Sport Finance Final Exam
What is an aging report?
A report that shows how long it takes to collect account receivables.
_________ represent an equity ownership in a company and require the payment of dividends to certain shareholders first.
Preferred stocks
Which is more accurate, short- or long-term plans? Explain why.
Short-term planning is more accurate as the data is more reliable and when you look at long-term planning, there are many more variables.
A budget helps indicate what resources are required and when.
True
A budget is often formed with some rough assumptions.
True
Accounts payable represent amounts owed to vendors and suppliers for services or products.
True
Financial managers continually struggle with the trade-off between dividend payments and retained earnings.
True
In a merger, one business blends its business with the acquired business.
True
Many business owners plan for succession to allow their heirs to continue owning the business rather than being forced to sell the business.
True
One of the primary concerns associated with bonds is determining the appropriate interest rate to attach to the bonds and determining how many bonds should be issued.
True
The goal of capital budgeting is to select investment opportunities that are worth more than they cost.
True
The two primary budgets are operational budgets and capital and financial budgets.
True
Define variable costs.
Variable costs are those costs that change in direct relation to the number of items or products that might be consumed or the number of fans in attendance.
Define variance analysis.
Variance analysis examines the initial budget and resulting measurements to see how accurate the budget was and then to make any necessary changes.
In February 2001, an NFL player securitized the remaining $5 million that he was owed by his team. He had last played in the NFL in 1996. But as part of his playing contract, he was still owed $200,000 per year over the next 25 years. Who was that player?
William Andrews
Budgets are often developed by examining
all of the above
Financial planning can help provide appropriate solutions for which of the following problems a business might face?
all of the above
Shareholders have the right to
all of the above
The disadvantages of bond financing include
all of the above
Which of the following is not a financial planning activity?
all of the above
One step to start developing a budget is to
determine financial objectives of the business
Payments and depreciation represent
expenses
In which of the following business situations would it be a mistake to assume that the rapid expansion will continue forever?
fast growth
_________ is a key to financial planning that involves looking to the future and making certain assumptions.
forecasting
Current assets minus current liabilities equals
net working capital
Suppliers allowing 30 days to pay are essentially providing businesses with
short-term loans
When starting a business, it is recommended that the owner first set aside at least _________ worth of living expenses.
two years'
A company's trademark is an example of an intangible asset.
True
A typical extensive pro forma budget might incorporate a
all of the above
An obligation that needs to be repaid with interest, similar to a loan from a bank, is called
bond
Real or personal property pledged as security for repaying a loan is called
collateral
Which of the following is not one of the five Cs of credit?
compassion
With preferred stock, voting power
is available in limited situations
In this budget, every item is listed on a line with a corresponding amount associated with it.
line-item budget
Bonds and loans are examples of
long-term debt obligations
Information used for forecasting can come from
quantitative data and qualitative data
The most traditional form of long-term funding is
stocks and bonds
Which of the following is not considered internal data?
the Wall Street Journal
Vertical analysis is often called
common-size analysis
Which budget type outlines how an organization spends and receives money across the entire organization?
financial budget
What are the primary benefits of an LLC?
An LLC has the best elements of a small business with minimal paperwork and simple pass-through taxes and the major benefit of limited liability.
Which professional sports league has utilized a G-4 loan program to finance its stadiums?
NFL
Define flotation costs.
The expenses related to issuing new stock are known as flotation costs.
A $100 million 20-year bond issued with 10% interest would require semiannual interest payments of _________ for 20 years.
$5 million
Only _________ of new businesses survive.
20%
Define an operational budget.
An operational budget reflects the day-to-day operations of the organization and lists sales and expenditures for normal operations.
A budget is critical only for senior executives to plan.
False
Using ZBB (zero-based budgeting), all expenses must be justified for each budgeting cycle or period and starts at zero.
False
Vertical analysis examines trends over a period of time such as comparing sales from 2016, 2017, and 2018.
False
Why is benchmarking important?
It allows an organization to compare itself with others to access how well it is doing.
What are some issues that can affect future revenue streams? Name at least four different issues.
The economy, price, customer demand, competing entertainment option, etc.
What is collections management?
The process of trying to get customers to pay for what they have purchased as soon as possible.
All budgets must have a revenue element.
