Principles of Finance: Quiz #1 (ch 1-2)

Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.? 25 percent 40 percent 46 percent 34 percent

34 percent

The tax liability of a corporation with ordinary income of $1,100,000 is ______. $390,000 $374,000 $362,250 $340,000

$374,000

A financial analyst is responsible for maintaining and controlling the firm's daily cash balances. Frequently manages the firm's short-term investments and coordinates short-term borrowing and banking relationships. True False

False

Making financing decisions includes all of the following EXCEPT deciding which individual long-term sources are best at a given point in time. analyzing quarterly budget and performance reports. determining the appropriate mix of short-term and long-term financing. deciding which individual short-term sources are best at a given point in time.

analyzing quarterly budget and performance reports.

A major weakness of a partnership is access to capital markets. difficulty liquidating or transferring ownership. limited liability. low organizational costs.

difficulty liquidating or transferring ownership.

The goal of profit maximization would result in priority for timing of the returns. cash flows available to stockholders. risk of the investment. earnings per share.

earnings per share.

An effective ethics program can weakened corporate value. had no effect on a corporation's value enhance a corporation's value. be thought of as unimportant to corporate owners.

enhance a corporation's value.

Higher cash flow and greater risk adversely affect share price. have the same effect on share price. have no effect on share price. have an inverse effect on share price.

have an inverse effect on share price.

Financial service is concerned with the duties of the financial manager. handles accounting activities related to data processing. involves the design and delivery of advice and financial products. provides guidelines for the efficient operation of the business.

involves the design and delivery of advice and financial products.

All of the following are key strengths of a corporation EXCEPT low organization costs. limited liability. access to capital markets. readily transferable ownership.

low organization costs.

Agency costs include all of the following EXCEPT management reports to stockholders. purchasing insurance against management misconduct. performance incentives paid to managers. the cost of monitoring management behavior.

management reports to stockholders.

The key activities of the financial manager include all of the following EXCEPT managing financial accounting. making investment decisions. financial analysis and planning. making financing decisions.

managing financial accounting.

The primary goal of financial management is to: maximize the current value per share of the existing stock. avoid financial distress. maintain steady growth in both sales and net earnings. maximize current dividends per share of the existing stock. minimize operational costs and maximize firm efficiency.

maximize the current value per share of the existing stock.

The original sale of securities by governments and corporations to the general public occurs in the: private placement market. primary market. secondary market. liquidation market. proprietary market.

primary market.

About 75 percent of all business firms are S-corporations. partnerships. corporations. sole proprietorships.

sole proprietorships.

The true owner(s) of the corporation is (are) the ________. stockholders chief executive officer board of directors creditors

stockholders

A conflict of interest between the stockholders and management of a firm is called: corporate activism. stockholders' liability. the agency problem. legal liability. corporate breakdown.

the agency problem.

Financial managers should strive to maximize the current value per share of the existing stock because: the current stockholders are the owners of the corporation. the managers often receive shares of stock as part of their compensation. doing so means the firm is growing in size faster than its competitors. doing so guarantees the company will grow in size at the maximum possible rate. doing so increases the salaries of all the employees.

the current stockholders are the owners of the corporation.

A stakeholder is: any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm. a creditor to whom the firm currently owes money and who consequently has a claim on the cash flows of the firm. any person or entity that owns shares of stock of a corporation. a person who initially started a firm and currently has management control over the cash flows of the firm due to his/her current ownership of company stock. any person or entity that has voting rights based on stock ownership of a corporation.

any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.

Career opportunities in financial services include all of the following EXCEPT capital expenditures management. investments. personal financial planning. real estate and insurance.

capital expenditures management.

The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and data processing functions is the: chief executive officer. chairman of the board. treasurer. director. controller.

controller

Under which of the following legal forms of organization is ownership readily transferable? corporation partnerships sole proprietorships limited partnership

corporation

The tax rates are as shown. Taxable Income -> Tax Rate $0 - 50,000 -> 15% 50,001 - 75,000 -> 25% 75,001 - 100,000 -> 34% 100,001 - 335,000 -> 39% Reference: 2-1 What is the average tax rate for a firm with taxable income of $126,500? 21.38 percent 39.00 percent 25.76 percent 34.64 percent 23.88 percent

25.76 percent (Tax = .15($50,000) + .25($25,000) + .34($25,000) +.39($126,500 - $100,000) = $32,585; Average tax rate = $32,585 $126,500 = .2576 = 25.76 percent)

Which of the following are disadvantages of a partnership? I. limited life of the firm II. personal liability for firm debt III. greater ability to raise capital than a sole proprietorship IV. lack of ability to transfer partnership interest I, III, and IV only I, II, and IV only II and III only I and II only III and IV only

I, II, and IV only

A high earnings per share (EPS) does not necessarily translate into a high stock price. True False

True