Corporate Finance Exam 1 Vocab

Ways of obtaining and managing long-term financing

Capital structuring

The five main areas are

1. Corporate finance 2. investments 3. Financial institutions 4. international finance 5. Fintech

Which one of the following accounts is the most liquid? Building Land Accounts Receivable Equipment Inventory

Accounts Receivable

The relationship between stockholders and management

Agency relationship

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? Balance sheet Creditor's statement Income statement Dividend statement Statement of cash flows

Balance sheet

On a common-base year financial statement, inventory for the current year will be expressed relative to which one of the following? Current year sales Base-year inventory Current year total assets Base-year total assets Base-year sales

Base-year inventory

Which of the following actions could cause a company's change in net working capital to be negative for a given year? Borrow money from the bank using a note payable in nine months Increase the dividends paid to stockholders Purchase additional inventory with cash Pay off long-term debt before the due date Use long-term debt to buy a building

Borrow money from the bank using a note payable in nine months

______ are personally responsible for 100 percent of the firm's debts. All business owners General Partners but not sole proprietors Both limited and general partners Sole proprietors but not general partners Both general partners and sole proprietors

Both general partners and sole proprietors

The process of planning and managing a firm's long-term investments is

Capital budgeting

Which form of business would be the best choice if it were necessary to raise large amounts of capital? Sole proprietorship Limited partnership Corporation Limited liability company General partnership

Corporation

A firm's liquidity is measured with which one of the following ratios? Debt-equity ratio Net profit margin Net working capital ratio Market-to-book ratio Current ratio

Current ratio

Terry is calculating the present value of a bonus he will receive next year. The process he is using is called: A. Reducing B. Compounding C. Accumulating D. Discounting

D. Discounting

On the statement of cash flows, which one of the following is considered an operating activity? Purchase of equipment Dividends paid Repayment of long-term debt Increase in net fixed assets Decrease in accounts payable

Decrease in accounts payable

Which one of the following is a disadvantage of the corporate form of business? The firm may issue additional shares of stock. Distributed profits may experience double taxation. Shareholders may experience limited liability. The firm may have unlimited life. Raising capital may be more difficult than for other forms of business.

Distributed profits may experience double taxation

On the statement of cash flows, which one of the following is considered a financing activity? Dividends paid Increase in inventory Increase in net working capital Decrease in fixed assets Decrease in accounts payable

Dividends paid

The relationship between the return on assets and the return on equity is identified by the: net profit margin. balance sheet multiplier. debt-equity ratio. profitability determinant. DuPont identity

DuPont Identity

Which one of the following accurately lists the three components of the DuPont identity? - Return on assets, net profit margin, and equity multiplier - Debt-equity ratio, capital intensity ratio, and net profit margin - Operating efficiency, equity multiplier, and profitability ratio - Financial leverage, operating efficiency, and profitability ratio - Equity multiplier, net profit margin, and total asset turnover

Equity multiplier, net profit margin, and total asset turnover

Sole proprietorships can easily raise capital (T/F)

False

Assume you are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? Present value Principal amount Discounted value Future value Invested principal

Future value

Which one of the following determines the standards and procedures with which audited financial statements are prepared? Matching principle Generally Accepted Accounting Principles Cash flow identity Standard Accounting Value Guidelines Financial Accounting Reporting Principles

Generally Accepted Accounting Principles

Which one of the following is an agency cost? - Increasing the quarterly dividend - Investing in a new project that creates firm value - Hiring outside accountants to audit the company's financial statements - Closing a division of the firm that is operating at a loss - Accepting an investment opportunity that will add value to the firm

Hiring outside accountants to audit the company's financial statements

Which one of the following financial statements summarizes a firm's revenue and expenses during a period of time? Market value report Tax reconciliation statement Income statement Balance sheet Statement of cash flows

Income statement

Which one of the following is an expense for accounting purposes, but is not an operating cash flow for financial purposes? Administrative expenses Interest expense Taxes Labor costs Cost of goods sold

Interest expense

Public offerings of debt and equity must be registered with the: Federal Reserve. New York Board of Governors. Market Dealers Exchange. NYSE Registration Office. Securities and Exchange Commission.

Securities and Exchange Commission

Which one of the following questions involves a capital budgeting decision? How much inventory should the firm keep on hand? How many shares of stock should the firm issue? Should the firm borrow money to acquire new equipment? Should the firm purchase a new machine for the production line? How much money should be kept in the checking account?

Should the firm purchase a new machine for the production line?

A positive cash flow to stockholders indicates which one of the following with certainty? - The dividends paid exceeded the net new equity raised. -Both the cash flow to assets and the cash flow to creditors must be negative. - Both the cash flow to assets and the cash flow to creditors must be positive. - No dividends were distributed, but new shares of stock were sold. - The amount of the sale of common stock exceeded the amount of dividends paid.

The dividends paid exceeded the net new equity raised.

Which one of the following involves a working capital management decision? - How many hours of overtime should manufacturing employees be allowed to work? - When is the appropriate time to replace the delivery fleet? - What is the most efficient process for producing a product? -What is the maximum level of cash to be kept in the firm's bank account? - Should a newly available parcel of land be acquired?