True
A business plan summary includes which of the following?
all of the above
Sport businesses can use several traditional forms of capital to fund growth including
all of the above
What is one question to ask when borrowing from others?
all of the above
What other budget(s) may make up the operational budget?
all of the above
When determining the financial return for possibly investing in a stock, an investor will examine all the following except
all of the above
Which budget type examines the inflows and outflows of cash on a day-to-day basis?
cash-flow budget
Of the five Cs of credit, the applicant's credit history and truthfulness falls under
character
Because bonds can normally be issued only by large organizations such as Nike, Apple, IBM, and Amazon, they are also known as
corporate bonds
Which of the following is not a traditional budget?
crafted budget
Assets that can be converted to cash in one year or less are known as
current assets
The cost of equipment and property that are used up by the organization in the process of producing and distributing goods and services is known as
depreciation
When borrowing from friends or relatives, it is recommended to
develop a repayment schedule and keep accurate records of repayment
If a manager is interested in keeping stockholders happy, then she should focus more on ________________________ than on total corporate profits.
earnings per share
Liabilities that will not be paid down completely for more than a year are called
long-term liabilities
Which budget type is a comprehensive projection of how management expects to operate all aspects of the business over the designated budgetary period?
master budget
Which of the following is not an option for selling a business?
none of the above
Which of the following is not considered a source of capital?
none of the above
To qualify for a small business loan, one must have up to _________ of the required capital to put into the business.
one-third
What is a future budget based on past financial results and expected future financial results called?
pro forma budget
Which budget type shows expenditures which remain unchanged regardless of sales levels?
static budget
List three external stakeholders of a company who would be extremely interested in reviewing the financial statements of a public company.
Answers will vary but could include stockholders, analysts, customers, suppliers, and creditors.
If a sport organization is having cash trouble, what can they sell?
Assets, inventory, and accounts receivable are examples of correct answers.
A major advantage of short-term borrowing is the relative difficulty of completing such transactions.
False
All mergers are welcome as a way to grow.
False
All proposed projects with a positive net present value should be undertaken.
False
An LLC has the best elements of a small business with minimal paperwork and simple pass-through taxes, but has unlimited liability.
False
An income is an unsecured bond, meaning that no assets secure the bond (i.e., guarantee repayment) if the bond issuer defaults.
False
Annual reports have been a requirement of the Securities and Exchange Commission (SEC) since 1975.
False
Chapter 11 is the most common form of bankruptcy protection.
False
Company acquisition for the sole purpose of diversification is normally a wise financial strategy.
False
Composition is the process of getting an extension to repay a loan.
False
Financial advisors suggest that a person have at least 5 years of living expenses money saved when starting a new business venture.
False
Financial statements are intended to deliver information about a business in a consistent manner as a result of efforts by accountants to follow generally accepted accounting practices (GAAP).
False
In asset-based approaches to valuation only tangible assets are analyzed because you can put a verifiable value on them.
False
In the income-based approaches, the value of a business is estimated based on the future value of all earnings and cash flow that the company provides to the owners.
False
Once you undertake the hard job of developing a budget your budgeting job is done.
False
Recent mergers along with technological advancements have resulted in fewer impersonal banking experiences for individuals and businesses.
False
Several agencies, such as Moody's Investors Service and Standard & Poor's, issue bonds for both private and public entities.
False
Stock dividends are always paid in cash.
False
The best cost-reduction strategy is to make major large-scale slashes in costs.
False
The goal of the IRR method is to find the rate of return for which NPV equals one.
False
When examining an individual project, it is important to explore all cash flows.
False
When planning, a manager should always look primarily at profits.
False
Provide three examples of internal data.
Financial statements, sales forecasts, regular bills, corporate goals
What can happen if a customer does not pay their bill on time?
They can pay over a long period of time, tying up cash, or they might default.
A capital and financial budget is oriented more to the long term and often focuses on future expenditures such as spending for a new building.
True
A performance budget explores what a goal might be for the organization, what the anticipated outcomes are, and how much it will cost to achieve these outcomes.
True
An angel is a major investor who can give a small amount or several million.
True
Capacity refers to anything of value that can be pledged to guarantee final repayment of the loan, while collateral can include a home, property, equipment, collectibles, a legal judgment, or even a lottery payoff.
True
Company acquisition for the sole purpose of diversification is normally not a wise financial strategy.
True
Crowdfunding describes using the Internet to gather investors into a company.
True
Financial forecasting explores what financial needs will be required in the future to meet short- and long-term needs.
