FNCE 3400 SmartBook/LearnSmart Chapter 1
Why would it not make sense for a firm to set financial goals like "maximize profits" or "minimize costs"?
A sole focus on items like this may lead to ignoring what is in the stockholders' long-term best interests.
Which of the following is an example of a current liability?
Accounts payable [Current liabilities are debt to be repaid in 1 year.]
In large firms, financial activity is usually associated with which top officer?
Chief financial officer
Which of the following positions generally report to the chief financial officer (CFO)?
Controller Treasurer
Which corporate officer is responsible for accurate financial accounting of the firm's activities?
Controller [The controller handles the accounting function, which includes taxes, cost and financial accounting, and information systems.]
Which of the following are examples of fixed assets?
Equipment Warehouses [Fixed assets are long-term assets such as land, buildings, equipment, and patents.]
Identify which assets last a long time and include items such as equipment, land, machinery or buildings.
Fixed [Long-term assets are referred to as fixed assets.]
Which of the following statements are true about fixed assets?
Fixed assets can be tangible or intangible. Fixed assets have a longer life than current assets.
What determines when a sale is recorded for accounting purposes?
Generally accepted accounting principles [Generally Accepted Accounting Principles define when a sale is recorded for accounting purposes. Cash flow does not necessarily occur at the time of sale.]
A good financial decision will do which of the following?
Increase the value of the firm's existing stock Increase market value of shareholders' equity
Which of the following are examples of current assets?
Inventory Cash [Current assets include cash, accounts receivable, and inventory. By definition, they are assets that will be on the balance sheet for at most one year (or one operating cycle, whichever is longer).]
A current liability is defined as debt that must be repaid within which period of time?
One year
What happens when a firm creates value?
Shareholder wealth increases.
Which of the following statements are true about shareholders' equity?
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.
When would individuals prefer to receive cash flows?
Sooner rather than later
Which of the following, according to the textbook, are possible financial goals for a company?
Survival Minimize costs Maximize profits
Shareholders' equity is the difference between which of the following?
Total assets and total debt
Which corporate officer is responsible for managing the firm's cash?
Treasurer [The treasurer is responsible for handling cash flows, managing capital expenditure decisions, and making financial plans.]
True or false: Accounting profit does not adequately account for cash flow.
True [Accounting profit records sales made and expenses incurred but not the timing of cash receipts and expenditures.]
Some of the cash flow sent from the financial markets to the firm in the form of stock purchases is then used to invest in:
assets
The left side of a balance sheet shows a firm's current and fixed ______.
assets
A firm's balance sheet shows a snapshot of the firm's finances ______.
at a single point in time [A balance sheet reflects what the company owns and owes as of a particular date.]
A bad financial decision is defined as a decision that ______ owners' equity.
decreases
Some of the cash flow generated by a firm goes back to the financial markets in the form of ______.
dividends and debt payments.
On a balance sheet, patents and trademarks are classified as ______.
fixed assets [Patents and trademarks are long-term, fixed assets.]
A ______ liability does not have to be paid within one year.
long-term
Corporate bonds are generally classified as ______.
long-term debt [takes more than 1 year to repay]
Assuming interest rates are positive, one dollar received today is worth ______ one dollar received next year.
more than [Assuming interest rates are positive, one dollar received today is worth more than one dollar received next year, because we could invest that dollar today and have more than a dollar next year.]
As the amount and timing of cash flows are not known with certainty, this means that investors carry a certain amount of _____, which firms should be aware of.
risk
Most investors have an aversion to ______.
risk
A current asset has a(n) ______ life.
short [Currents assets are short-term assets. By definition, they are assets that will be on the balance sheet for at most one year (or one operating cycle, whichever is longer).]
The primary responsibility of financial managers is to increase the value of _____.
the existing shares of stock
The purpose of the firm is to create _____ for the owner.
value