insurance

what investment vehicle did charles ponzi use in the original ponzi scheme

international reply coupons

for a retailer what would have the highest percentage of current assets

inventories

what are balance sheet accounts associated with working capital

inventory, short term loan, accounts payable, cash

PPE is a cash flow from

investing activities

yield curve is upward sloping because

investors require higher returns for long term maturities

risk aversion means

investors take small risks but do not avoid risk at all costs

the federal government

is a corporate stockholder

why is the yield curve important

it is the base cost of capital

what does the efficient market hypothesis say about using technical analysis to forecast future stock prices

it is useless

If a stock is currently trading at 100 but a company says they will acquire that company's stock for $120 then what will happen to the stock according to the efficient market hypothesis

it will increase as soon as the announcement is made

which of the following corporate governance models include partnering with other top companies

japan-germany

each item in the liabilities section of a balance sheet is expressed as a percentage of

liabilities and stockholder's equity

what ratio sees if borrowers can pay their interest payments

liquidity ratios

what is true regarding WACC

lower WACC increases firm value because the present value of the firm's future cash flows is higher

what would result in a lower WACC

lower interest rate on debt

If you invest in a stock with a beta of .7 you would expect your return to be

lower than that of the overall market

what does a stock repurchase mean

management believes stock is undervalued

what is an example of an agency problem

management invests in private jets for all executives

what is a principle held by gordon gecko

management must be accountable to the shareholders

behavioral finance believes that

markets are not always efficient

successful liability management means

minimizing cost of capital

capital structure management is managing a company's

mix between debt and equity

PPE are listed at

net value

are R&D tangible and do they go on the balance sheet

no

are companies allowed to record expenses that are associated with current revenues in later periods

no

do stock splits affect market cap

no

has macy's profit margin declined since 2009?

no

has there been an increase in global regulation in corporate finance

no

Which company would you expect to invest the most in plant and equipment

oil and gas

what is the primary source and primary use

operating, investing

what should be?

prepaid insurance, PPE, and prepaid rent

what does the controller do

prepares financial statements and reports

what is true of behavioral finance

prices reflect emotions and biases

managements overall performance is best gauged by

profitability ratios

dual challenges of management

providing high quality product/services and competitive returns to stockholders

what are some control mechanisms to ensure management acts in the best interest of shareholders

proxy contest, board of directors, stock based comp, threats of hostile takeover NOT management perks

what was an issue with internal control in the 80s

proxy rules favored companies

what is acceptable revenue recognition practice

recognizing revenue prior to cash from the customer being received

inflation reduces your return by

reducing the value of the money you receive on the investment

what is deriving the most income for every dollar of assets

return on assets

what ratios determine management effectiveness on creating shareholder value

return on investment, cost of capital

an income statement expresses everything as a percentage of

revenues

bill ackman

runs pershing square

management must act in whose interest

shareholders

what is true of the US Model of corporate governance

shareholders are represented by a board of directors

what is true of strategic financial management

short term assets are a component of working capital

which shows company financials over a period of time

statement of cash flows, income statement

the shift in corporate governance gave corporate executives more incentive to drive company performance by compensating with

stock options

companies now prefer what over dividends

stock repurchases

the basic principles of finance dictate that in the short run, stock prices are driven by

supply and demand

what is the primary trade off in capital structure

tax savings and financial distress costs of debt

NASDAQ reflects the performance of what stocks

tech

What do behavioral financiers not believe

that decision makers make rational decisions that maximize utility

which is true regarding dividends and stock buybacks

the dividend payout ratio is the annual dividend divided by annual earnings

what liabilities should be disclosed

the expected costs of warranty, debt owed to banks, long term obligations to pension, amounts owed to suppliers

what is more useful

the income statement

CCC

the number of days the customer pays the supplier to when the customer pays the company

what characterizes the new paradigm of working capital management

the optimal level of current assets is where carrying costs equal shortage costs

what happens after an activist investor buys shares of a company

the short and long term effect on the stock is typically positive

what role of the CFO pertains to the finance department

the treasurer

what is true about the cash flow statement

there are three sources and uses of cash

which of the following contributed to failure of internal control mechanisms in the 1980s

there were too many small stockholders

the use of common size income statements

they are useful to determine trends for industry comparisons

what is true of stockholders

they have residual claims on cash flows

stock repurchases boost stock price because

they reduce shares outstanding and increase ROE and EPS

why would companies aim to grow their market cap

to increase shareholder value, to utilize equity financing, to utilize stock to make acquisitions, to compensate management with shares of the company

why do people invest

to make money

why do companies misrepresent earnings

to meet benchmarks, to influence stock

what is the primary goal of capital structure

to reduce the cost of capital

why would a company take an unnecessary reserve if it reduces profit

to save a source of revenue in the future

why would a company capitalize its cost

to show higher profits in current period

the efficiency of management is best measured by which ratio

total asset turnover

on a balance sheet, debt is expressed as a percentage of what

total liabilities and shareholders equity

what is a up front cost of 5% an example of

transaction cost

Companies cannot pay a dividend without having positive cash flows from operating and investing activities unless they use excess cash.

true

Oren Harari believes it is wrong for management to try and enhance shareholder value

true

The DJIA is the best known index of any market in the world

true

The Federal Reserve has taken action to lower interest rates on the yield curve.

true

a company should always invest in a positive NPV project

true

a company's earnings should correlate with its cash flows

true

a computer company must record a warranty as a liability when it makes a sale

true

academic advancements are widely used by the markets

true

changes in current assets and liabilities are NOT adjustments to financing activities

true

companies want to have the highest days payable outstanding as long as it does not hurt their credit rating or ability to buy on account

true

diluted EPS accounts for executive sock options

true

enron was a commodities corporation that kept debt off its balance sheet

true

great companies do not always make great stocks

true

in the angloamerican model, the board of directors is elected to represent shareholder interests

true

investors believe that transaction costs, taxes, and inflation are the enemy bc they reduce the return on your investments

true

market cap is NOT equal to shareholder's equity

true

profit margins are at an all time high

true

small cap stocks are riskier than corporate bonds

true

the level of capital expenditures follow the trend of the economy over time

true

the optimal current ratio is not 2.0

true

two thirds of misstatements of financial information are related to revenue recognition

true

what type of company would have the highest degree of leverage

utility

which stock is less risky? biotech or utility

utility

what is true about corporate governance in late 90s and early 2000s

wall street analysts were making biased stock recommendations

what is the biggest cost associated with holding inventory

warehousing and capital

crown jewels

when a company is targeted for hostile takeover and responds by selling off its assets

are capital expenditures depreciated

yes

the average ROE of the S&P 500

15%

if Apple's stock was at 260 a year ago and trades at 320 today and there was a $10 dividend, what is the return

320-260 + 10 / 260 = 26.9%

once an investor owns what of a company's shares, he must fill out a SEC form 13-D

5%

how was corporate governance in the 90s different from that in the 80s

90s had more managerial stock ownership

communication with markets is the responsibility of which role

CFO

what is a long term asset category

PPE

depreciation is

a cash flow from operating activities

what is a working capital

a company changes its credit policy

DSO is the time frame from when

a company makes a sale to when it collects its accounts receivable

time value of money states

a dollar tomorrow is worth LESS than a dollar today

an example of capital budgeting is

a pharma company building a new research facility

which of the following is the relationship between risk and return

a risk averse investor would prefer less standard deviation

when does pac man defense occur

a target company makes a counter takeover bid for the acquirer

why would a startup organize as a corporation

ability to raise capital

how well a firm puts to use its productive resources

activity ratio


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