True
General obligation bonds are among the instruments most commonly used to fund facilities. These bonds are often called full faith and credit obligations because the city, county, municipality, state, or other government unit pledges to repay the obligation with existing tax revenues or by levying new taxes.
True
IRR relies on the opportunity cost of capital and the time value of money.
True
In an acquisition, the acquiring company maintains control of the acquired company and serves in a dominant position over the acquired company.
True
The focus of the balanced scorecard is on combining financial and nonfinancial information to get the true perspective of a company.
True
The goal of the IRR method is to find the rate of return for which NPV equals zero.
True
The key document for understanding cash on hand is the cash-flow statement.
True
The market for trading and issuing bonds is strong and established.
True
The market-based approach gives the value of the sport business based on a multiple of operating results, such as profits or revenues.
True
Vertical analysis occurs when every element on the financial statement is reflected as a percentage of a base amount (e.g., 40% of total sales).
True
Give an example of a fixed cost.
Using the concession example, the fixed costs would include the refrigeration and cooking equipment that incur an expense regardless of how many food items are sold.
Define incremental budgeting.
When using incremental budgeting, a budget is increased or decreased by a certain percentage amount (such as plus or minus ten percent).
A document displaying the financial condition of a business at a single point in time is called
a balance sheet
Any legal or financial obligation (e.g., debt, retained earnings, shareholders' equity, taxes owed) is known as
a liability
A bond that is backed by a specific item, or collateral (which can be sold if the bond is not repaid), is referred to as
a secured bond
A document providing information about how the cash position of a business has changed over a given period of time is called
a statement of cash flows
Which of the following documents is used to secure funding?
all of the above
Which of the following element(s) are included in the balanced scorecard approach?
all of the above
Which of the following influences bond ratings?
all of the above
Which of the following is considered a source of external data?
all of the above
Which of the following is not a factor influencing capital-structuring decisions for a sport business?
all of the above
A document describing how much profit or loss was earned by a business over a given length of time is called
an income statement
Which chapter of the bankruptcy code in the US focuses on renegotiating debt?
chapter 11
Which chapter of the bankruptcy code in the US focuses on a fresh start?
chapter 7
Which section of the business plan describes the mission statement, objectives, goals, and strategies of the business?
company section
Bonds that can be redeemed when the bondholder switches the bonds to stocks are called
convertible bonds
Interest and principal on long-term debt are considered
current liabilities
If a firm's net working capital is -$110,109, the firm
expects the cash paid out over the year to be more than the cash that will become available
Assets on the balance sheet with the least liquidity (e.g., real estate, equipment) are known as
fixed assets
The comparison of the financial information of a company with historical information of the same company over a number of reporting periods is known as
horizontal analysis
The advantages of bond financing include all of the following except
interest on bonds is not tax deductible
Information that is often referred to as primary data and is generated by the business itself is called
internal data
What are the three elements examined in the triple bottom line?
intersection of people, planet, and profit
The ease and quickness with which assets can be converted to cash is known as
liquidity
Give three examples of external data.
newspaper articles, online articles, government reports, financial statements from other companies
What is the most common type of business structure?
sole proprietorship
The funding mix required for capital expenditures is referred to as
the capital structure
A bond that has no assets to secure it (i.e., to guarantee repayment) is called
an unsecured bond and a debenture
The owner of a bond is known as a ______________.
bondholder
The key document for understanding cash on hand is the balance sheet.
False
The payback rule recognizes the time value of money.
False
How would you go about creating a budget?
Find data and forecast expected future revenue and expenses.
Define fixed costs.
Fixed costs remain constant and are independent of the level of organizational activity.
Which of the following groups helps minority start-up business owners?
National Minority Supplier Development Council (NMSDC)
In asset-based approaches to valuation, the value of a business is determined based on the value of tangible and intangible assets minus liabilities.
True
It normally makes a lot of financial sense for a college to go to a post-season bowl game.
True
Magic Johnson is part-owner of the Los Angeles Dodgers.
True
Profit is not the only criterion for financial success.
True
Projecting future cash flow is the most difficult facet of capital budgeting.
True
Sales forecasts are based on the anticipated advertising campaign and the anticipated resulting sales.
True
Target capital structure may vary greatly across businesses and industries.
True
The annual report should be shared with both internal and external stakeholders of an organization.
True
The discounted payback rule discounts the future cash flows based on the opportunity cost of capital.
True
The first step in projecting cash flow is to measure the relevant cash flow for a capital project.
True
There is a cost for raising or finding funds.
