Finance Exam 1-Mizzou (Hegger)

5 years ago, Lewis equipment purchased equipment costing $212,000. Two years ago, the firm paid $32,000 for updates to that equipment. This year, the firm sold the equipment for $189,000. Which of these is (are) cash inflows to Lewis equipment?

$189,000 sale price

One change brought by TCJA is that the only interest on the first _______________ of mortgage debt is deductible

$750,000

Susette invested $10,000 twenty years ago. 10 years ago she invested an additional $5,000. Last year she withdrew $8,000 to pay for a vacation. If you were to draw a time line of these events, which Value(s) would be treated as a cash inflow(s) to Susette?

$8,000 cash withdrawal

What is/are correct concerning the structure of a statement of cash flows?

1. A decrease in fixed assets is an addition to the cash flows from investing activities 2. An increase in accounts payable is an addition to the cash flows from operating activities

What parties monitor corporate activities from outside as part of corporate governance?

1. Auditors 2. Credit analysts 3. Investment analysts

What 3 decisions have the most impact on shareholder wealthy?

1. Deciding which project to accept 2. Deciding between debt and equity financing 3. Deciding how to return profits to owners

The Subarea of finance known as financial management addresses what decisions?

1. How can a form attract more capital financing? 2. Should a firm issue debt (bonds) or equity (stocks)? 3. How can corporate taxes be minimized?

What are additions to the cash flow from financing activities?

1. Increase in a long-term debt 2. Increase in common stock

What is added or subtracted from net income to compute the net cash flows from operating activities

1. Increase in inventory 2. Decrease in accrued wages and taxes 3. Depreciation

What is/are sources of cash?

1. Increase in long-term debt 2. Decrease in inventory

What are finance functions that fall under the supervision of the treasurer?

1. Interest rate hedging 2. Managing cash 3. Capital spending

What are well-developed viewpoints that have arisen regarding the goal of a firm?

1. Maximize shareholder wealth 2. Emphasize social responsibility

The net impact of the lower individual income tax rates brought by TCJA is expected to be:

1. More free cash for consumers to spend 2. Downward pressure on housing sales in the high value market 3. More potential savings on the part of investors

What/who is a monitor of corporate governance?

1. Securities and Exchange commission (SEC) 2. Board of directors

What features could accurately be included in the definition of a corporation?

1. Separate legal entity 2. Double taxation 3. Division of ownership and control

What statement best defines a general partnership?

A brother and sister form a business. The brother incurs all the firms debts but the sister has to repay all the debtors

Definition of a sole proprietorship

A business entity that is not legally separate from the owner

Definition of a hybrid organization

A business form that has some attributes of a corporation and some of proprietorships/partnerships

What is a requirement of the Sarbanes-Oxley act of 2002

A corporate boards audit committee must have considerable experience with GAAP

Financial management relates to...?

A firms decisions regarding the acquisition and use of funds

What is the definition of a general partnership?

A general partnership involved multiple owners who are each personally responsible for all partnerships debts

What example best illustrates the definition of time value of money?

A gift of $10,000 to be received in 2 years is worth $8,900 today

What is the best description of the difference between accounting and finance?

Accounting records past activities of a firm while finance helps with decisions regarding the firms future

What is the definition of an agency problem?

An agency problem is defined as the difficulties that arise when a principal hires an agent and cannot fully monitor the agents actions

What statement would best illustrate how funds flow in a financial system

An individual invests in a bank savings account and the bank lends that money to companies

What cash flow statement best illustrates a cash outflow?

Better bakery purchased a new oven for $28,600

What is a subtraction from the cash flows from financing activities

Buying back common stock

A statement of cash flows for the year ending December 31, 2012 shows a net change in cash and marketable securities of $20. How can this $20 change be defined?

Cash and marketable securities were $20 more on December 31, 2012 than they were on December 31, 2011

A statement of retained earnings showed a beginning retained earnings balance of $24 and an ending balance of $22. Net income was positive. What do you know given this information?

Cash dividends paid exceeded net income

What is a definition of cash flows from investing activities?

Cash flow from investing activities is defined as the cash flows associated with the purchase or sale of fixed or other long-term assets

Interest payments on long-term debt are found in what section of the statement of cash flows?

