Financial Management Exam 1 Whitledge

The growth of both sole proprietorships and partnerships is frequently limited by the firm's:

inability to raise cash

Shareholders' equity:

represents the residual value of a firm.

Secondary markets

provide the means for transferring corporate ownership.

Which one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

$6,890

The tax rates for a particular year are shown below: Taxable Income Tax Rate $0 - 50,000 15 % 50,001 - 75,000 25 % 75,001 - 100,000 34 % 100,001 - 335,000 39 % What is the average tax rate for a firm with taxable income of $124,513?

25.55%

Which one of the following is a current liability?

Account payable to a supplier that is due next week

Which one of the following accounts is the most liquid?

Accounts Receivable

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?

An increase in the market value per share

Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest?

Both general partners and sole proprietors

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

Which business form is best suited to raising large amounts of capital?

Corporation

A _______ is owned by its stockholders, and their liability is legally limited to the amount of money they have invested in the firm.

Corportation

_____ _______ all the partners share in the gain (or loss) of the business and all partners have unlimited liability for all partnership debts and other legal obligations.

General Partnership

The value of which one of the following is included in the market value of a firm but is excluded from the firm's book value?

Employee's experience

Which of the following parties are considered stakeholders of a firm?

Employees and the government

Which one of the following actions by a financial manager is most apt to create an agency problem?

Increasing current profits when doing so lowers the value of the company's equity

_____ ______ one or more general partners run the business and have unlimited liability. The limited partner's liability is limited to his or her contribution to the partnership. The limited partner cannot help run the business.

Limited Partnership

Types of Financial Ratios

Liquidity, financial leverage, asset management, profitability, market value

What is Corporate Finance?

Making long-term decisions, How to pay for investments, Managing day-to-day finances, Managerial hierarchy

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor

Which one of the following parties has ultimate control of a corporation?

Shareholders

Sarbanes-Oxley Act (2002)

The act set new and enhanced standards for all U.S. public company boards, management and public accounting firms.

Primary Markets

The corporation is the seller

Which one of the following statements concerning a sole proprietorship is correct?

The owner of a sole proprietorship is personally responsible for all of the company's debts.

The decision to issue additional shares of stock is an example of:

a capital structure decision.

_____ are generally not what the assets are actually worth.

book values

______ _______ is the process of identifying and evaluating capital projects

capital budgeting

____ _____ refers to the specific mixture of long-term debt and equity the firm uses to finance its operations.

capital structure

Agency problems are most associated with:

corporations

Net working capital is defined as:

current assets minus current liabilities.

Cash flow can be thought of as the...

difference between the number of dollars that came in and went out.

Common-size balance sheet:

divide all of the accounts by expressing each as a percentage of total assets.

Common-size income statement:

divide all of the items by revenues. All items are expressed as a percentage of sales.

One disadvantage of the corporate form of business ownership is the:

double taxation of distributed profits.

Values on the balance sheet are known as book values which reflect _____.

historical cost

According to the wall street journal, home ownership increased by approximately two percentage points for borrowers age 24-32 from 2006 to 2014

false

The use of debt in a firm's capital structure is called _____ _______.

financial leverage

Financial leverage _______ the potential reward to shareholders, but it also ______ the potential for financial distress and business failure.

increases; increases

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

limited partner

_______ refers to the ability to quickly convert investments into cash at a price closest to their fair market value.

liquidity

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

marginal

______ is the true value of an asset, or the amount of cash that would be received if we sold the asset today.

market value

Decisions made by financial managers should primarily focus on increasing the:

market value per share of outstanding stock.

The Goal of Financial Management

maximize shareholder wealth

Liquidity is _______.

multidimensional

Home ownership dropped by nearly _____ percentages points for borrowers age 24-32 from 2005-2014.

nine

A _________ is a form of business organization with a single owner who has unlimited liability for the firm's debts and other legal obligations.

proprietorship

Corporate dividends are:

taxable income of the recipient even though that income was previously taxed.

Change in net working capital refers too..

the amount spent on net working capital.

Operating cash flows (OCF) is the cash flows that results from...

the firms day-to-day activities of producing and selling

Working capital management decisions include determining:

the minimum level of cash to be kept in a checking account.

Net capital spending (net investment in fixed assets) is..

the purchases of fixed assets less the sale of fixed assets

A negative OCF is a sign of ______.

trouble

___ percentage points was attributed to the increase in student loans.

two

OCF tells us....

whether a firm's cash inflows from its business are sufficient to cover its everyday cash outflows.

An example of a capital budgeting decision is deciding:

whether or not to purchase a new machine for the production line.