True
Define sinking fund.
A team might set aside some money knowing they have a major expense in the future.
Explain what an income bond is and if it is used by either public sector organizations or for-profit organizations?
An income bond is a type of bonds that pays interest only if the corporation earns income. It is used by for-profit organizations.
What are three limitations of financial statements?
Answers will vary but could include the following: They do not communicate key firm information such as profitability, solvency, stability, or liquidity and financial statements virtually ignore qualitative information.
Give an example of a variable cost.
Concession food costs might fall into this category.
Which of the following is a characteristic of a preferred stock?
Dividends are cumulative if not paid in a given year and Preferred stock dividends are paid before common stock dividends
Corporate stocks are a form of equity. Briefly explain the term equity and explain how it is different from debt.
Equity gives one an ownership interest in the organization while debt means that the organization owes you your investment, usually with interest. A debtholder has no ownership interest. Equity owners may be eligible for dividends and a share of the organization's profits.
A capital and financial budget is short-term oriented.
False
A capital and financial budget often uses a line-item approach in which each revenue and expenditure amount is highlighted on a separate line.
False
What are four signs that a business might be in financial distress?
Having trouble paying bills as they become due, sales drop significantly, employees keep quitting, the number of competitors keeps dwindling, larger entities are taking over, or the business is in constant turmoil.
_________ is the process of analyzing trends over a period of time (e.g., a three-year period).
Horizontal analysis
Why is forecasting critical for a budget?
It can help identify future sales or expenses upon which a budget can be developed.
______________ is often less clear because the large number of variables reduces the accuracy of projections.
Long-term planning
Explain the primary difference between a company issuing stocks vs. bonds.
Stocks are a form of equity while bonds are debt. Stockholders have ownership in the organization while bondholders are repaid the principal invested plus interest in most cases of debt.
What are some common errors when evaluating projected cash flows?
Sunk costs, opportunity costs, failure to appreciate impact on the organization, failure to appreciate the effect of a decision on net working capital, and including interest payments in the cash flow projections are all common errors when evaluating projected cash flows.
Why might a company only acquire another company's assets rather buying the entire company?
The acquiring company might do so to save some money, have the seller sell some intellectual property, and avoid potential liability for future claims.
Do you think it was a good idea for Under Armour to buy fitness-related apps?
The answer should focus on the total expenditure and how it might improve or enhance the company's goals.
What is the first step in selling a business?
The first step is to gather relevant financial documents.
What are some strategies a company or organization can do to help correct financial difficulties?
The organization can reduce salaries, delay paying some bills, asks for additional funds from lenders, slow production, sell a business unit, sell some assets, or sell the business.
When should a company pay retained earnings rather than stock dividends?
The retained earnings should result in an increase in the value of a business that is greater than the amount that a shareholder can expect to earn if the money is paid out as dividends.
What are the three primary forms of mergers?
The three primary forms of mergers are horizontal, vertical, and conglomerate mergers.
An operational budget often uses a line-item approach.
True
AnnualCreditReport.com is the only government-authorized (Federal Trade Commission) source for a free annual credit report that is yours by law.
True
Another name for an informal reorganization is a workout.
True
Another name for informal liquidation is assignment.
True
Asset-based loans can be obtained on the basis of the existing inventory or accounts receivable.
True
Capital spending is the net spending on fixed assets.
True
What does the formula EBIT = revenues - variable costs - fixed costs of production = 0 calculate?
break-even analysis
A ________ is a road map that shows where the sport business intends to spend its money.
budget
A __________ is like a road map that shows where a business intends to spend its money.
budget
The short-term planning process requires close scrutiny of internal variables such as
cash flow and debt-related issues
Liabilities due in one year or less are known as
current liabilities
When company A joins with company B, and the new entity is called company C, this is an example of a ______.
merger
To qualify for a small business loan, one must have all of the following except
no bankruptcies in the past six years
The three primary sources of cash flow include all of the following except
none of the above
Which of the following is not a financial planning activity?
offering a ticketing package discount
Which section of the business plan describes how the product will be developed and produced or how the service will be delivered?
operation section
Which of the following business situations may require reexamination of product lines and markets to help with sales and to start to turn a profit?
ownership change
The process of obtaining funds from private parties such as investors, venture capital investors, or other companies interested in investing in a business is known as
private placement
A plan that dictates how a business should proceed within the next two years is called
short-term planning
Which of the following business situations makes sales forecasting difficult?
start-up