What is the maximum level of cash to be kept in the firm's bank account?

Total income taxes divided by total taxable income equals the ______ tax rate. marginal deductible total residual average

average

The book value of a firm is: - generally greater than the market value when fixed assets are included. - based on historical transactions. - adjusted to the market value whenever the market value exceeds the stated book value. - equivalent to the firm's market value minus its liabilities. - a financial, rather than an accounting, valuation.

based on historical transactions

Determining the number of shares of stock to issue is an example of a ______ decision. capital structure capital budgeting capital rationing capital allocation net working capital

capital structure

The interest earned on both the initial principal and the interest reinvested from prior periods is called: dual interest. simple interest. interest on interest. compound interest. free interest.

compound interest

Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from: simplifying. compounding. aggregating. accumulating. discounting.

compounding

Net working capital is defined as: total assets minus total liabilities. current assets minus current liabilities. total liabilities minus shareholders' equity. fixed assets minus long-term liabilities. current liabilities minus shareholders' equity.

current assets minus current liabilities

According to the statement of cash flows, an increase in inventory will ______ the cash flow from ______ activities. increase; financing increase; operating decrease; financing decrease; operating increase; investment

decrease; operating

The articles of incorporation: - describe the purpose of the firm and set forth the number of shares of stock that can be issued. - set forth the procedures by which a firm regulates itself. - explain how corporate directors are to be elected and the length of their terms. - are amended periodically especially prior to corporate elections. - include only the corporation's name and intended life.

describe the purpose of the firm and set forth the number of shares of stock that can be issued

Corporate bylaws: - cannot be amended once adopted. - define the name by which the firm will operate. - describe the intended life and purpose of the organization. - determine how a corporation regulates itself. - must be amended should a firm decide to increase the number of shares authorized.

determine how a corporation regulates itself

The process of determining the present value of future cash flows in order to know their value today is referred to as: compound interest valuation. complex factoring. discounted cash flow valuation interest on interest valuation. future value interest factoring.

discounted cash flow valuation

Madelyn is calculating the present value of a bonus she will receive next year. The process she is using is called: discounting. reducing. accumulating. growth analysis. compounding.

discounting

A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a: limited partnership. general partnership. limited liability company. corporation. sole proprietorship.

general partnership

Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: bonus income. interest on interest. free interest. simple interest. present value interest.

interest on interest

The cash coverage ratio directly measures the ability of a company to meet its obligation to pay: principal to a lender. a dividend to a shareholder. wages to an employee. an invoice to a supplier. interest to a lender.

interest to a lender

A partner in a firm knows that the maximum financial loss he or she will experience is the amount he or she invested in the firm. The partner is called a ______ partner. general limited zero corporate sole

limited

The Sarbanes-Oxley Act of 2002 holds a public company's ______ responsible for the accuracy of the company's financial statements. external legal counsel managers internal auditors internal legal counsel Securities and Exchange Commission agent

managers

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes average total marginal residual standard

marginal

Decisions made by financial managers should primarily focus on increasing the: size of the firm. gross profit per unit produced. market value per share of outstanding stock. total sales. growth rate of the firm.

market value per share of outstanding stock

The cash flow that results from a company's ongoing, normal business activities is called: cash flow to creditor. net working capital. cash flow from assets. capital spending. operating cash flow.

operating cash flow

Hayley won a lottery and will receive $1,000 each year for the next 30 years. The current value of these winnings is called the: simple amount. future value. present value. single amount. compounded value.

present value

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios. long-term solvency asset management short-term solvency turnover profitability

profitability

The most acceptable method of evaluating the financial statements is to compare the company's current financial: - statements to those of larger companies in unrelated industries. - statements to the financial statements of similar companies operating in other countries. - ratios to the company's historical ratios. - ratios to the average ratios of all companies located within the same geographic area. - statements to the projections that were created based on Tobin's Q.

ratios to the company's historical ratios.

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: sales. total assets. net income. taxable income. total equity.

sales

Financial managers should primarily focus on the interests of: themselves. the board of directors. shareholders. their immediate supervisor. the vice president of finance.

shareholders

Ultimately, the ______ control(s) the corporation. members of the board of directors chair of the board shareholders chief executive officer chief operating officer

shareholders

Ratios that measure a firm's liquidity are known as ______ ratios. asset management long-term solvency short-term solvency book value profitability

short-term solvency

A firm owned by a single person who has unlimited liability for the firm's debt is called a: limited liability company. sole proprietorship. limited partnership. corporation. general partnership.

sole proprietorship

The sources and uses of cash over a stated period of time are reflected on the: tax reconciliation statement. statement of cash flows. income statement. balance sheet. statement of operating position.

statement of cash flows

In a typical corporate organizational structure: - the treasurer reports to the president. - the chief operations officer reports to the vice president of production. - the chief executive officer reports to the president. - the controller reports to the chief financial officer. - the vice president of finance reports to the chair of the board.

the controller reports to the chief financial officer