Cash flows from operating activities

The Sarbanes-Oxley act of 2002 requires senior management of a firm to do what?

Certify the financial statements are accurate and representative of the firms earnings

What is classified as a cash flow from operating activities

Decrease in accounts payable

What is a subtraction from the cash flows from operating activities

Decrease in accrued wages and taxes

What is a cash flow from a financing activity?

Decrease in loans payable

What is an addition to the cash flows from investing activities

Decrease in long-term assets

What is an advantage of a sole proprietorship?

Ease of formation

Which factor is credited with providing institutions with high profit margins?

Expertise and unique assets

What formula illustrates the value of $100 invested for one year at 5% interest

FV=$100 • (1+0.05)

What is an example of how finance is used throughout a firm?

Finance can be used for cost benefit analysis

What correctly defines the future value of a $1,000 investment?

Future value is the value of the investment at any date after the initial investment date

What is a subtraction from the cash flow from investing activities

Increase in a fixed asset

What is a use of cash?

Increase in a fixed asset

What would be considered the most advantageous benefit of a general partnership?

Increased capital financing as compared to a sole proprietorship

What statement correctly identifies a group that supplies money to the financial markets?

Individuals saving for retirement provide money to the financial markets

A firm with positive operating cash flow but negative free cash flow may be

Investing heavily in operating capital

What is another advantage to a sole proprietorship?

Less regulation than other business forms

What is an example of a borrower in the financial market?

Lester's wants to expand its operations but has insufficient cash to do so

What is a function of the treasury function?

Managing the firms pension plan

What characteristic is an advantage of a hybrid organization?

Owners liability

The use of excess cash to do which of these is most apt to increase shareholder wealth?

Paying dividends to shareholders

Which group has individual investors as participants and is a lender of funds to the financial markets?

People w/ money and no ideas lend funds to the financial markets

Earnings management is the process of controlling what of a firm?

Profits

A discussion of risk in what term best serves as an overall definition of risk?

Risk is best defined in the terms of the probability of a loss and the expected magnitude of that loss

What is a disadvantage of a corporation?

Separation of management and ownership

What is a disadvantage of the corporate form of business?

Separation of management and ownership

What is an advantage of a general partnership?

Single taxation

What is an advantage of a hybrid organization?

Single taxation

You are comparing 4 stocks of equal risk, which stock should have the highest price in today's market?

Stock "A" currently pays $2 a year in dividends and increases that amount by $0.50 annually

The profitability of financial market intermediaries depends on what?

Successful execution of unique professional services

What is a good example that illustrates the definition of a sole proprietorship?

Ted was forced to sell his personal home in order to pay the debts of a business he owned in entirety

Louisa invested $12,000 in a business venture which returned $4,000, $6,000 and 8,000 over the past 3 years. Which of these amounts is (are) cash outflows to Louisa

The $12,000 investment

What is the definition of cash flows from operations

The cash flows that are the direct result of the production and sale of the firms products

A firm has a negative free cash flow and a negative operating cash flow. What does this indicate?

The firm is experiencing operating or managerial problems

What is the definition of a fiduciary relationship?

The legal duty between two parties where one party must act in the interest of the other party

What correctly defines the net change in cash and marketable securities as it is used on the statement of cash flows

The net change in cash and marketable securities is the sum of the cash flows from operations, investing activities, and financing activities

What correctly defines the net changes in cash and marketable securities as it is used on the statement of cash flows

The net change in cash and marketable securities is the sum of the cash flows from operations, investing activities, and financing activities

What would correctly define the net change in cash and marketable securities as it is used on the statement of cash flows?

The net change in cash and marketable securities is the sum of the cash flows from operations, investing activities, and financing activities

What is NOT a financial decision made within a firm?

The president decides to fire the company treasurer for ethical violations

Definition of ethics

The study of values, morals, and morality

The current value of a financial asset is determined by which of the following cash flows?

The value of a financial asset is determined by the assets expected future cash flows

T/F: A decrease in a long term asset account balance is an cash flow from investing activity

True

T/F: After TCJA, US companies are more likely to "bring home" foreign profits due to the new flat tax rate

True

T/F: cash flows result from debt and equity financing transactions are cash flows from financing activities

True

What result would you expect from firms that make wise financial decisions?

You should expect the wealth of individuals to increase in the future