finance exam 1 definition question

A firm's capital structure refers to the firm's: a. mixture of various types of production equipment. b. investment selections for its excess cash reserves. c. combination of cash and cash equivalents. d. combination of accounts appearing on the left side of its balance sheet. e. proportions of financing from current and long-term debt and equity.

e. proportions of financing from current and long-term debt and equity.

An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the _____ rate. stated interest compound interest effective annual periodic interest daily interest

effective annual

An annuity stream of cash flow payments is a set of: equal cash flows occurring at equal periods of time over a fixed length of time. equal cash flows occurring each time period forever. either equal or varying cash flows occurring at set intervals of time for a fixed period. increasing cash flows occurring at set intervals of time that go on forever. arbitrary cash flows occurring each time period for no more than 10 years.

equal cash flows occurring at equal periods of time over a fixed length of time.

Which of the following are examples of fixed assets? office supplies inventory equipment warehouses

equipment warehouses buildings

Shareholders' equity is the difference between the value of a firm's assets and its debt. Shareholders' equity is a residual claim on a firm's assets.

equity

Identify which assets last a long time and include items such as equipment, land, machinery, or buildings. intangible fixed current Regional

fixed

On a balance sheet, patents and trademarks are classified as Blank______. fixed assets current liabilities current assets fixed liabilities

fixed assets

The book value of assets: is determined under Generally Accepted Accounting Principles (GAAP) and is based on the cost of those assets. represents the true market value of those assets according to GAAP. is always the best measure of the company's value to an investor. is always higher than the replacement cost of the assets. is shown on the firm's income statement.

is determined under Generally Accepted Accounting Principles (GAAP) and is based on the cost of those assets.

An investment is acceptable if the payback period: is less than some pre-specified period of time. exceeds the life of the investment. is negative. is equal to or greater than some pre-specified period of time. is equal to, and only if it is equal to, the investment's life.

is less than some pre-specified period of time.

Payback is frequently used to analyze independent projects because: it considers the time value of money. all relevant cash flows are included in the analysis. it is easy and quick to calculate. it is the most desirable of all the available analytical methods from a financial perspective. it produces better decisions than those made using either NPV or IRR.

it is easy and quick to calculate.

Ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as: asset management ratios. long-term solvency measures. liquidity measures. profitability ratios. market value ratios.

liquidity measures.

Corporate bonds are generally classified as _____. current liabilities shareholders' equity long-term debt fixed assets

long-term debt

A stakeholder is any person or entity: owning shares of stock of a corporation. owning bonds or other long-term debt issued by a corporation. that initially started a firm and currently has management control over that firm. to whom the firm currently owes money. other than a stockholder or creditor who potentially has a financial interest in a firm.

other than a stockholder or creditor who potentially has a financial interest in a firm.

A perpetuity differs from an annuity because: perpetuity cash flows vary with the rate of inflation. perpetuity cash flows vary with the market rate of interest. perpetuity cash flows are variable while annuity payments are constant. perpetuity cash flows never cease. annuity cash flows occur at irregular intervals of time.

perpetuity cash flows never cease.

The profitability index of an investment project is the ratio of the: average net income from the project to the average investment cost. internal rate of return to the current market rate of interest. net present value of the project's cash outflows divided by the net present value of its inflows. net present value of every cash flow related to the project compared to the initial cost. present value of the cash flows subsequent to the initial cost compared to the initial cost.

present value of the cash flows subsequent to the initial cost compared to the initial cost.

The net present value of a project is equal to the: present value of the future cash flows. future value of the future cash flows minus the initial cost. future value of the future cash flows minus the present value of the initial cost. sum of the project's anticipated cash inflows.

present value of the future cash flows minus the initial cost.

The financial ratio measured as net income divided by sales is known as the firm's: profit margin. return on assets. return on equity. asset turnover. earnings before interest and taxes.

profit margin.

One intent of the Sarbanes Oxley Act of 2002 is to: prevent minority investors from making demands on corporations. protect corporate directors from frivolous lawsuits. guarantee the repayment of all future personal loans to corporate officers and directors. protect investors from corporate abuses. require all public corporations to "go dark" within the next twenty years.

protect investors from corporate abuses.

Forms of financing are represented on the Blank______ side of the balance sheet. left right

right

Which one of the following statements concerning liquidity is correct? Liquid assets generally earn higher rates of return than fixed assets. If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid. Liquid assets are defined as those assets obtained within the past year. The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties. Balance sheet accounts are listed in order of decreasing liquidity.

Balance sheet accounts are listed in order of decreasing liquidity.

Which statement expresses all relative account values as a percentage of total assets? Pro forma balance sheet Common-size income statement Statement of cash flows Pro forma income statement Common-size balance sheet

Common-size balance sheet

Which one of these represents the best means of increasing current shareholder value? Maximizing the capital rate of the firm Increasing the current value of the overall firm Forsaking all new projects Minimizing the overall size of the firm Decreasing the number of employees

Increasing the current value of the overall firm

Which one of the following is a current liability? Amount due to a supplier in 18 months Note payable in nine months Estimated taxes just paid Loan payment due in 13 months Amount due from a customer in 30 days

Note payable in nine months

Which one of these characteristics best describes the primary advantage of being a limited partner rather than a general partner? Entitlement to a larger portion of the partnership's income Day-to-day management control of the business Profits free of any income taxation Overall control of the partnership Personal financial liability limited to the capital invested

Personal financial liability limited to the capital invested

Which statement concerning corporations is correct? There are time limits placed on the transfer of ownership. The ability to raise capital is limited to that of a general partnership. Primary shareholders have unlimited liability for corporate debts. The entity can outlive all of its initial owners. When the last original owner dies or withdraws, the entity is terminated.

The entity can outlive all of its initial owners.

which one of these best fits the description of an agency cost? The costs of increasing the dividend payment per share The benefits received from reducing production costs per unit The payment of corporate income taxes The payment required for an outside audit of the firm The payment of interest on a firm's debts

The payment required for an outside audit of the firm

Which corporate officer is responsible for managing the firm's cash? Sales manager Controller Cost accounting manager Treasurer

Treasurer

The left side of a balance sheet shows a firm's current and fixed Blank______. Multiple choice question. owners' equity assets liabilities working capital

assets

A firm's balance sheet shows a snapshot of its finances Blank______. over the given period at a point in time for the year for all times past and present at a point in time

at a point in time

The process of planning and managing a firm's long-term assets is called: working capital management. cash management. cost accounting management. capital budgeting. capital structure management.

capital budgeting.

The purpose of a firm is to Blank______. Multiple choice question. create value for the creditors create value for the owner maximize its expenses in current assets decrease its shareholders' value

create value for the owner

The ultimate control of a corporation lies in the hands of the corporate: board of directors. stockholders. president. chief executive officer. chairman of the board.

stockholders.

All else constant, the net present value of a typical investment project increases when: the discount rate increases. each cash inflow is delayed by one year. the initial cost of a project increases. the required rate of return decreases. all cash inflows occur during the last year instead of periodically throughout the project's life.

the required rate of return decreases.