MGT 325 Finance Test 1
RULES PROCESSES AND LAWS THAT DICTATE HOW A FIRM IS CONTROLLED OPERATED AND REGULATED IS
CORPORATE GOVERNANCE
Evaluating long term investment opportunites and determining which the firm should invest in
Capital Budgeting
Financial Managers care more about ______ than a firms EPS when evaluating acquisitions
Cash flows
Which of the following positions typically reports to the CFO?
Controller
A bond issued by in the issuers home currency but sold in other countries is a
Eurobond
Which of the following is an ex of an agency cost
Executive stock options
THE SCIENCE AND ART OF MANAGING MONEY IS KNOWN AS
FINANCE
If a firm requires external funds, where can they be obtained
Financial institution, private placements, financial markets
WHEN THE RISK OF AN INVESTMENT IS HIGH THE RATE OF RETURM REQUIRED BY THE INVESTOR WILL BE
HIGH
Sole proprietorship owned by one
Has unlimited liability which means creditors can claim against her personal assets
THE MARKET PRICE OF A SHARE OF STOCK IS DETERMINED BY
INVESTORS BUYING AND SELLING THE STOCK
When a firm issues shared of stock to the public for the very first time, it is known as
IPO
which of the following statements are the advantages of a partnership compared to a corporation
Less expensive to organize, lower income taxes
WHICH OF THE FOLLOWING IS ONE OF THE PRIMARY FUNCTIONS OF THE FINANCIAL MANAGER
MAKING FINANCING DECISIONS
THE PRIMARY GOAL OF THE FINANCIAL MANAGER IS TO:
MAXIMIZE SHAREHOLDER WEALTH
The fraction of the next dollar of income that you pay in taxes is referred as the
Marginal tax rate
If the current price of an asset reflects everything we know about that asset this supports
Market efficiency
The market where short term funds are supplied and demanded is known as the
Money market
Income that is earned thorough the sale of a firms goods and or services is known as
Ordinary income
The market where small unlisted securities are traded is known as the
Over-the-counter market (otc)
Which of the following statements are the advantages of a corporation comapared to a partnership
Ownership is readily transferable, long life of firm, owners have limited liability
WHEN A MANAGER MAKES A POOR DECISION THAT IS NOT IN THE SHAREHOLDERS BEST INTEREST IT WILL BE
REFLECTED IN THE STOCK PRICE
An ______ designs and markets an IPO and assists with the necessity filings for an ipo
Underwriter
WHICH OF THE FOLLOWING IS ONE OF THE PRIMARY QUESTIONS ADDRESSED BY FINANCIAL MANAGERS
WHERE SHOULD TH FIRM INVEST TO INCREASE SHAREHOLDER WEALTH
A PRIMARY TASK OF THE FINANCIAL MANAGER IS TO MANAGE SHORT TERM CASH NEEDS WHICH IS KNOWN AS
WORKING CAPITAL MANAGEMENT
Capital structure refers to the
mix of the firm's long-term sources of financing
corporation
one has limited liability which guarantees that she cannot lose more than one invests in the company
What is more useful to the financial manager
the cashflow statement because it recognizes revenues at the time of sale (wheter payment has been recieved or not) and recognizes expenses when the are incurred
A DISADVANTAGE OF A PARTNERSHIP IS
unlimited liability
ONE OF THE MOST FUNDAMENTAL PRINCIPLES IN THE FIELD OF FINANCE IS THAT MONEY HAS _____ VALUE
A TIME
A branch manager lays off experienced full-time employees and staffs customer service positions with part-time or temporary workers to lower employment costs and raise this year's branch profit. The manager's bonus is based on profitability. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this case?
A. Generally part-time or temporary workers are not as productive as full-time employees. These workers have not been on the job as long to increase their work efficiency. Your answer is correct.B. This manager is getting rid of good employees to increase short-term profits. Your answer is correct.C. One approach to reducing the problem would be to give the manager performance share if certain stated goals are met. Your answer is correct.D. Implementing a stock incentive plan tying management compensation to share price would also encourage the manager to retain quality employees.
The firm's chief executive officer has had secret talks with a competitor about the possibility of a merger in which she would become the CEO of the combined firms. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this case?
A. One agency cost is that the CEO may negotiate a deal with the merging competitor that is extremely beneficial to herself at the expense of selling the firm for less than its fair market value. Your answer is correct.B. A good way to reduce the loss of shareholder wealth would be to open the firm up for purchase bids from other firms once the manager makes it known that the firm is willing to merge. Your answer is correct.C. An open bidding process may encourage other firms to offer a price closer to the fair market value of the firm.
WHEN A FIRM HAS AGENCY PROBLEMS THE STOCK PRICE IS OFTEN DEPRESSED WHCIH MAKES THE FIRM
AN ATTRACTIVE TAKEOVER CANDIDATE
What information would you want if you were asked to make the decision for Ann and Jack
Age of the current owners, marital status and tax situation of each partner, growth prospects of the firm, risk tolerance of the owners,
If the managers of a company are not the owners of the company they are considered:
Agents
If you sell at the market rate, you will get the ____ price. If you buy you get the _____ price
Bid, ask
An ____ is the process by which a public firm issues new shares
Seasoned equity offering
Finacnial managers ______ when making decisions because the direct impact on shareholder wealth
Should always engage in ethical behavior
Mortgage loans made to higher risk borrowers with poor credit history are known as
Subprime mortgages
A business organization that is considered an Artifical being and has limited liability
corporation
50-50 partnership
has unlimited liability which means creditors can claim against her personal assets
