Finance Exam 1 Summer

Working capital management includes which one of the following?

Determining which customers will be granted credit

Which of the following is a question associated with the saving component of financial planning?

Do you have an adequate emergency fund?

Analyzing your current financial position is a part of which step of the financial planning process?

Step 1: Determine current financial situation

Probably the least effective means of aligning management goals with shareholder interests is:

automatically increasing management salaries on an annual basis.

The problem of bankruptcy is associated with misuse of credit in the _____________ component of financial planning.

borrowing

Security dealers:

buy and sell from their own inventory.

Nishaa has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management.

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

capital structure.

The goal of financial management is to increase the:

current market value per share.

During _____________, even though prices decline, spending slows because consumers expect prices to continue to decline.

deflation

The first step of the financial planning process is to:

determine your current financial situation.

The Sarbanes-Oxley Act of 2002 has:

essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

Using the services of financial institutions to research a situation will be most evident in your effort to:

evaluate your alternatives.

When conducting a financial analysis of a firm, financial analysts:

frequently use accounting information.

An auction market:

has a physical trading floor.

A sole proprietorship:

has its profits taxed as personal income.

Corporate shareholders:

have the ability to change the corporation's bylaws.

Higher consumer prices are likely to be accompanied by:

higher interest rates.

The time value of money refers to:

increases in an amount of money as a result of interest earned.

Paulo Valle has just moved into a new house and needs a lawn mower, since he has always lived in apartments and now he has a lawn to mow. What type of goal would this be for Paulo?

intangible goal

The changing cost of money when borrowing is referred to as _____________ risk.

interest rate

Silvia is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?

international finance

A corporation:

is a legal entity separate from its owners.

the ability to readily convert financial resources into cash without loss of value is referred to as:

liquidity

Attempts to increase financial resources are part of the __________ component of financial planning.

obtaining

Margaret Wells' new job is very demanding. She regularly works long hours and on the weekends. As a result, Margaret has not had much time for her family and friends. This is an example of:

personal opportunity cost.

A limited liability company (LLC):

prefers its profits be taxed as personal income to its owners.

The issuer of a security must be involved in all _____________ transactions involving that security.

primary market

Limited liability companies are primarily designed to:

provide limited liability while avoiding double taxation.

An income statement prepared according to GAAP:

records expenses based on the matching principle.

The Sarbanes-Oxley Act:

requires the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results.

In a general partnership, each partner is personally liable for:

the total debts of the partnership, even if he or she was unaware of those debts.

Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

working capital management.

The daily financial operations of a firm are primarily controlled by managing the:

working capital.

Which one of the following is a capital structure decision?

Establishing the preferred debt-equity level

Sophia Martinez knows that if she continues to work full time, it will be difficult for her to get the time off she needs to be able to travel around the world. However, if she continues to work full time she will more easily earn the money she needs to take her trip and still have money left for her living expenses after she gets back from her trip. Which step in the financial planning process does this scenario demonstrate?

Evaluating her alternatives

A financial plan is another name for a budget.

False

Developing and using a budget is part of the "obtaining" component of financial planning.

False

Interest on savings is calculated by multiplying the principal amount times the opportunity cost times the annual interest rate.

False

Determining your current financial situation is a part of which step in the financial planning process

First

Which one of the following situations is most apt to create an agency conflict?

Basing management bonuses on the length of employment

Which one of the following is most apt to align management's priorities with shareholders' interests?

Compensating managers with shares of stock that must be held for a minimum of three years

When identifying alternative courses of action, possible courses of action include which of the following?

Continue with the same course of action

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

Corporate accounting and financial fraud

Jordan and Carmen created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

Which of the following goals would be the easiest to implement and measure its accomplishment?

"Save $50 a month to create a $2,000 emergency fund."

_____________ goals relate to personal relationships, health, and education.

Intangible-purchase

The future value of $50 deposited each year for 6 years earning 7 percent would be approximately how much? Use Exhibit 1-B.

$358

ou are planning to buy a house in five years. Approximately how much do you need to deposit today to have a $10,000 down payment if your investment will make 6 percent? Use Exhibit 1-C.

$7,470

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? Sell the inventory and apply the proceeds to the debt Sell the lighting fixtures from the building and apply the proceeds to the debt Withdraw funds from Maria's personal account at the bank to pay the store's debt Sell any assets Maria personally owns and apply the proceeds to the store's debt

1, 3, and 4 only

If inflation is increasing at 4 percent per year, and your salary increases at the same rate, how long will it take your salary to double?

18 years

When prices are rising at a rate of 3 percent, the cost of products and services would double in _____________ years.

24

When prices are increasing at a rate of 12 percent, the cost of products would double in about how many years?

6 years

Which one of the following parties can sell shares of ABC stock in the primary market?

ABC company

Which of the following statements is false?

Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures.

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

Types of risks associated with financial decisions may include:

All of these choices are correct (liquidity risk, income risk, personal risk, inflation risk)

Fintech involves which of the following? Apps, websites, and mobile devices for banking Artificial intelligence, robotics, and drones Blockchain, crowdfunding, and cryptocurrencies

All of these choices are correct.

Which of the following are benefits to financial literacy? Increased effectiveness in obtaining, using, and protecting financial resources Expanded control of financial activities Avoidance of excessive debt, bankruptcy, and dependence on others for financial security

All of these choices are correct.

Personal financial activities involve the following main decision areas?

All of these choices are correct. (spending, sharing, saving)

The advantages of personal financial planning include:

All of these choices are correct.(increased control of your financial affairs by avoiding excessive debt and bankruptcy. improved personal relationships resulting from better communicated financial decisions. increased effectiveness in obtaining, using, and protecting your financial resources.)

Which one of the following statements is correct? (dealer market)

All over-the-counter sales occur in dealer markets.

Which one of the following applies to a general partnership?

Any one of the partners can be held solely liable for all of the partnership's debt.

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

Cash management

Which one of the following occupations best fits into the corporate area of finance?

Chief financial officer

What types of risks are commonly associated with personal financial decisions? How can these risks be evaluated and minimized to reduce personal and financial difficulties?

Common risks are inflation risk, interest rate risk, income risk, personal risk, and liquidity risk. Risks can be evaluated and minimized by gathering information based on your experience, the experience of others, and using financial planning information sources.

Many events affect your life situation and occur within the adult life cycle. List five events.

Graduation (at all education levels) Engagement and marriage The birth or adoption of a child A career change or a move to a new area Dependent children leaving home Changes in health Divorce Retirement The death of a spouse, family member, or other dependent

Which one of the following is a working capital decision?

How much cash should the firm keep in reserve?

Sophia Martinez wants to travel around the world. Sophia has three options she can pursue: she could continue to work full time to earn the money she needs for her trip, she could work part time so that she can still earn some money but have the time necessary to complete her trip, or she could take full retirement so that she has all the time necessary to complete her trip. Which step in the financial planning process does this scenario demonstrate?

Identifying alternative courses of action

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

Increase the protections against corporate fraud

Explain why borrowers benefit more than lenders in times of high inflation.

Inflation can adversely affect lenders of money. Unless an adequate interest rate is charged, amounts repaid by borrowers in times of inflation have less buying power than the money they borrowed. If you pay 4 percent interest on a loan and the inflation rate is 6 percent, the dollars you pay the lender have lost buying power.

Which of the following would increase the risk of a loan to the lender?

Inflation rate greater than loan rate

One aspect of financial planning is to buy stocks, real estate, and mutual funds with the potential for long-term growth. Which component of financial planning does this deal with?

Investing

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

Which one of the following is an advantage of being a limited partner?

Losses limited to capital invested

One aspect of financial planning is to make sure you maintain adequate insurance coverage for your needs. Which component of financial planning does this deal with?

Managing risk

What is the primary goal of financial management for a sole proprietorship?

Maximize the market value of the equity

Which one of the following statements is correct?

Nasdaq has more listed stocks than does the NYSE.

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.

Which one of the following is contained in the corporate bylaws?

Procedures for electing corporate directors

Capital budgeting includes the evaluation of which of the following?

Size, timing, and risk of future cash flows

Which one of the following statements is correct?

The primary purpose of the NYSE is to match buyers with sellers.

Which one of the following statements about a limited partnership is correct?

There must be at least one general partner.

An opportunity fund is when money is set aside to expand ones income and net worth, or can be used to invest in oneself through higher education.

True

Opportunity costs refer to what a person gives up when making a choice.

True

A private placement is most apt to involve:

a life-insurance company.

One advantage of the corporate form of organization is the:

ability to raise larger sums of equity capital than other organizational forms.

The main goal of personal financial planning is managing your money to:

achieve personal economic satisfaction.

The shareholders of Qiang's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

an agency conflict.

A major activity in the planning component of financial planning is:

anticipating spending through budgeting.

Sophia Martinez's goal has been to travel around the world. She has been traveling for six months and she has decided she is a little tired of living out of a suitcase. She has decided to go home, look for a part-time job, and take shorter trips to locations around the world that appeal to her. Which step in the financial planning process does this scenario most likely demonstrate?

reviewing and revising her financial plan

One example of a primary market transaction would be the:

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

secondary market.

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

sole proprietorship

Financial goals should take a SMART approach. What does SMART stand for?

specific, measurable, action orientated, realistic, time-based

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

stakeholder.

An employee has a claim on the cash flows of Westlake Machines. This claim is defined as a claim by one of the firm's:

stakeholders.

The annual price increase for most goods and services measured by the Bureau of Labor Statistics is called _____________.

the consumer price index

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership.