V9 Michael's Super Cool extensive tool for studying finance

A bond differs from a share of stock in that: -a bond represents a claim on the firm. -a bond has more risk. -a bond has guaranteed returns. -a bond has a maturity date.

a bond has a maturity date

A bond differs from a share of stock in that

a bond has a maturity date.

Which of the following is a financial asset

a corporate bond

A corporation is...

a distinct, permanent legal entity

Who was responsible for the financial crisis of 2007-2009?

The U.S. Federal Reserve, for its policy of easy money The U.S. government, for pushing banks to expand credit for low-income housing Bankers, who aggressively promoted and resold subprime mortgages → All of these

Who was responsible for the financial crisis of 2007-2009? The U.S. Federal Reserve, the U.S. government, rating agencies, and bankers The U.S. government, for pushing banks to expand credit for low-income housing The U.S. Federal Reserve, for its policy of easy money Bankers, who aggressively promoted and resold subprime mortgages

The U.S. Federal Reserve, the U.S. government, rating agencies, and bankers

A stream of equal cash payments lasting forever is termed: an installment plan. a perpetuity. an annuity due. an annuity.

a perpetuity.

If the cash coverage ratio exceeds the times interest earned ratio, then the firm has:

a positive cash flow

What is agency problem and how does it arise in a corporation?

The agency problem is a conflict of interest between the principal and the agent. It arises because of the separation of ownership and management in corporation.

Balance Sheet

a snapshot of the firm's assets and liabilities

For a corporation in the 25% marrginal tax bracket that incurs $70 in labour and materials expense, plus $15 in depreciation expense while generating an incremental revenue of $100, tax liability will increase by: a. $3.75 b. $7.50 c. $13.75 d. $25

a. $3.75

In 2016, Newbie Corp. has total assets of $1 billion, total current assets of $300 million, total shareholder's equity of $700 million, total current liabilities of $100 million. You are preparing a COMMON-SIZE balance sheet for Newbie Corp, which of the following numbers should be used for "Long-term liabilities" item? a. 20% b. $300 million c. 30% d. $400 million e. $200 million

a. 20%

Which of the following forms of compensation is most likely to align the interests of managers and shareholders? a. A salary that is linked to the total market value of the corporation's stocks b. A fixed salary c. A salary that is linked to next quarter's profits d. A salary that is linked to next quarter's sales

a. A salary that is linked to the total market value of the corporation's stocks

Financial markets and intermediaries: a. Channel savings to real investment. b. Increase risks for businesses. c. Generally reduce the liquidity of securities. d. Prevent the transportation of cash across time.

a. Channel savings to real investment.

A capital investment that generates a 10% rate of return is worthwhile if: a. Corporate bonds of similar risk offer 8% rates of return. b. Corporate bonds of similar risk offer 11% rates of return. c. Top-quality corporate bonds offer 10% rates of return. d. The expected rate of return on the stock market is 12%.

a. Corporate bonds of similar risk offer 8% rates of return.

Which of the following are real assets, and which are financial? a. A share of stock: b. A personal IOU: c. A trademark: d. A truck: e. Undeveloped land f. The balance in the firm's checking account g. An experienced and hardworking sales force h. A bank loan agreement

a. Financial asset b. Financial asset c. Real asset d. Real asset e. Real asset f. Financial asset g. Real asset h. Financial asset

Which of the following changes in working capital will result in an increase in cash flows? a. Increase in accounts payable b. Increase in inventories c. Increase in accounts receivable d. Decrease in other current liabilities

a. Increase in accounts payable

When Tri-C Corp. compares its ratios to industry averages, it has a higher current ratio, an average quick ratio, and a low inventory turnover. What might you assume about Tri-C? a. Its inventory is too high. b. Its cost of goods sold is too low. c. Its current liabilities are too low. d. Its cash balance is too low.

a. Its inventory is too high.

Choose the type of company in each case that best fits the description. a. The business is owned by a small group of investors. b. The business does not pay income tax. c. The business has limited liability. d. The business is owned by its shareholders.

a. Private corporation b. Public corporation c. Public corporation d. Public corporation

Corporate financing comes from: a. Savings by households and foreign investors. b. Cash generated from the firm's operations. c. The financial markets and intermediaries. d. The issue of shares in the firm.

a. Savings by households and foreign investors.

Which one of these parties cannot invest in a hedge fund? a. Small retail investors b. Pension funds c. Insurance companies d. Wealthy individuals

a. Small retail investors

In general, what is changing as you read down the LEFT hand side of a balance sheet? a. The assets are becoming less liquid. b. All current assets are tangible and all fixed assets are intangible. c. The assets are growing in value. d. Current assets are funded by debt financing and fixed assets are funded by equity financing.

a. The assets are becoming less liquid.

According to ACCRUAL accounting, when goods are not sold until the month after they were produced in March, then the cost of goods sold: a. Will be recognized in April b. Will be recognized in March c. Will be recognized when payment is received d. Will be split between both months

a. Will be recognized in April

We claim that the goal of the firm is to maximize current market value. Could the following actions be consistent with that goal? a. The firm adds a cost-of-living adjustment to the pensions of its retired employees. b. The firm reduces its dividend payment, choosing to reinvest more earnings in the business. c. The firm buys a corporate jet for its executives. d. The firm drills for oil in a remote jungle. The chance of finding oil is only 1 in 5.

a. Yes b. Yes c. Yes d. Yes

when subtracting an asset's accumulated depreciatin from its historic cost, the resulting value is termed the: a. book value of the asset b. market value of the asset c. depreciation expense d. current asset vaue

a. book value of the asset

in which of the following asset accounts are you LEAST likely to find a difference between market value and book value? a. cash b. inventory c. land d. shareholders' equity

a. cash

which one of the following expenses cannot be used to reduce taxable corporate income? a. cash dividends b. depreciation expense c. interest expense d. administrative expense

a. cash dividends

which of the following categories of a statement of cash flows is affected by the payment of interest expense? a. cash flows from operations b. cash flows from noncash expenses c. cash flows from investments d. cash flows from financing

a. cash flows from operations

if a payment of principal is due in 7 months on a long term liability, that payment will appear on the current balance sheeet now as a(n): a. current liability b. long term debt c. cash d. interest expense

a. current liability

which of the following changes in working capital will result in an increase in cash flow? a. increase in AP b. increase in inventory c. increase in AR d. decrease in other CL

a. increase in AP

for all canadian corporations except those in the lowest and highest tax brackets, it is the case that thier: a. marginal tax rate exceeds their average tax rate b. average tax rate exceeds their marginal tax rate c. marginal tax rate equals their average tax rate d. marginal tax rate equals 15%

a. marginal tax rate exceeds their average tax rate

which of the following assets is liekly to be considered the most liquiid? a. marketable securities b. net fixed assets c. accounts payable d. inventory

a. marketable securities

in a statement of cash flows, which category includes deprecation expense? a. operations b. investments c. financing d. none of the above; depreciation is a non-cash expense

a. operations

which of the following statements is correct for an individual with a net income of $50000, a tax liability of $10704.50, and a 28% marginal tax rate? a. the average tax rate is 21.41% b. the average tax rate is 28% c. the average tax rate is unknown, but less than the marginal tax rate d. the average tax rate is unknown, but greater than the marginal tax rate

a. the average tax rate is 21.41%

Financial conditions (solvency)

ability to pay both current and long term debt when due

Financial conditions (liability)

ability to satisfy current operating needs (to pay current liabilities when due)

Financial conditions (profitability)

ability to sustain operations during grave economics times (including boycotts, heavy regulations, and consumer activism)

Average Collection Period

accounts receivable/annual credit sales/365

The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:

accrual accounting.

"Reinvestment" means:

additional investment by existing shareholders

Financial markets and intermediaries: -channel savings to real investment. -enable investors and businesses to reduce risk. -provide liquidity. -all of these

all of these

Insurance companies can usually cover the claims of policyholders because: -the incidence of claims normally averages out. -they issue thousands of insurance policies. -the cost of paying for claims has already been factored into the price of the policies. -all of these.

all of these

Profit maximization is not a well-defined corporate objective because: -it leaves open the question of which year's profits. -higher profits does not necessarily mean a better rate of return. -profits can be changed by using different accounting rules. -all of these.

all of these

Depreciation expense is used to: -allocate costs to all departments of the firm. -determine when an asset is fully paid off. -allocate historical cost over the life of an asset. -equate the historical cost and market values of an asset.

allocate historical cost over the life of an asset

Depreciation expense is used to:

allocate historical cost over the life of an asset.

Marginal tax rates are based on: -net income. -total income. -an additional dollar of income. -earnings before interest and taxes.

an additional dollar of income

Banks cover the costs of the service they provide primarily via:

an interest rate differential

Coupon Payment

The amount of periodic interest payments to the investor

Face Value

The amount the borrow pays the investor at the bond's maturity.

Bond Price

The amount the investor pays the bond seller

In general, what is changing as you read down the left-hand side of a balance sheet? -The assets are more fully depreciated. -The assets are growing in value. -The assets are increasing in maturity. -The assets are becoming less liquid

The assets are becoming less liquid

In general, what is changing as you read down the left-hand side of a balance sheet? The assets are becoming less liquid. The assets are becoming more fully depreciated. The assets are increasing in maturity. The assets are increasing in value.

The assets are becoming less liquid

Banks cover the costs of the service they provide primarily via: -a management fee. -a service charge. -an interest rate differential. -an operating fee.

an interest rate differential

Which one of these determines the minimum acceptable rate of return on a capital investment?

The available alternative investment opportunities

What is a Stock?

an ownership claim against a company's assets after deducting its liabilities

Which of the following statements is correct for an individual with a net income of $50,000.00, a tax liability of $10,704.50, and a 28% marginal tax rate? -The average tax rate is 17.63%. -The average tax rate is 21.41%. -The average tax rate is 28.00%. -The average tax rate is unknown but greater than the marginal tax rate.

The average tax rate is 17.63%

If interest is paid m times per year, then the per-period interest rate equals the: - effective annual rate. - annual percentage rate divided by m. - compound interest rate times m. - effective annual rate divided by m.

annual percentage rate divided by m.

Corporate Tax Computation[average (effective) tax]

arithmetic mean of total taxes paid divided by total taxable income (EBT)

A balance sheet portrays the value of a firm's assets and liabilities: -over an annual period. -over any stated period of time. -at any stated point in time. -only at the end of the calendar year

at any stated point in time

Firm's should only invest in opportunities that provide a return of...

at least their cost of capital

if a firm generates $2000 in sales and has a $500 increases in AR during an accounting period, then, based on these two categories, cash flow will increase by: a. $2500 b. $2000 c. $1500 d. $500

b. $2000

In 2016, Newbie Corp. has total assets of $1 billion, total current assets of $300 million, total shareholder's equity of $700 million, total current liabilities of $100 million. You are preparing a balance sheet for Newbie Corp, which of the following numbers should be used for "Total liabilities" item? a. 30% b. $300 million c. 40% d. $400 million

b. $300 million

What is the ROA of a firm with $150,000 in receivables, which represents 60 days sales, assets of $750,000, and an operating profit margin of 6%? a. 6.08% b. 7.30% c. 10.95% d. 16.70%

b. 7.30% ROA = Asset turnover * Operating PM Asset turnover = Sales / Assets Average collection period = AR/daily sales daily sales = 150000/60 = 2500 Sales = 2500 * 365 Asset turnover = 2500 * 365 /750000 =1.2167 ROA = 1.2167 * 6% = 7.3%

Corporate managers are expected to make corporate decisions that are in the best interest of:

The corporations shareholders

Which one of the following would be considered a capital budgeting decision? a. Planning to issue common stock rather than issuing preferred stock b. Deciding to expand into a new line of products, at a cost of $5 million c. Repurchasing shares of common stock d. Issuing debt in the form of long-term bonds

b. Deciding to expand into a new line of products, at a cost of $5 million

Which of the following is not typically considered a function of financial intermediaries? a. Providing a payment mechanism b. Investing in real assets c. Accumulating funds from smaller investors d. Spreading, or pooling risk among individuals

b. Investing in real assets

An example of a firm's financing decision would be: a. Deciding whether or not to increase the price of its products. b. Issuing 10-year versus 20-year bonds. c. Acquiring a competitive firm. d. Determining how much to pay for a specific asset.

b. Issuing 10-year versus 20-year bonds.

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale? a. IBM b. The first investor c. The second investor d. IBM and both investors

b. The first investor

what is the marginal impact on taxes for a profitable corporation in the 35% marginal tax bracket that incurs an additional dollar of depreciation expense? a. decrease of 65 cents b. decrease of 35 cents c. an increase of 65 cents d. zero impact

b. a decrease of 35 cents

which of the following items should not be included in a listing of current assets? a. marketable securities b. accounts payable c. accounts receivable d. inventories

b. accounts payable

accumulated depreciation is used to reduce what tpe of account on the balance sheet a. current asset b. capital assets or fixed assets c. liability d. owners equity

b. capital assets or fixed assets

what happens when moving from net income to cash flows as the result of an increase in inventory balances? a. cash flows increase b. cash flows decrease c. cash flows are unchanged d. the change in cash flows cannot be determined

b. cash flows decrease

if a firms net income is positive and its non-cash expenses are positive, which of the following could account for a negative amount of cash provided by operations a. current assets decrease more than current liabilities decrease b. current assets increase more than current liabilities increase c. current assets decrease more than current liabilities increase d. a large addition is made to plant and equipment

b. current assets increase more than current liabilities increase

an increase in depreciation expense will (other things equal): a. increase net income b. decrease net income c. increase cash flow d. decrease the market value of assets

b. decrease net income

which of the following expense categories is subtracted from total revenues to arrive at a firms EBIT? a. cash dividends b. depreciation expense c. interest expense d. tax liability

b. depreciation expense

which of the following is NOT a typica reason for differences between profit and cash flow? a. depreciation expense b. income taxes c. changing levels of accounts receivable d. accrual accounting practices

b. income taxes

which of the following is more likely to be correct if market value of equity is less than book value of equity? a. investors anticipate excellent earning potential b. investors anticipate low earning potential c. assets have been fully depreciated d. the company is bankrupt

b. investors anticipate low earning potential

a balance sheet may be considered "backward looking", from the perspective that: a. it works backward, starting with net income b. it records historic, not current values c. it cannot forecast the future d. it records costs over many previous periods

b. it records historic, not current values

interest expense appears in the operations section of the cash flows statement because: a. firms cannot operate without incurring interest expense b. its payment is not within managerial discretion c. it is paid to finance a firms inventory d. false statement,

b. its payment is not within managerial discretion

if market interest rates have increased since a company last borrowed long-term funds, the market value of these longterm funds will likely be: a. greater than their book value b. less than their book value c. equal to their book value d. unknown without knowing the maturity of the debt

b. less than their book value

if the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders equity then the firm has: a. no retainded earnings b. long term debt c. no accumulated depreciation d. current assets

b. long term debt

which of the following values would most likely interest a shareholder? a. book value of equity b. market value of equity c. historical cost of equity d. retained earnings component of equity

b. market value of equity

which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1000 shares of outstanding stock? a. market value of liabilities exceeds book value of liabilities b. market value of liabilities equals $1 million c. market value per share equals $1000 d. market value per share equals $2000

b. market value of liabilities equals $1 million

ABC Corp's balance sheet showers their long term debt of $10 million. The debt was issued with a 10% interest rate, and the current interest rate is 7%. Based on this information, the market value of this debt would be: a. less than $20 million b. more than $20 million c. equal to $20 million d. unknown without knowing the maturity of the debt

b. more than $20 million

According to the statement of cash flows, cash flows from financing could be positive if: the firm added more debt than it repaid. the firm sold portions of its plant and equipment. interest rates were low on outstanding debt. the firm repaid more debt than it added.

The firm added more debt than it repaid

accrual accoutning, which attempts to match sales revenues and the expenses associated with the production of goods is conducted in an attempt to: a. reduce income tax liability b. reduce bias in reported profitability measures c. speed up the receipt of AR d. reduce the time necessary to depreciate assets

b. reduce bias in reported profitability measures

which of the following information is reported on the income statement? a. AP b. revenues, expenses, and net income or loss c. current liabilities d. current portion of LTD

b. revenues, expenses, net income or loss

according to the statement of cash flows, cash flows from financing could be positive if: a. the firm repaid more debt than it added b. the firm added more debt than it repaid c. interest rates were low on outstanding debt d. the firm sold portions of its plant and equipment

b. the firm added more debt than it repaid

when an accountant does not report all of the potentially relevant financial information on the firms financial statements, the accountnat is most likely: a. hiding transactions from the shareholders b. using the discretion that is built into GAAP c. not following GAAP d. not licensed to practice accounting

b. using the discretion that is built into GAAP

according to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold: a. will be recognized in the first period b. will be recognized in the second period c. will be recognized when payment is received d. will be split between both periods

b. will be recognized in the second period

How may a reduction in cash dividends be in the best interests of current shareholders?

The firm will have available cash to increase current investment and future profits.

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale?

The first investor

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale? The second investor IBM The first investor IBM and both investors

The first investor

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale? -IBM. -The first investor. -The second investor. -Profit is split between IBM and the investor.

The first investor

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale? IBM IBM and both investors The first investor The second investor

The first investor

A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale?

The first investor.

What is an IPO?

The first time a company sells stock to the public (Initial Public Offering)

Opportunity Cost of Capital

The minimum acceptable rate of return on capital investment is set by the investment opportunities available to shareholders in financial markets

Capital Structure

The mixture of debt and equity maintained by a firm

Limited Liability

The owners of the corporation are not personally responsible for its obligations

Agency Problem

The possibility of conflict of interest between the owners and management of a firm.

Agency problem

The possibility of conflict of interest between the stockholders and management of a firm

Which of the following information is not provided by the financial markets?

The price of six ounces of gold The cost of borrowing $500,000 for 5 years → Microsoft's earnings in 2002 The cost of wiring one million yen to Japan

Capital Budgeting

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

Capital Budgeting

The process of planning and managing a firm's longterm investments

provides a snapshot of the firms assets and liabilities

balance sheet

Municipal Bonds

bonds issued by cities and states

Corporate Bonds

bonds issued by companies

Treasury Notes and Bonds

bonds issued by the Federal Government

value of assets or liabilities according to the balance sheet

book value

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the: -book value of the asset. -market value of the asset. -depreciation expense. -current asset value.

book value of the asset

The short-term decisions of financial managers are comprised of:

both investment and financing decisions.

you are a beginning investor with only $5000 in savings. how can you achieve a widely diversified portfolio at a reasonable cost?

buy shares in a mutual fund

Which of the following actions could improve a firm's current ratio if it is now less than 1.0?

buying inventory on credit

Property insurance companies protect themselves against the extensive damage caused by hurricanes and earthquakes by

buying reinsurance against such catastrophes참사, 재앙

What is the relationship between a bondholder's rate of return and the bond's yield to maturity if he does not hold the bond until it matures? - The rate of return will be higher than the yield to maturity. - There is no predetermined relationship between the rate of return and the yield to maturity. - The rate of return will equal the yield to maturity. - The rate of return will be lower than the yield to maturity.

The rate of return will be lower than the yield to maturity.

A company can pay for its expansion in all the following ways except: -by using the earnings generated from its sale of obsolete equipment. -by persuading the director's mother to make a personal loan to the company. -by purchasing bonds in the secondary market. -by selling stock certificates for a new subsidiary.

by purchasing bonds in the secondary market

A company can pay for its expansion in all the following ways except:

by purchasing bonds in the secondary market.

What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market/book ratio of 3? a. $30.00 b. $60.00 c. $90.00 d. $105.00

c. $90.00 Book value of equity per sh = 3,000,000/100,000 = 30 M/B = 3 Market value of equity per sh = 30 *3

stock market price=

"perceived" risk

Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense. -$500,000 -$380,000 -$0 -($120,000)

$0

Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period. Based solely on this information, cash flow will increase by:

$1,500

Assume a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period. Based solely on this information, cash flow will increase by: $2,500. $2,000. $500. $1,500.

$1,500.

An asset turnover ratio of 1.75 can be interpreted as: $1.75 in additional assets are generated by every $1 of sales. $1.75 in sales are generated by every $1 of assets. $1 in sales are used to generate $1.75 in assets. $1.75 in assets are used to generate $1 of sales.

$1.75 in sales are generated by every $1 of assets.

according to the current Canadian federal income tax structure, the marginal tax rate for personal taxpayers in the highest levels of income is: a. 15% b. 25% c. 29% d. 39.6%

c. 29%

Net Corp. has an ROE of 20% and would like to see earnings grow at a 8% annual rate. What percent of earnings can they afford to pay out as dividends? a. 40% b. 50% c. 60% d. 75%

c. 60% Growth rate = ROE * Plow back ratio 8% = 20% * .4 Dividend payout ratio = 1 - .4

Which of the following is correct for a fully depreciated asset? -Market value is zero. -Market value is greater than book value. -Book value is greater than market value. -The relationship between market and book values is indeterminable.

The relationship between market and book values is indeterminable

Which of the following is a financial asset? a. A patent b. An iPhone c. A share of Google's stock d. New brand of potato chips

c. A new share of Google's stock

Which of the following is correct for a fully depreciated asset? Market value is greater than book value. Book value is greater than market value. Market value is zero. The relationship between market and book values is indeterminable.

The relationship between market and book values is indeterminable.

which of the following could account for a firm that has a negative net income, yet has a positive amount of cash provided by operations? a. the net loss was greater than the amount of depreciation expense b. inventory increased significantly more than AP c. AR decreased by significantly more than AP d. cash balances declined to the desired amount

c. AR decreased by significantly more than AP

Maturity

The time from when the bond was issued to when it is paid off.

Benefits associated with debt

The use of debt can increase, or leverage up, a firms ROE if the firm earns more on its assets than the interest rate it pays on debt

Which of the following will allow your firm to achieve its targeted 15% ROA with an asset turnover of 2.0? a. A leverage ration of 1/5 b. A P/E ratio of 2 c. An operating profit margin of 7.5% d. An operating profit margin of 5%

c. An operating profit margin of 7.5%

TSI Inc. has enough liquid assets to finance its operations for 67 days and cash, marketable securities, and receivables totaling $1,000. TSI's average daily expenditures from operations are: $14.93. $6.70. $8.23. $22.28.

$14.93.

A corporation declares $25 million in net income, $1 million in preferred stock dividends, and $7 million in common stock dividends. By how much will shareholders' equity increase on the balance sheet? $25 million $19 million $17 million $18 million

$17 million

A company can pay for its expansion in all the following ways except: a. By using the earnings generated from its sale of obsolete equipment. b. By persuading a director's mother to make a personal loan to the company. c. By purchasing bonds in the secondary market. d. By selling stock certificates for a new subsidiary

c. By purchasing bonds in the secondary market.

Which of the following will occur in the statement of cash flows as a result of paying cash dividends? a. Cash flows from operations will increase. b. Cash flows from investment will decrease. c. Cash flows from financing activities will decrease. d. Cash balances will not be affected.

c. Cash flows from financing activities will decrease.

An asset's liquidity measures its: a. Potential for generating a profit. b. Cash requirements. c. Ease and cost of being converted to cash. d. Proportion of debt financing.

c. Ease and cost of being converted to cash.

Which of the following correctly states the difference between debt and equity? a. Shareholders do not have voting rights while lenders have voting rights. b. A share of Microsoft stock is a financial obligation to Microsoft. c. Equity represents ownership. d. A firm will have to file for bankruptcy if this firm misses a dividend payment.

c. Equity represents ownership.

Which of the following statements best distinguishes the difference between real and financial assets? a. Real assets have less value than financial assets. b. Real assets are tangible; financial assets are not. c. Financial assets represent claims to income that is generated by real assets. d. Financial assets appreciate in value; real assets depreciate in value.

c. Financial assets represent claims to income that is generated by real assets.

Retained earnings result from: a. The sale of additional shares of stock to investors d. An excess of assets over liabilities c. Income not paid to shareholders d. An excess of equity over liabilites

c. Income not paid to shareholders

Which of the following should be the goal of the corporation? a. Triple Bottom Line b. Maximize profit c. Maximize the market value of the shareholders' investment in the firm. d. Maximize market share

c. Maximize the market value of the shareholders' investment in the firm.

Which of the following information is not provided by the financial markets? a. The price of 6 ounces of gold b. The cost of borrowing $500,000 for 5 yrs c. Microsoft's earnings in 2016 d. The cost of one million yen in US dollars

c. Microsoft's earnings in 2016

If the balance sheet of a firm indicates that total assets equals current liabilities plus shareholders' equity, then the firm has: a. No retained earnings b. No accumulated deprecation c. No long-term debt d. No current assets

c. No long-term debt

A primary market would be utilized when: a. Investors buy or sell existing securities. b. Shares of common stock are exchanged. c. Securities are initially issued. d. A commission must be paid on the transaction

c. Securities are initially issued.

which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period? a. high depreciation expense b. reduction of inventory levels c. acquisition of equipment d. increase in accounts payable

c. acquisition of equipment

depreciation expense is used to: a. allocate costs to all departments of the firm b. determine when an asset is fully paid off c. allocate historical cost over the life of an asset d. equate the historical cost and market values of an asset

c. allocated historical cost over the life of an asset

marginal tax rates are based on: a. net income b. total income c. an additional dollar of income d. earnings before interest and taxes

c. an additional dollar of income

a balance sheet portrays the value of a firm's assets and liabilities : a. over an annual period b. over any stated period of time c. at any stated point in time d. at the end of the calendar year

c. at any stated point in time

How does the Du Pont system help identify the determinants of the firm's return on its assets and equity? a. The formula states that the return on equity is the product of the firm's leverage ratio, asset turnover, operating profit margin, and debt burden. b. The formula states that the return on assets is the product of the firm's asset turnover and operating profit margin. c. both A and B are correct. d. None are correct

c. both A and B are correct.

an individuals income for the year includes both dividend and interest payments. Which of the following statements will be correct concering that individuals tax liability? a. divides are taxed; tax on interest payments is paid at the corporate level b. interest is taxed; tax on dividend payments is paid at the corporate level c. both dividend and interest payments are taxed at the personal level d. all taxes on dividend and interest payments are paid at the corporate level

c. both dividend and interest payments are taxed at the personal level

who pays the taxes on earnings distributed as dividends? a. the corporation b. the investor receiving the dividend c. both the corporation and the investor d. neither the corporation nor the investor

c. both the corporation and the investor

the net income figure on an income statement is calculated before deducting: a. interest expense b. depreciation expense c. cash dividends d. tax liability

c. cash dividends

which of the following will occur in a statement of cash flows as a result of paying cash dividends? a. cash flows from operations will increase b. cash flows from investments will decrease c. cash flows from financing will decrease d. cash balances will not be affected

c. cash flows from financing will decrease

net working capital is calculated by taking the difference between: a. total assets and total liabilities b. inventory and accounts payable c. current assets and current liabilities d. cash and long term debt

c. current assets and current liabilities

which of the following statements is more likely if cash and marketable securities increase by $5000 during a period in which cash provided by operations increase by $1000 and cash used by investments decreases by $500? a. cash provided by financing increases by $3500 b. cash used by financing decreases by $1000 c. debt increased by more than cash dividends paid d. debt was reduced by more than cash dividends paid

c. debt increased by more than cash dividends paid

which of the following cash outflows does not reduce a firms net income? a. income taxes b. interest expense c. dividends d. depreciation expense

c. dividends

net working captal is a measure of the companys: a. goodwill b. short term liabilities c. estimated liquidity d. shareholders equity

c. estimated liquidity

what balancing entry is most likely to be called for if previously excluded intangible assets were added to a firms balance sheet? a. increase accumulated depreciation b. decrease long term debt c. increase shareholders equity d. decrease current assets

c. increase shareholders equity

the existence of "goodwill" on a corporate balance sheet indicates that the corporation has: a. been profitable in the past b. depreciated its tangible assets c. intangible assets from past acquisitions d. retained earnings resulting from past income

c. intangible assets from past acquisitions

perhaps the best method for estimating the market value of shareholders' equity is to: a. read from the firms balance sheet b. read from the firms income statement c. multiply number of shares outstanding by the price of each share d. add the retained earnings plus total liabilities

c. mutliply number of shares outstanding by the price of each share

what happens to firms net worth as it uses cash to repay accounts payable? a. net worth increases b. net worth decreases c. net worth remains the same d. net worth decreases temporarily, until cash is replenished

c. net worth remains constant

if a firms cash flow statement shows that cash was used for investments, which of the following would seem most likely? a. the inventory balance increased b. common stock was repurchased c. new machines were acquired d. cash dividends are paid

c. new machines were acquired

if the value of a firms net fixed assets equals the value of the accumulated depreciation, then, from an accounting context, the fixed assets are: a. new b. fully depreciated c. one-half depreciated d. equal in value to the firms current assets

c. one half depreciated

What are the annual sales for a firm with $400,000 in debt, a total debt ratio of .4, and an asset turnover of 3? $1,200,000 $1,800,000 $333,333 $3,000,000

$3,000,000

Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85. How much additional tax will the firm owe if its marginal tax rate is 25%?

$3.75

Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85. How much additional tax will the firm owe if its marginal tax rate is 25%? $13.75 $7.50 $25.00 $3.75

$3.75

For a corporation in the 25% marginal tax bracket that incurs $70.00 in labor and materials expense, plus $15.00 in depreciation expense while generating an incremental revenue of $100.00, tax liability will increase by: -$3.75. -$7.50. -$13.75. -$25.00

$3.75

if market values of equity exceed book values of equity then, a. equity has been depreciated too quickly b. the firm uses accrual-based accoutning C. profit potential is expected to be attractive d. the firm is holding too much cash

c. profit potential is expected to be attractive

Balsco's balance sheet shows total assets of $238,000 and total liabilities of $107,000. The firm has 55,000 shares of stock outstanding that sell for $11 a share. What is amount of market value added?

$474,000

Balsco's balance sheet shows total assets of $238,000 and total liabilities of $107,000. The firm has 55,000 shares of stock outstanding that sell for $11 a share. What is amount of market value added? $389,000 $123,712 $474,000 $1,073,000

$474,000

A firm's profit margin when ignoring the effects of financing is 20% with an EBIT of $1.5 million and sales of $5 million. How much did the firm pay in taxes? $50,000 $500,000 $350,000 $300,000

$500,000

What is the book value per share for a firm with 2 million shares outstanding at a price of $50, a market-to-book ratio of .75, and a dividend-payout ratio of 50%? $62.50 $33.33 $37.50 $66.67

$66.67

Assume tax rates on single individuals are 10% on taxable income up to $9,075, 15% on income of $9,076 to $36,900 and 25% on income of $36,901 to $89,350. What is the tax liability for a single individual with $52,000 of taxable income, which includes $2,000 of dividends?

$8,856.25

Your great aunt invested $10,000 in an account in your name several years ago. The account has paid an average annual rate of 6.8 percent. Today, the account is worth $85,393. How long ago was this money invested for your benefit?

$85,393 = $10,000 × (1 + 0.068)^t; t = 32.60 years ago

What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market-to-book ratio of 3?

$90

marginal tax rate

% of last dollar taxed

Selling expenses

(including other selling expenses) incurred directly in selling of merchandise (advertising, commission, sales wages, and delivery expenses)

Economic Value Added

(r-k)xA

Which of the following statements always apply to corporations? (Select all that apply.) - Unlimited liability - Limited life - Ownership can be transferred without affecting operations - Managers can be fired with no effect on ownership

- Ownership can be transferred without affecting operations - Managers can be fired with no effect on ownership

if market values of equity exceed book values of equity, then: a. equity has been depreciated too rapidly b. the firm uses accrual-based accounting c. profit potential is expected to be attractive d. the firm is holding too much cash

c. profit potential is expected to be attractive

which of the firms financial statements most clearly recognizes the payment for new equipment? a. balance sheet b. income statement c. statement of cash flows d. statement of condition

c. statement of cash flows

Intrinsic Value

-An estimate of a stocks "true" value based on accurate risk and return data -Can be estimated, but not measured precisely -In equilibrium, a stock's price should equal its "true" or intrinsic value -long run concept -If investor perceptions are incorrect, a stocks price in the short run may deviate from its intrinsic value -Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the short run

Most large companies have 3 top-level financial managers:

-CFO -treasurer -controller

Potential problems and limitations of financial ratio analysis

-Comparison with industry averages is difficult for a conglomerate firm that operates in many different divisions. -Different operating and accounting practices can distort comparisons. -Sometimes it is hard to tell if a ratio is "good" or "bad." -Difficult to tell whether a company is, on balance, in a strong or weak position.

Owner's Equity

-Contributed capital, stock equity including both stock and paid in capital accounts -Retained earnings, internally generated profits plowed back into the business

Stockholder-Debtholder: Conflict of interest

-Debtholders normally receive fixed payments regardless of how well the company does -Stockholders do better when the company does better, hence stockholders are more willing to take on risky projects. -Bondholders are more concerned about the use of additional debt -Bondholders can attempt to protect themselves by including covenants in bond agreements that limit the use of additional debt and constrain managers' actions.

Disadvantages of Proprietorships and Partnerships

-Difficult to raise capital -Unlimited liability -Limited life

Corporation's disadvantages

-Double taxation, corporation taxed on profits and stockholders taxed on dividends distributed -Agency problem of conflicting interest between owners and managers -Most regulated form of business

Advantages of Proprietorships and Partnerships

-Ease of formation -subject to few regulations -no corporate income taxes

Sole proprietorship's advantages

-Easiest to start -Least regulated -Taxed once on earned profits

Corporation's advantages

-Greatest access to capital and credit debt financial markets -Unlimited life -Liability limited to corporate entity's resources

Sole proprietorship's disadvantages

-Life limited to owner's life willingness to remain in business -Capital and debt financing restricted to owner's personal wealth and personal contacts -Unlimited personal liability for business suits

Partnership's disadvantages

-Life limited to partners' lives or willingness to remain contractually bound together -must maintain a consensus among contractually equal partners -General Partners: unlimited personal liability for business suits

The following factors affect managerial behavior (Techniques stockholders can use to motivate managers to maximize their stocks long-run price):

-Managerial compensation packages -Direct intervention by shareholders -The threat of firing -The treat of a takeover

Stockholder-Manager: conflicts of interest

-Managers are inclined to act in their own best interest (which is not always the same as the interest of stockholders_. - Also called "principal-agent problems" -Principal hires an agent to represent his/her interest -Stockholders (principals) hire managers (agents) to run the company -Agency problem (conflict of interest) arises when the manager's interest differs from the stockholders'. Expensive perquisites: corporate jet, limo, ... Survival Independence

Partnership's Advantages

-More owners and larger entity size to tap a greater pool of personal wealth and personal contacts for financing -Taxed once on allocated earned profits

General Partners

-Share in profits -Make management decisions

Limited partners

-Share profits -DO NOT make management decisions

The goal of financial management:

-The primary goal of management is shareholder wealth maximization, aka they want to maximize stock price. -Value of any asset is present value of cash flow stream to owners -The most important decisions are evaluated in terms of their financial consequences.

Advantages of Corporations

-Unlimited life -Easy transfer of ownership -limited liability -ease of raising capital

Financial Management

-also called "corporate finance" -corporate decisions, such as assets acquisition, capital raising

Controller's are responsible for:

-budgeting -accounting -taxes

Treasurers are responsible for:

-cash management -raising capital -banking relationships

Who are the principal financial managers in a corporation?

-controller -CFO

the stock and bond markets are no the only financial markets. Give two or three additional examples.

-derivatives markets -money markets -foreign exchange markets

Disadvantages to a corporation

-double taxation -cost of a setup and report filing

Disadvantages of Corporations

-double taxation (paying taxes at two different levels) -cost of setup and report filing (quarterly basis)

Advantages to a Sole Proprietorship

-ease of formation -subject to few regulations -no corporate income taxes

Proprietorships and Partnerships are often set through LLCs/LLPs

-limited liability companies/partnerships -limited liability but are taxed as partnerships-only on an individual basis

Disadvantages to a Sole Proprietorship

-limited life -unlimited liability -difficult to raise capital

Public firms

-must be listed on a stock exchange, through which the general public can buy and sell their stocks -must be publicly disclose financial information, which could be useful to competitors -are subject to more regulations

Factors that Affect Stock Price

-projected cash flows to shareholders -timing of the cash flow stream -riskiness of the cash flows

Private firms

-stocks are offered, owned and traded privately -limited number of shareholders

What are the two major decisions made by financial managers?

-the investment (capital budgeting) decision -financing decision

Current Liabilities

-to be paid or satisfied with service performance within one year -Usually consist of account payable, short-term notes payable, mortgage payable, and bonds payable

At some point, it becomes difficult for sole proprietors to raise money because of:

-unlimited liability -limited life

Advantages to a corporation

-unlimited life -easy transfer of ownership -limited liability -ease of raising capital

what is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing? a. the firm has low deprecation expense b. the firm did not pay any dividends c. the firm sold more equipment than it purchased d. the firm has a low interest rate on its debt

c. the firm sold more equipment than it purchased

current period depreciation expense is listed on: a. the balance sheet b. the investment section of the cash flow statement c. the income statement d. neither the balance sehet nor the income statement, it is a noncash expense

c. the income statement

which of the following statements correctly compares international accounting standards? a. the standards are becoming less similiar over time b. the standards are typically more lenient in Canada and the US c. the standards are typically stricter in Canada and the US d. balance sheets differ, but income statements are similar in all countries

c. the standards are typically stricter in canada and the US

When managers' compensation plans are tied in a meaningful manner to the profits of the firm, agency problems:

can be reduced

A corporate director:

can be voted out of power by the shareholders.

Plowback Ratio Formula

1 - Payout Ratio = Plowback Ratio

Decisions about large investments are called

capital budgeting decisions

Forms of Business organizations

1) Proprietorship 2)Partnership 3)Corporation

decision to invest in tangible or intangible assets

capital budgeting or capital expenditure (CAPEX) decision

market for long-term financing

capital market

Long term financing decisions common occur in the

capital markets

Long-term financing decisions commonly occur in the:

capital markets

Long-term financing decisions commonly occur in the: -option markets. -secondary markets. -capital markets. -money markets

capital markets

Corporate Tax Computation [Progressive tax rate ]

capped at an average tax rate of 34% (after the 39% tax bracket)

Acid Test or Quick Ratio

cash + accounts receivable/current liabilities

Areas of Finance

1)Financial Management 2)Capital Markets 3)Investment

Financial markets and intermediaries:

channel savings to real investment.

Financial markets and intermediaries:

channel savings to real investment. enable investors and businesses to reduce risk. provide liquidity. → all of these

Inventory Turnover

cogs/inventory

Which one of these is a money market security

commercial paper

You can buy silver in the: -capital markets. -foreign exchange markets. -commodities markets. -option markets

commodities markets

You can buy silver in the:

commodities markets.

Equity Book Value per Share

common equity/outstanding shares

Benchmarking

comparing with a set of competitors in the industry

In a large corporation, budget preparation would most likely be conducted by the: -treasurer. -controller. -chief financial officer. -financial manager.

controller

In a large corporation, budget preparation would most likely be conducted by the:

controller.

has limited liability

cooperation

A capital investment that generates a 10% rate of return is worthwhile if:

corporate bonds of similar risk offer 8% rates of return.

When the management of a business is conducted by individuals other than the owners the business is most likely to be a

corporation

When the management of a business is conducted by individuals other than the owners, the business is most likely to be a:

corporation.

Companies usually buy *real* assets. These include both tangible assets such as *executive airplanes* and intangible assets such as *brand names*. To pay for these assets, they sell *financial* assets such as *bonds*. The decision about which assets to buy is usually termed the *capital budgeting* or *investment* decision. The decision about how to raise the money is usually termed the *financing* decision.

correct

The inventory turnover ratio compares: average assets to average inventory. current assets to average inventory. cost of goods sold to average inventory. average receivables to average inventory.

cost of goods sold to average inventory.

Cost of goods sold

cost of inventory items sold

Periodic receipts of interest by the bondholder are known as: the default premium. the coupon rate. coupon payments. a zero-coupon.

coupon payments.

Net working capital is calculated by taking the difference between:

current assets and current liabilities

Net working capital is calculated by taking the difference between: -total assets and total liabilities. -inventory and accounts payable. -current assets and current liabilities. -cash and long-term debt.

current assets and current liabilities

Current Ratio

current assets/current liabilities

Calculate the EBIT for a firm with $4 million total revenues, $3.2 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense. a. -$120,000 b. $0 c. $180,000 d. $300,000

d. $300,000

Which of the following items is not a current asset? a. Marketable securities b. Cash c. Inventories d. Accounts payable

d. Accounts payable

A firm should only purchase real assets only if the assets ________. a. Increase market share b. Increase profits c. Increase productivity d. Add value to the firm

d. Add value to the firm

The minimum, acceptable rate of return on corporate investments is determined by: a. The financial manager b. Information from the accounting statements c. The government d. Investors in financial markets

d. Investors in financial markets

Which of the following statements is most likely correct for a firm with an average collection period of 90 days? a. Its average daily sales are low. b. Its average daily sales are high. c. Its current ratio will be high. d. It is providing financing for approximately 25% of its annual sales.

d. It is providing financing for approximately 25% of its annual sales.

Which of the following would be considered an ADVANTAGE of a corporation? a. Double taxation b. Managers of a corporation cannot be owners of this corporation. c. No separation between management and ownership d. Limited liability

d. Limited liability

Which of the following would be most detrimental to a firm's current ratio if that ratio is currently 2.0? a. Buy raw materials on credit b. Sell marketable securities at a cost c. Pay off accounts payable with cash d. Pay off a portion of long-term debt with cash

d. Pay off a portion of long-term debt with cash

the gathering of related revenues and expenses into the same period, regardless of when they were incurred, is: a. cash basis accounting b. market value accounting c. book value accounting d. accrual accounting

d. accrual accounting

which of the following represents a recent trend in financial statements? a. dividends are appearing on the balance sheet b. income statements no longer record depreciation expense c. statements of cash flow are considered obsolete d. balance sheets record market values rather than historic costs

d. balance sheets record market values rather than historic costs

which of the following statements appears correct for a corporation with a negative net income in both the present and the last fiscal year? a. this years loss can be carried back, but last years loss cannot be used b. neither of the losses can be used to reduce taxes c. both losses can be carried froward but not backward d. both losses can be carried forward and backward, within certain time limits

d. both losses can be carried forward and backward, within certain time limits

market value balance sheets differ from book-value balance sheets in that market values: a. are higher than book values b.. are lower than book values c. conform more to GAAP accounting d. confrom to investors expectations

d. conform to investors expectations

which of the following statements about NWC is correct? a. NWC is positive for all firms b. as NWC decreases, potential liquidity increases c. NWC excludes inventory, which is deemed liquid d. Decreases in NWC can increase the firms risk

d. decreases in NWC can increase the firms risk

one of the stronger motivations for a continuing standardization in international accounting standards is to: a. allow foreign countries to escape the wrath of the US government b. provide additional work for accountants c. force financial statements to be prepared in English d. develop international sources of capital for firms

d. develop international sources of capital for firms

according to GAAP, assets and liabilities are typically recorded on the balance sheet at: a. historical cost b. market value c. salvage value d. historical cost less depreciation

d. historical cost less depreciation

which statement is correct about the tax treatment of dividend income and capital gains received inside pension funds? a. dividends are taxable while capital gains are not taxable b. capital gains are taxable while dividends are not taxable c. both dividends and capital gains are taxable d. neither dividneds nor capital gains are taxable

d. neither dividends nor capital gains are taxable

in general, what is changing as you read down the left hand side of a balance sheet? a. the assets are more fully depreciated b. the assets are growing in value c. the assets are increasing in maturity d. the assets are becoming less liquid

d. the assets are becoming less liquid

what occurs when the value of a firm's debt exceeds the value of shareholders' equity? a. the firm is bankrupt b. the firm is very risky c. a high rate of interest is being paid on the debt d. the firm is financed more through debt than through equity

d. the firm is financed more through debt than through equity

which of the following is correct for a fully depreciated asset? a. market value is zero b. market value is greater than book value c. book value is greater than market value d. the relationship between market and book values is indeterminable

d. the relationship between market and book values is indeterminable

foreign corporations may be more likely in the future to develop their financial statements according to GAAP so that: a. they can reduce or avoid the payment of income taxes b. maintain reserves that are hidden from shareholders c. they can adhere to less stringent accounting standards d. their stock qualifies for listening on US exchanges

d. their stock qualifies for listing on US exchanges

what happens to the market value of a firms equity as the book value of the firm's equity increases? a. it increases by the same amount b. it decreases by the same amount c. it remains constant d. there is no set relationship to determine this outcome

d. there is no set relationship to determine this outcome

which of the following forms of income can individuals defer from taxation? a. dividends b. interest c. realized capital gains d. unrealized capital gains

d. unrealized capital gains

An increase in depreciation expense will (other things equal): -increase net income. -decrease net income. -increase taxable income. -decrease the market value of assets

decrease net income

Which of the following choices would be guaranteed to increase a firm's ROE if the ROA is currently 10% and the leverage ratio equals 1? Decrease assets from the current level Decrease the leverage ratio Increase the debt burden from its current level Decrease the debt burden from its current level

decreasedebt burde? decrease leverage increase

which of the following statements about depreciation is correct?

deprecation reduces the book value of assets

Agency problems can best be characterized as:

differing incentives between managers and owners.

Financial managers should only accept investment projects that:

earn a higher rate of return than shareholders can get by investing on their own.

A times interest earned ratio of 5 indicates the firm: earns significantly more than its interest obligations. has a low tax liability. pays 5 times its earnings in interest expense. has interest expense equal to 5% of EBIT.

earns significantly more than its interest obligations

An asset's liquidity measures its

ease and cost of being converted to cash

An asset's liquidity measures its: potential for generating a profit. proportion of debt financing. cash requirements. ease and cost of being converted to cash.

ease and cost of being converted to cash.

Liquidity

ease of converting to cash without a significant loss in value to pay current operating debt

An interest rate that has been annualized using compound interest is termed the: discounted interest rate. simple interest rate. annual percentage rate. effective annual interest rate.

effective annual interest rate.

Agency problems can least be controlled by

electing senior managers to the board of directors

Commodity and derivative markets:

enable the financial manager to adjust the firm's exposure to various business risks

Ethical decision making by management has a payoff for shareholders in terms of:

enhanced firm reputation value.

How much will Gamma Inc.'s equityholders earn given a total asset turnover of .85, an operating profit margin of .15,has financed two-thirds of its assets through equity, and a debt burden of .6? 9.56% 16.96% 11.42% 38.25%

11.42%

Approximately what percent of the shares issued by U.S. corporations are held by investors outside of the U.S.? 12% 5% 24% 16%

12%

A firm's after-tax operating income was $1,000,000 in 2013. It started the year with a total capitalization of $8,000,000 and ended the year with a total capitalization of $9,000,000. The additional capital raised during 2013 started to affect the operating income in 2014. Which value best represents the return on capital for 2013? 10.0% 11.8% 11.1% 12.5%

12.5%

Net working capital is a measure of a company's:

estimated cash reservoir.

Net working capital is a measure of a company's: estimated cash reservoir. shareholders' equity. goodwill. short-term liabilities.

estimated cash reservoir.

A bond's par value can also be called its: market value. coupon payment. face value. present value.

face value.

One common reason for partnerships to convert to a corporate form of organization is that the partnership: -faces rapidly growing financing requirements. -wishes to avoid double taxation of profits. -has issued all of its allotted shares. -agreement expires after ten 10 years.

faces rapidly growing financing requirements

Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London.

false

Financing for private corporations must flow through financial intermediaries.

false

Financing for public corporations must flow through financial markets.

false

T or F: Financing for private corporations must flow through financial intermediaries.

false

T or F: Financing for public corporations must flow through financial markets.

false

T or F: almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London.

false

T or F: the cost of capital is the interest rate on borrowing from a bank or other financial situation.

false

T or F: the opportunity cost of capital is the capital outlay required to undertake a real investment opportunity

false

XYZ Corp. has an operating profit margin of 7%, a debt burden of .8, and has financed two-thirds of its assets through equity. What asset turnover ratio is necessary to achieve an ROE of 18%?

2.14

XYZ Corp. has an operating profit margin of 7%, a debt burden of .8, and has financed two-thirds of its assets through equity. What asset turnover ratio is necessary to achieve an ROE of 18%? 4.02 1.26 1.61 2.14

2.14

Marcus, Inc. purchased a rare coin for $219,000 three years ago. Today, they resold that coin for $297,500.What annual rate of return did the firm earn on this investment?

219,000 (1 +r)^3 = 297,500 ; r = 10.75%

What is the marginal tax rate for a corporation with $60,000 of taxable income and an average tax rate of 18% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000?

25%

What is the marginal tax rate for a corporation with $60,000 taxable income and an average tax rate of 16.67% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000? -15.00% -16.67% -18.34% -25.00%

25.00%

In October 2015, the average house price in the US was $235,600. In October 2004, the average price was $289,600. What was the annual change in the average house price?

289,600 (1 +r)^11 = 235,600 ; r = - 1.86%

Real or Financial Asset? :: a bank loan agreement

financial

Real or Financial Asset? :: a personal IOU

financial

Real or Financial Asset? :: a share of stock

financial

Real or Financial Asset? :: the balance in the firms checking account

financial

a bank loan

financial asset

financial claims to the income generated by the firms real assets

financial assets

market where securities are issued and traded

financial market

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's operating profit margin is 5% on sales of $4 million?

333,333

According to the U.S. tax code at the beginning of 2014, the highest marginal tax rate for personal taxpayers is:

39.6%.

Approximately what percentage of U.S. corporate equities are held by households? 50% 25% 40% 60%

40%

A firm has average daily expenses of $2.13 million and average accounts payable of $112.7 million. On average, how many days does it take the firm to pay its bills? 63.47 days 48.19 days 52.91 days 59.03 days

52.91 days

Calculate the average collection period for Dots Inc. if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales? 67 days 60 days 73 days 61 days

67 days

According to the Rule of 72, what rate of interest must you earn to double your money in 5 years? a. 7.20 percent b. 8.68 percent c. 12.24 percent d. 14.40 percent

72/5= 14.4

Alternatively, we can use the savings to repay some of our long-term debt.

financing decision

Do we need a bank loan to help buy the inventory?

financing decision

A firm decides to pay for a small investment project through a $1 million increase in short-term bank loans. This is best described as an example of a(n):

financing decision.

Calculate the average collection period for Dots Inc. if its accounts receivables were $550 at the beginning of a year in which the firm generated $3,000 of sales?

find the turn over ratio first by divide 3,000/550 and then divide the ratio by 365 days to get average collection period. answer: 67 days

market for debt securities

fixed-income market

The cost of capital is the interest rate paid on borrowing from a bank or other financial institution.

flase

The cost of capital:

for risky investments is normally higher than the firm's borrowing rate

Sole proprietorships resolve the issue of agency problems primarily by:

forcing owners to bear the full cost of their actions.

FCF

free cash flow

cash available for distribution to investors after firm pays for new investments or additions to working capital

free cash flow

A bond differs from a share of stock in that a bond: - represents a claim on the firm. - has more risk. - has guaranteed returns. - has a maturity date.

has a maturity date.

One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks: -can shift loan risk to their deposit customers. -are motivated by the potential for profit. -do not have any income tax liability. -have information to evaluate creditworthiness.

have information to evaluate creditworthiness

One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks:

have information to evaluate creditworthiness.

Financing for public corporations flows through:

he financial markets, financial intermediaries, or both.

what are the functions of financial markets?

help channel savings to corporate investment, and they help match up borrowers and lenders

Investment banks like Morgan Stanley or Goldman Sachs:

help companies sell their securities to investors.

Higher risk requires...

higher return

According to GAAP, assets and liabilities are typically recorded on the balance sheet at:

historical cost less depreciation.

U.S. corporate equities are mostly held by:

households.

Asset Management Ratios

how efficiently a firm is using its assets example: Inventory Turnover Ratio

Profitability Ratios

how profitably the firm is operating and utilizing its assets example: ROA & ROE

The cost of capital depends on...

how risky the company is relative to other investment opportunities

Corporate debt instruments are most commonly traded:

in the over-the-counter market.

what does "real asset" mean?

include all assets used in the production or sale of the firms products or services

Retained earnings result from: -the sale of additional shares of stock to investors. -income not paid to shareholders. -an excess of assets over liabilities. -market values that exceed book values

income not paid to shareholders

net earnings result from:

income not paid to shareholders in the form of cash dividends

measures the profitability of the company during the year

income statement

To continue to grow, most companies have to...

incorporate

The overall goal of capital budgeting projects should be to: -decrease the firm's reliance on debt. -increase the firm's sales. -increase the firm's outstanding shares of stock. -increase the wealth of the firm's shareholders.

increase the wealth of the firm's shareholders

Corporations that issue financial securities such as stock or debt obligations to the public do so primarily to

increase their access to funds

Corporations that issue financial securities such as stock or debt obligations to the public do so primarily to:

increase their access to funds.

A major goal of the Sarbanes-Oxley Act is to: require U.S. firms to abide by international accounting standards. lower corporate tax rates. increase transparency in the financial reporting of a firm's activities. require firms to provide common-size balance sheets to shareholders.

increase transparency in the financial reporting of a firm's activities.

Administrative or general expenses (including other expenses)

incurred in the operations of the business EXCLUDING selling expenses (office wages, credit card expense, utilities, rent, etc.)

A financial intermediary중개자provides financing for:

individuals. companies. other organizations. → all of these

High levels of liquidity are most apt to indicate: inefficient use of assets. low profit margins. high levels of economic value added. low levels of net working capital.

inefficient use of assets.

U.S. bonds and other debt securities are mostly held by: -institutional investors. -households. -foreign investors. -state and local governments.

institutional investors

Which of the following are both a financial intermediary and a financial institution?

insurance companies

When an investment pays only simple interest, this means: - the future value of the investment will be low. - the earned interest is nontaxable to the investor. - interest is earned only on the original investment. - the interest rate is lower than on comparable investments.

interest is earned only on the original investment.

If a company has a healthy current ratio but a significantly lower quick ratio, then you can assume that

inventory represents a large portion of the firm's current assets.

"Balanced" mutual funds:

invest in both stocks and bonds

Which of the following is not typically considered a function of financial intermediaries?

investing in real assets

Should we develop a new software package to manage our inventory?

investment decision

Should we stock up with inventory ahead of the holiday season?

investment decision

With a new automated inventory management system, it may be possible to sell off our Birdlip warehouse.

investment decision

With the savings we make from our new inventory system, it may be possible to increase our dividend.

investment decision

expenditure on research and development

investment decision

A financial institution:

is a kind of financial intermediary.

A financial institution: raises financing by selling shares. simply pools and invests savings. invests primarily in commodities. is a kind of financial intermediary.

is a kind of financial intermediary.

A firm's reputation:

is an important firm asset

The opportunity cost of capital:

is the minimum acceptable rate of return on a project.

An example of a firm's financing decision would be:

issuing 10-year versus 20-year bonds.

Firms can alter their capital structure by:

issuing stock to repay debt.

A balance sheet may be considered backward-looking from the perspective that: -it works backward, starting with net income. -it records historic, not current values. -it cannot forecast the future. -it records costs over many previous periods.

it records historic, not current values

Balance sheet

items are usually entered in order of declining

Assets

items of value owned or controlled by company (resources)

If a firm's total debt ratio is greater than .5, then: it has too few total assets. it has more long-term debt than equity. its current liabilities are quite high. its debt-equity ratio exceeds 1.0.

its debt-equity ratio exceeds 1.0.

A common problem for closely held corporations is: -lack of access to substantial amounts of capital. -that shareholders receive only one vote each. -the separation of ownership and management. -an abundance of agency problems.

lack of access to substantial amounts of capital

If market interest rates have increased since a company last borrowed long-term funds, the market value of these long-term funds will likely be: - greater than their book value. - less than their book value. - equal to their book value. - unknown without knowing the maturity of the debt.

less than their book value

the owners of a corporation are not personally liable for its obligations

limited liability

The DuPont Sysytem

links financial ratios together to explain the return on assets and equity. ROA is the product of asset turnover and operating profit margin. ROE is the product of the leverage ratio, asset turnover, operating profit margin, and debt burden

The current ratio is a good proxy for a firm's

liquidity.

If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance sheet as:

long-term debt

If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has: -no retained earnings. -long-term debt. -no accumulated depreciation. -current assets

long-term debt

If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance sheet as:

long-term debt.

current price of an asset or liability

market value

The primary goal of corporate management should be to

maximize the shareholders wealth

The primary goal of corporate management should be to: -maximize the number of shareholders. -maximize the firm's profits. -minimize the firm's costs. -maximize the shareholders' wealth.

maximize the shareholders' wealth.

The best criterion for success in a capital budgeting decision would be to

maximize the value added to the firm

Corporations that do not issue financial securities such as stock or debt obligations: -will not be able to increase sales. -cannot be profitable. -may not be able to generate sufficient funds to fulfill their needs. -do not face double taxation of their profits.

may not be able to generate sufficient funds to fulfill their needs

Income Statement

measures the profitability of the company during the year. It shows the difference between revenues and expenses

Statement of Cash Flows

measures the sources and uses of cash during the year. The change in the company's cash balance is the difference between sources and uses

market for short-term financing (less than 1 year)

money market

Short-term financing decisions commonly occur in the: -primary markets. -secondary markets. -capital markets. -money markets

money markets

Short-term financing decisions commonly occur in the

money markets.

Short-term financing decisions commonly occur in the:

money markets.

Short-term financing decisions commonly occur in the: - secondary markets. - capital markets. - money markets. - primary markets.

money markets.

In 2010, U.S. corporate and foreign bonds totaled:

more than $11 trillion.

In 2010, U.S. corporate equities totaled:

more than $20 trillion.

Perhaps the best method for estimating the market value of shareholders' equity is to: multiply number of shares outstanding by the price of each share. review the firm's balance sheet. add the retained earnings to the total liabilities. review the firm's income statement.

multiply number of shares outstanding by the price of each share.

Return on Equity

net income/common equity

Earnings per share

net income/shares outstanding

The stockholders in a sole proprietorship are represented by: -the owner of the firm. -the general partner of the firm. -the board of directors of the firm. -no one; sole proprietorships have no stockholders.

no one; sole proprietorships have no stockholders

When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives: -the dollar value of the transaction. -the dollar amount of the transaction, less brokerage fees. -only the par value of the common stock. -nothing

nothing

When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives:

nothing.

"Balanced" mutual funds:

offer mixtures of stocks and bonds

If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are: -new. -fully depreciated. -one-half depreciated. -equal in value to the firm's current assets

one-half depreciated

A corporation is considered to be closely held when: -only a few shareholders exist. -the market value of the shares is stable. -it operates in a small geographic area. -management also serves as the board of directors.

only a few shareholders exist

A corporation is considered to be closely held when:

only a few shareholders exist.

An example of how financial intermediaries can assist in shifting an individual's consumption to the future is:

opening a savings account.

Times Interest Earned

operating income/interest

Operating Profit Margin

operating profit/sales

Operating Return on Assets

operating profits/total assets

minimum acceptable rate of return on capital investment

opportunity cost of capital

what is the fundamental trade-off in investment decisions?

opportunity cost of capital (return that shareholders can earn for themselves)

Financial Institutions

organizations or businesses that specialize in trading specific types of financial instruments and that operate in specific financial markets

A block holder is commonly defined as an investor who:

owns 5 percent or more of a firm's outstanding shares.

"Double taxation" refers to: -all partners paying equal taxes on profits. -corporations paying taxes on both dividends and retained earnings. -paying taxes on profits at the corporate level and dividends at the personal level. -the fact that marginal tax rates are doubled for corporations.

paying taxes on profits at the corporate level and dividends at the personal level

What happens to the market value of a firm's equity as the book value of the firm's equity increases? -It increases by the same amount. -It decreases by the same amount. -It remains constant. -There is no set relationship to determine this outcome

There is no set relationship to determine this outcome

"Double taxation" refers to:

paying taxes on profits at the corporate level and dividends at the personal level.

The legal "life" of a corporation is: -coincidental with that of its CEO. -equal to the life of its board of directors. -permanent, as long as shareholders don't change. -permanent, regardless of current ownership.

permanent, regardless of current ownership

Fixed assets

physical assets providing economic benefits of more than one year-life

Depreciation

physical wearing out of fixed assets as well as functional obsolesce

The primary distinction between securities sold in the primary and secondary markets is the

previous insurance of the securities

The primary distinction between securities sold in the primary and secondary markets is the:

previous issuance of the securities.

Price/Earnings Ratio

price per share/earnings per share

Price/Book Ratio

price per share/equity book value per share

A company sells shares in the

primary market

Five years from today, you would like to withdraw $5,000 from an account that pays an interest rate of 5% per year. How much do you need to deposit in the account one year from today in order to make the withdrawal? a. $4113.51 b. $5000.00 c. $4761.90 d. $4000.00 e. $3917.63

A

Corporation

A business created as a distinct legal entity composed of one or more individuals or entities

Corporation

A business created as a distinct legal entity owned by one or more individuals or entities

Partnership

A business formed by two or more individuals or entities

Sole Proprietorship

A business owned by a single individual

Sole proprietorship

A business owned by a single individual

When corporations need to raise funds through stock issues, they rely on the: -primary market. -secondary market. -tertiary market. -centralized NASDAQ exchange.

primary market

Which one of the following statements is not characteristic of mutual funds? They are always considered to be financial institutions. They raise money by selling shares to investors. They offer professional management and portfolio diversification. They pool the savings of many investors.

They are always considered to be financial institutions.

market for the sale of new securities by corporations

primary market

When corporations need to raise funds through stock issues, they rely on the:

primary market.

When corporations need to raise funds through stock issues, they rely on the: - primary market. - secondary market. - centralized NASDAQ exchange. - tertiary market.

primary market.

If market values of equity exceed book values of equity, then: -equity has been depreciated too rapidly. -the firm uses accrual-based accounting. -profit potential is expected to be attractive. -the firm is holding too much cash.

profit potential is expected to be attractive

Capital Structure

proportion of the company's assets funded by each type of financing

What do mutual funds do?

provide investors with easy and efficient diversification, professional management, and liquidity

An example of how financial intermediaries can assist in shifting an individual's consumption forward in time is:

providing a line of credit

listed on a stock exchange

public corportaion

A financial analyst in a corporation may be involved with all of the following EXCEPT:

purchasing the firm's plant and equipment.

Real or Financial Asset? :: a trademark

real

Real or Financial Asset? :: a truck

real

Real or Financial Asset? :: an experienced and hardworking sales force

real

Real or Financial Asset? :: undeveloped land

real

assets used to produce goods and services

real assets

According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold will be:

recognized when the goods are sold.

A balance sheet may be considered backward-looking from the perspective that it:

records historic, not current values.

What is the ROE for a firm with a times interest earned ratio of 2, a tax liability of $1 million, and interest expense of $1.5 million if equity equals $1.5 million?

Times interest earned = EBIT/interest = 2 therefore, EBIT = 3 million because interest = $1.5 million Net income = EBIT - interest - taxes = $3 million - $1.5 million - $1 million = $.5 million ROE = net income/equity = $.5 million/$1.5 million = 33.33%

Excess cash held by a firm should be: -reinvested by the firm in projects offering the highest rate of return. -reinvested by the firm in projects offering rates of return higher than the cost of capital. -reinvested by the firm in the financial markets. -distributed to bondholders in the form of extra coupon payments.

reinvested by the firm in projects offering rates of return higher than the cost of capital

Which of the following would not be considered a real asset? -A corporate bond -A machine -A patent -A factory

A corporate bond

Liquidity Ratios

A firm's ability to pay off debts that are maturing within a year example: Current Ratio

Working Capital

A firm's short term assets and liabilities

Which of these indicates that a firm is efficient

A high inventory turnover

Excess cash held by a firm should be:

reinvested by the firm in projects offering rates of return higher than the cost of capital.

Operating expenses

reporting before EBIT as deductions from sales

Lease obligations are included in certain leverage ratios because leases

represent long-term fixed obligations.

Lease obligations are included in certain leverage ratios because leases: represent long-term fixed obligations. require the payment of interest. are perpetual obligations. must be financed through a bank.

represent long-term fixed obligations.

Fixed Asset Turnover

sales/fixed assets

Total Asset Turnover

sales/total assets

where does the financing for corporations come from?

savings (can flow through financial markets and intermediaries)

Corporate financing comes ultimately from: -savings by households and foreign investors. -cash generated from the firm's operations. -the financial markets and intermediaries. -the issue of shares in the firm.

savings by households and foreign investors

Corporate financing comes ultimately from

savings by households and foreign investors.

Corporate financing comes ultimately from:

savings by households and foreign investors.

Corporate financing comes ultimately from: - the financial markets and intermediaries. - savings by households and foreign investors. - cash generated from the firm's operations. - the issue of shares in the firm.

savings by households and foreign investors.

Corporate financing comes ultimately from

saying by households and foreign investors

Subsequent trading in the stock occurs in the

secondary market

market in which previously issued securities are traded among investors

secondary market

A primary market would be utilized 활용하다when:

securities are initially issued

A primary market would be utilized when

securities are initially issued.

A primary market would be utilized when:

securities are initially issued.

CFO's are responsible for:

setting the overall financial strategy of the firm

The primary goal of a corporation is

shareholder wealth maximization (maximizing shareholders wealth)

A board of directors is elected as a representative of the corporation's:

shareholders

A board of directors is elected as a representative of the corporation's: -top management. -stakeholders. -shareholders. -customers.

shareholders

Partnership

A legal arrangement between two or more people who decide to do business together

Corporation

A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability.

In the context of housing, what is an ARM?

A mortgage with low initial payments, offset by significantly higher payments later

Which of the following would not be considered a financial asset? -A patent -A personal IOU -A checking account balance -A share of stock

A patent

Which one of the following forms of compensation is most apt to align the interests of managers and shareholders?

A salary that is paid partly in the form of the company's shares

In which of the following organizations would agency problems be least likely to occur?

A sole proprietorship

Which one of the following is a financial asset? A. A corporate bond B. A machine C. A patent D. A factory

A. A corporate bond

34. In which of the following asset accounts are you least likely to find a difference between market value and book value? A. Cash B. Inventory C. Land D. Shareholders' equity

A. Cash

Which one of these is a money market security? A. Commercial paper B. Common stock C. 2-year bond D. 20-year bond

A. Commercial paper

30. Which of the following changes in working capital will result in an increase in cash flows? A. Increase in accounts payable B. Increase in inventories C. Increase in accounts receivable D. Decrease in other current liabilities

A. Increase in accounts payable

How is the relationship between a bond's credit rating and its interest rate best defined? A. Inverse relationship B. Direct relationship C. Unrelated D. Logarithmic

A. Inverse relationship

3. Which of the following assets is likely to be considered the most liquid? A. Marketable securities B. Net fixed assets C. Accounts payable D. Inventories

A. Marketable securities

Which of the following assets is likely to be considered the most liquid? A. Marketable securities B. Net fixed assets C. Accounts payable D. Inventories

A. Marketable securities

A. Calculate Net Income B. Firms revenue? C. EBIT?

A. Net Income= Income taxes paid/ tax % = Ans - taxes paid B. COG+ Admin Expenses + Interest Exp + Depreciation + taxable income C. Revenue - COGS - Admin Exp - Depreciation

In a statement of cash flows, which category includes depreciation expense as a line item? A. Operations B. Investments C. Financing D. None of these; depreciation is a noncash expense.

A. Operations

28. In a statement of cash flows, which category includes depreciation expense? A. Operations. B. Investments. C. Financing. D. None of these; depreciation is a noncash expense.

A. Operations.

Which one of these determines the minimum acceptable rate of return on a capital investment? A. The available alternative investment opportunities B. The profit margin of the existing firm C. The rate of return on the firm's outstanding shares D. The rate of return on risk-free debt securities

A. The available alternative investment opportunities

Which of the following functions does not require financial markets? A. Transporting of cash across time B. Provision of liquidity C. Risk reduction by investment in diversified portfolios D. Provision of pricing information

A. Transporting of cash across time

Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm? A. Treasurer B. Controller C. Chief Operating Officer D. Board of directors

A. Treasurer

18. When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the: A. book value of the asset. B. market value of the asset. C. depreciation expense. D. current asset value.

A. book value of the asset.

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the: A. book value of the asset. B. market value of the asset. C. depreciation expense. D. current asset value.

A. book value of the asset.

When the management of a business is conducted by individuals other than the owners, the business is most likely to be a: A. corporation. B. sole proprietorship. C. partnership. D. general partner.

A. corporation

Corporate financing comes ultimately from: A. savings by households and foreign investors. B. cash generated from the firm's operations. C. the financial markets and intermediaries. D. the issue of shares in the firm.

A. savings by households and foreign investors.

Insurance companies can usually cover the claims of policyholders because: A. the incidence of claims normally averages out across all policyholders. B. they issue a very limited number of policies. C. they are fully insured by the U.S. government. D. their stockholders will cover any cash shortfalls encountered by the company.

A. the incidence of claims normally averages out across all policyholders.

Which of the following items should not be included in a listing of current assets? Accounts payable Marketable securities Inventories Accounts receivable

Accounts payable

Which of these assets is generally considered to be the most liquid

Accounts receivable

Which of these assets is generally considered to be the most liquid? Land Accounts receivable Buildings Finished goods inventory

Accounts receivable

The board of directors is dissatisfied with last year's ROE of 15%. If the profit margin and asset turnover ratio remain unchanged at 8% and 1.25, respectively, by how much must the leverage ratio (i.e., assets/equity) increase to achieve 20% ROE?

Total debt ratio must increase by .5

Which of the following functions does not require financial markets?

Transporting cash across time

Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm?

Treasurer

Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm? -Treasurer -Controller -Chief Operating Officer -Board of directors

Treasurer

Which of the firms financial managers is most likely to be involved with obtain financing for the firm

Treasurer

A successful investment is one that increases the value of the firm. T or F

True

A well-designed compensation package can help a firm achieve its goal of maximizing market value. True False

True

All items in the common-size balance sheet are expressed as a percentage of total assets. True False

True

An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash. True False

True

Dividends paid are treated as a financing activity on the statement of cash flows. True False

True

Making good investment and financing decisions is the chief task of the financial manager.

True

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life. True False

True

Which one of the following best explains the combination of a high level of net income combined with a low level of cash flow during an accounting period?

Acquisition of equipment

Previously issued securities are traded among investors in the secondary markets. True False

True

T/F: Financing decisions are used to determine how to raise the cash necessary for investments.

True

"Reinvestment" means: new investment in new operations. additional investment by existing shareholders. new investment by new shareholders. additional investment in existing operations.

Additional investment by existing shareholders

The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment. True False

True

The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm's capital investments. True False

True

The reinvestment of cash back into the firm's operations is an example of a flow of savings to investment. True False

True

The sale of policies is a source of financing for insurance companies.

True

The separation of ownership and management is one distinctive feature of corporations. True False

True

Which of these statements related to free cash flow is correct? Free cash flow must be positive for a firm to acquire new fixed assets. All, or part, of free cash flow can be used to increase a firm's cash reserves. When capital expenditures are positive, free cash flow will exceed the cash flow from operations. Free cash flow must be fully distributed to the firm's debtors and shareholders.

All, or part, of free cash flow can be used to increase a firm's cash reserves.

Which one of the following will cause a reduction in the NWC turnover ratio all else held constant? An increase in average inventory An increase in average payables An increase in the average cash balance A decrease in sales

An increase in average payables

Proprietorship

An unincorporated business owned by one individual

The statement of cash flows shows the firm's cash inflows and outflows from operations as well as from its investments and financing activities.

True

Volkswagen's issuance of a 2.5 billion euro convertible bond is a financing decision. True False

True

Your parents purchased their current home 20 years ago. At the time the house cost them $300,500, but they put 15 % down on the cost when they bought it. Your parents financed their purchase over 30 years, with 6.0% fixed rate loan. What is the current balance of their loan?

Annual payment PV=300,500(1-.15)=255,425 Rate: .06 N: 30 PMT: ??? 18,556.35 N: 10 Rate: .06 FV=0 PV: ?? 136,576.34 For monthly PV= 137,938.66

Assume BDS acquired its main supplier, ABC. As a result of the acquisition, BDS finds that its profit margin increased but its ROA remained constant. A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the profit margin? Market-to-book ratio Leverage ratio Asset turnover Debt burden

Asset turnover

A balance sheet portrays the value of a firm's assets and liabilities:

At any stated point in time

New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation? A. Price-earnings ratio B. Market-to-book ratio C. Profit margin D. ROE E. ROA

B

You just signed a consulting contract that will pay you a cash flow at the end of each of the next 3 years. The cash flows are $38,000 (year 1), $52,000 (year 2), and $85,000 (year 3). What is the present value of these cash flows given a 10.5 percent discount rate? a. $157,131 b. $139,975 c. $154,880 d. $162,910 e. $148,307

B

Which of the following financial assets is least likely to have an active secondary market? A. Common stock of a large public firm B. Bank loans made to smaller firms C. Bonds of a major, multinational corporation D. Debt issued by the U.S. Treasury

B. Bank loans made to smaller firms

43. If a firm's net income is positive and its noncash expenses are positive, which of the following could account for a negative amount of cash provided by operations? A. Current assets decrease more than current liabilities decrease. B. Current assets increase more than current liabilities increase. C. Current assets decrease more than current liabilities increase. D. A large addition is made to plant and equipment.

B. Current assets increase more than current liabilities increase.

7. Which of the following terms is out of place as a typical form of inventory? A. Raw materials inventory B. Current goods inventory C. Finished goods inventory D. Work in process

B. Current goods inventory

21. Which of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT? A. Cash dividends B. Depreciation expense C. Interest expense D. Tax liability

B. Depreciation expense

39. Which of the following is not a typical reason for differences between profit and cash flow? A. Depreciation expense B. Income taxes C. Changing levels of accounts receivable D. Accrual accounting practices

B. Income taxes

Which of the following is not typically considered a function of financial intermediaries? A. Providing a payment mechanism B. Investing in real assets C. Accumulating funds from smaller investors D. Spreading, or pooling risk among individuals

B. Investing in real assets

Which one of these was a contributing factor to the need for many foreign banks to seek aid from their governments as a result of the financial crisis of 2007-2009? A. Decrease in their exchange rates B. Investments in U.S. subprime mortgages C. Interest rate spikes D. Currency controls

B. Investments in U.S. subprime mortgages

Which of the following is a capital budgeting decision? A. Should the firm borrow money from a bank or sell bonds? B. Should the firm shut down an unprofitable factory? C. Should the firm buy or lease a new machine that it is committed to acquiring? D. Should the firm issue preferred stock or common stock?

B. Should the firm shut down an unprofitable factory?

37. . An increase in depreciation expense will (other things equal): A. increase net income. B. decrease net income. C. increase taxable income. D. decrease the market value of assets. Total earnings before interest and taxes (EBIT) are EBIT = total revenues - costs - depreciation

B. decrease net income.

4. If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are: A. new. B. fully depreciated. C. one-half depreciated. D. equal in value to the firm's current assets.

B. fully depreciated.

23. Retained earnings result from: A. the sale of additional shares of stock to investors. B. income not paid to shareholders. C. an excess of assets over liabilities. D. market values that exceed book values.

B. income not paid to shareholders.

15. A balance sheet may be considered backward-looking from the perspective that: A. it works backward, starting with net income. B. it records historic, not current values. C. it cannot forecast the future. D. it records costs over many previous periods.

B. it records historic, not current values.

32. Interest expense appears in the operations section of the cash-flow statement because: A. firms cannot operate without incurring interest expense. B. its payment is not within managerial discretion. C. it is paid to finance a firm's inventory. D. none of these; interest expense appears in the financing section of the cash-flow statement.

B. its payment is not within managerial discretion.

10. If a payment of principal is due in 13 months on a long-term liability, that payment will now appear as: A. a current liability. B. long-term debt. C. cash. D. interest expense.

B. long-term debt.

6. If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm A. no retained earnings. B. long-term debt. C. no accumulated depreciation. D. current assets.

B. long-term debt.

If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance sheet as: A. a current liability. B. long-term debt. C. cash. D. interest expense.

B. long-term debt.

26. Accrual accounting, which attempts to match sales revenues and the expenses associated with the production of the goods, is conducted in an attempt to: A. reduce income-tax liability. B. reduce bias in reported profitability measures. C. speed up the receipt of accounts receivable. D. reduce the time necessary to depreciate assets.

B. reduce bias in reported profitability measures.

25. According to accrual accounting, when goods are not sold until the period after they were produced, then the cost of goods sold: A. will be recognized in the first period. B. will be recognized in the second period. C. will be recognized when payment is received. D. will be split between both periods.

B. will be recognized in the second period.

Which of the following financial assets is least likely to have an active secondary market?

Bank loans made to smaller firms

Which one of these firms has recently had a negative market value added? Walmart Bank of America FedEx Google

Bank of America

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the: book value of the asset. current asset value. market value of the asset. depreciation expense.

Book value of the asset

An individual's income for the year includes both dividend and interest payments. Which of these statements correctly applies to that individual's tax liability? Interest is taxed; tax on dividend payments is paid at the corporate level. Dividends are taxed; tax on interest payments is paid at the corporate level. All taxes on dividend and interest payments are paid at the corporate level. Both dividend and interest payments are taxed at the personal level.

Both dividend and interest payments are taxed at the personal level.

Which one of the following statements is correct for a corporation with a negative net income in both the present and the last fiscal year? This year's loss can be carried back, but last year's loss cannot be used. Both losses can be carried forward and backward, within certain time limits. Both losses can be carried forward but not backward. Neither of the losses can be used to reduce taxes.

Both losses can be carried forward and backward, within certain time limits.

Who pays taxes on earnings distributed as dividends?

Both the issuing corporation and the shareholder

How does a bond dealer generate profits when trading bonds? By retaining the bond's next coupon payment By lowering the bond's coupon rate upon resale By maintaining bid prices lower than ask prices By maintaining bid prices higher than ask prices

By maintaining bid prices lower than ask prices

Suppose expected inflation increases. Recognizing its effect on interest rates, the result should I. Increase the present value of a future lump sum you might receive in N years. II. Increase the future value of a lump sum. III. Decrease the present value of a lump sum you might receive in N years. IV. Decrease the future value of a lump sum. a. I only b. II only c. II and III only d. II, III, and IV only e. I and IV only

C

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. A. Cash purchase of inventory B. Cash payment of an account receivable C. Cash payment of an account payable D. Credit sale of inventory at cost E. Cash sale of inventory at a loss

C

22. Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 interest expense. A. $500,000 B. $380,000 C. $0 D. ($120,000)

C. $0

41. If a firm generates $2,000 in sales and has a $500 increase in accounts receivable during an accounting period, based on these two categories cash flow will increase by: A. $2,500. B. $2,000. C. $1,500. D. $500.

C. $1,500.

calculate the EBIT for a firms $4 million total revenues, $3.5 million cost of goods sold, $500000 depreciation expense, and $120000 interest expense. a. $500,000 b. $380,000 c. $0 d ($120000)

C. 0

5. which of the following items should not be included in a listing of current assets? A. Marketable securities B. Accounts payable C. Accounts receivable D. Inventories

C. Accounts receivable

40. Which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period? A. High depreciation expense B. Reduction of inventory levels C. Acquisition of equipment D. Increase in accounts payable

C. Acquisition of equipment

Who pays taxes on earnings distributed as dividends? A. The issuing corporation B. The shareholder receiving the dividend C. Both the issuing corporation and the shareholder D. Neither the issuing corporation nor the shareholder

C. Both the issuing corporation and the shareholder

29. Which of the following will occur in a statement of cash flows as a result of paying cash dividends? A. Cash flows from operations will increase. B. Cash flows from investments will decrease. C. Cash flows from financing will decrease. D. Cash balances will not be affected.

C. Cash flows from financing will decrease.

Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most easily provides the information she is seeking? A. Statement of cash flows B. Balance sheet C. Common-size balance sheet D. Income statement

C. Common-size balance sheet

42. Which of the following statements is more likely if cash and marketable securities increase by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500? A. Cash provided by financing increases by $3,500. B. Cash used by financing decreases by $1,000. C. Debt increases by more than cash dividends paid. D. Debt is reduced by more than cash dividends paid. As a plug figure, cash provided by financing must have increased by $4,500. If dividends paid exceeded the increase to debt, this number would be negative.

C. Debt increases by more than cash dividends paid.

35. Which of the following cash outflows does not reduce a firm's net income? A. Income taxes B. Interest expense C. Dividends D. Depreciation expense

C. Dividends

Which one of the following does not reduce a firm's net income? A. Income taxes B. Interest expense C. Dividends D. Depreciation expense

C. Dividends

8. What balancing entry is most likely to be called for if previously excluded intangible assets were added to a firm's balance sheet? A. Increase accumulated depreciation B. Decrease long-term debt C. Increase shareholders' equity D. Decrease current assets

C. Increase shareholders' equity

9. What happens to a firm's net worth as it uses cash to repay accounts payable? A. Net worth increases. B. Net worth decreases. C. Net worth remains constant. D. Net worth decreases temporarily, until cash is replenished.

C. Net worth remains constant.

31. If a firm's cash-flow statement shows that cash was used for investments, which of the following would seem most likely? A. The inventory balance increased. B. Common stock was repurchased. C. New machines were acquired. D. Cash dividends were paid.

C. New machines were acquired.

If a firm's statement of cash flows shows that cash was used for investments, which of the following would seem most likely? A. The inventory balance increased. B. Common stock was repurchased. C. New machines were acquired. D. Cash dividends were paid.

C. New machines were acquired.

Which one of these statements is correct? A. A dollar received next year has the same value as a dollar received today. B. Risky cash flows are more valuable than certain cash flows. C. Smart investment decisions create more value than smart financing decisions. D. Corporate governance is irrelevant.

C. Smart investment decisions create more value than smart financing decisions.

27. Which of the firm's financial statements most clearly recognizes the payment for new equipment? A. Balance sheet B. Income statement C. Statement of cash flows D. Statement of condition

C. Statement of cash flows

44. What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing? A. The firm has low depreciation expense. B. The firm did not pay any dividends. C. The firm sold more equipment than it purchased. D. The firm has a low interest rate on its debt.

C. The firm sold more equipment than it purchased.

Which of the following is least likely to be discussed in the articles of incorporation? A. How the firm is to be financed B. The purpose of the business C. The price range of the shares of stock D. How the board of directors is to be structured

C. The price range of the shares of stock

Which one of these correctly applies to mutual funds? A. Mutual funds are a costly means of achieving portfolio diversification. B. Funds are required to limit their annual fees and expenses to less than 1 percent of the portfolio value. C. You can generally buy additional shares in the fund at any time. D. Shareholders sell their shares to other shareholders.

C. You can generally buy additional shares in the fund at any time.

17. Depreciation expense is used to: A. allocate costs to all departments of the firm. B. determine when an asset is fully paid off. C. allocate historical cost over the life of an asset. D. equate the historical cost and market values of an asset.

C. allocate historical cost over the life of an asset.

2. A balance sheet portrays the value of a firm's assets and liabilities: A. over an annual period. B. over any stated period of time. C. at any stated point in time. D. only at the end of the calendar year.

C. at any stated point in time.

A balance sheet portrays the value of a firm's assets and liabilities: A. over an annual period. B. over any stated period of time. C. at any stated point in time. D. only at the end of the calendar year.

C. at any stated point in time.

Long-term financing decisions commonly occur in the: A. option markets. B. secondary markets. C. capital markets. D. money markets.

C. capital markets.

36. The net income figure on an income statement is calculated before deducting: A. interest expense. B. depreciation expense. C. cash dividends. D. tax liability.

C. cash dividends.

12. Net working capital is calculated by taking the difference between: A. total assets and total liabilities. B. inventory and accounts payable. C. current assets and current liabilities. D. cash and long-term debt.

C. current assets and current liabilities.

11. Net working capital is a measure of the company's: A. goodwill. B. short-term liabilities. C. estimated liquidity. D. shareholders' equity.

C. estimated liquidity.

Corporations that issue financial securities such as stock or debt obligations to the public do so primarily to: A. increase sales. B. become profitable. C. increase their access to funds. D. avoid double taxation of their profits.

C. increase their access to funds.

14. The existence of goodwill on a corporate balance sheet indicates that the corporation has: A. been profitable in the past. B. depreciated its tangible assets. C. intangible assets from past acquisitions. D. retained earnings resulting from past income.

C. intangible assets from past acquisitions.

The best criterion for success in a capital budgeting decision would be to: A. minimize the cost of the investment. B. maximize the number of capital budgeting projects. C. maximize the value added to the firm. D. finance all capital budgeting projects with debt.

C. maximize the value added to the firm.

33. Perhaps the best method for estimating the market value of shareholders' equity is to: A. read from the firm's balance sheet. B. read from the firm's income statement. C. multiply number of shares outstanding by the price of each share. D. add the retained earnings plus total liabilities.

C. multiply number of shares outstanding by the price of each share.

38. Current period depreciation expense is listed: A. on the balance sheet. B. in the investment section of the cash flow statement. C. on the income statement. D. on neither the balance sheet nor the income statement; it is a noncash expense.

C. on the income statement.

If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are: A. new. B. fully depreciated. C. one-half depreciated. D. equal in value to the firm's current assets.

C. one-half depreciated.

The primary distinction between securities sold in the primary and secondary markets is the: A. riskiness of the securities. B. price of the securities. C. previous issuance of the securities. D. profitability of the issuing corporation.

C. previous issuance of the securities.

sets overall financial strategy

CFO

A board of directors is elected as a representative of the corporation's:

shareholders.

A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

short-term, not long-term profits become the focus.

Cash-Flow Statement

shows cash inflows and outflows between balance sheet dates

Income Statement

shows the flow of revenues and expenses between balance sheet dates

Balance Sheet

shows the value of a company's "stuff" as of a point in time

Which one of these statements is correct

smart investment decisions create ore value than smart finance decisions

Unlimited liability is faced by the owners of:

sole proprietorships and general partnerships.

Unlimited liability is faced by the owners of: -corporations. -partnerships and corporations. -sole proprietorships and partnerships. -all forms of business organization.

sole proprietorships and partnerships

Capital Budgeting vs Capital Structure Decisions

Capital Budgeting: Invest in tangible or intangible assets. Deals with long-term investment decisions Capital Structure: Selecting between long-term debt financing and equity financing

Capital Market vs Money Market

Capital Market: Markets for long-term financing, ie a firm's capital Money Market: Market for short-term financing (less than 1 year) ie a debt that matures in 270 days

measures the sources and uses of each during the year

statement of cash flows

Corporations are referred to as public companies when their: -shareholders have no tax liability. -shares are held by the federal or state government. -stock is publicly traded. -products or services are available to the public.

stock is publicly traded

CapX

Capital expenditures

A chief financial officer would typically:

supervise both the treasurer and controller.

Corporate raiders will be looked upon most favorably if they:

take actions that increase current shareholder wealth.

Corporate Tax Computation [marginal tax rate]

tax rate on the next taxable income (EBT) dollar earned

Average tax rate =

taxes paid / taxable income

Liquidity refers to

the ability to quickly convert an asset into cash without having to greatly decrease its price below what would be earned if longer selling time were allowed

When a corporation fails, the maximum that can be lost by an investor protected by limited liability is: -the amount of the initial investment. -the amount of the profit on the investment. -the amount necessary to pay the corporation's debts. -the amount of the investor's personal wealth.

the amount of the initial investment

When a corporation fails, the maximum that can be lost by an individual shareholder is:

the amount of their initial investment.

Which of the following cannot be used to reduce taxable corporate income?

Cash dividends

Which of the following will occur in a statement of cash flows as a result of paying cash dividends?

Cash flows from financing activities will decrease.

Which of the following will occur in a statement of cash flows as a result of paying cash dividends?

Cash flows from financing will decrease

Which of these duties are responsibilities of the corporate treasurer

Cash management and banking relationships

Present in order of Liquidity

Cash, marketable securities, accounts receivable, inventory, and supplies

When a corporation fails, the maximum that can be lost by an individual shareholder is: the amount of their share of the profits. the amount of their initial investment. the amount of their personal wealth. their proportionate share required to pay the corporation's debts.

the amount of their initial investment.

(change)NWC

Change in net working capital

Financial markets and intermediaries: increase risks for businesses. generally reduce the liquidity of securities. prevent the transportation of cash across time. channel savings to real investment.

Channel savings to real investment

Which one of these is a money market security?

Commercial paper

You can buy silver in the:

Commodities market

You can buy silver in the: capital markets. foreign exchange markets. commodities markets. option markets.

Commodities markets

Which of the following financial assets might be least likely to have an active secondary market?

Common stock of a large firm → Bank loans made to smaller firms Bonds of a major, multinational corporation Debt issued by the U.S. Treasury

Corporate managers are expected to make corporate decisions that are in the best interest of: -top corporate management. -the corporation's board of directors. -the corporation's shareholders. -all corporate employees.

the corporation's shareholders

Corporate managers are expected to make corporate decisions that are in the best interest of:

the corporation's shareholders.

agency cost

the cost resulting from conflicts of interest between managers and sharelholders

Financing for public corporations flows through

the financial markets, financial intermediaries, or both

Financing for public corporations flows through:

the financial markets, financial intermediaries, or both

Financing for public corporations flows through: - the financial markets only. - financial intermediaries only. -derivatives markets. -the financial markets, -financial intermediaries, or both.

the financial markets, financial intermediaries, or both.

According to the statement of cash flows, cash flows from financing could be positive if:

the firm added more debt than it repaid.

Cash flows occurring in different periods should not be compared unless: - high rates of interest can be earned on the flows. - the flows occur no more than one year from each other. - interest rates are expected to be stable. - the flows have been discounted to a common date.

the flows have been discounted to a common date.

Liquidity is important to a mutual fund because:

the fund's shareholders may want to redeem their shares at any time

Liquidity is important to a mutual fund because: -a fund that is less liquid will attract more investors. -the fund's shareholders may want to redeem their shares at any time. -the fund's managers need liquidity to trade actively. -the fund needs to distribute payouts to its shareholders and managers periodically.

the fund's shareholders may want to redeem their shares at any time.

Liquidity is important to a mutual fund primarily because: new investors may invest in the fund at any time. the fund's shareholders may want to redeem their shares at any time. the fund requires cash to pay its taxes. a fund that is less liquid will attract more investors.

the fund's shareholders may want to redeem their shares at any time.

Insurance companies can usually cover the claims of policy holders because

the incidence of claims normally averages out across all policyholders

Insurance companies can usually cover the claims of policyholders because:

the incidence of claims normally averages out. they issue thousands of insurance policies. the cost of paying for claims has already been factored into the price of the policies. → all of these.

The term "capital structure" refers to: -the manner in which a firm obtains its long-term sources of funding. -the length of time needed to repay debt. -whether the firm invests in capital budgeting projects. -which specific assets the firm should invest in.

the manner in which a firm obtains its long-term sources of funding

Trend Analysis

Compare ones ratios to its own past levels

Which of the following groups is least likely to be considered a stakeholder of the firm?

Competitors

The term "capital structure" refers to:

the manner in which a firm obtains its long-term sources of funding.

Market-value balance sheets differ from book-value balance sheets in that market values: are lower than book values. conform more to GAAP accounting. are higher than book values. conform to investors' expectations.

Conform to investors' expectations.

In a partnership form of organization, income tax liability, if any, is incurred by:

the partners individually.

In a partnership form of organization, income tax liability, if any, is incurred by: - both the partnership and the partners. - the partners individually. - neither the partnership nor the partners. - the partnership itself.

the partners individually.

The cost of capital for a business is...

the return investors demand to lend their money to the firm

responsible for bank relationships

the treasurer

One continuing problem with managerial incentive compensation plans is that:

their effectiveness is difficult to evaluate.

what are the key advantages of mutual funds and pension funds?

they allow investors to diversify in professionally managed portfolios

Real assets

things that have value all by themselves

Assets

total current assets cash and marketable securities accounts receivable inventories net fixed assets

liabilities and equity

total current liabilities accounts payable debt due for repayment long-term debt equity

Debt Ratio

total debt/total assets

For the consumer, a credit card:

transports money forward in time. provides liquidity. is a convenient way to pay. → all of these.

Which of the following forms of income can individuals defer from taxation? -Dividends -Interest -Realized capital gains -Unrealized capital gains

Unrealized capital gains

Which of the following forms of income can individuals defer from taxation? Unrealized capital gains Realized capital gains Interest Dividends

Unrealized capital gains

Which of the following actions does not help reduce risk? Buying Japanese yen now when you plan to study in Japan next year Extending the service warranty for your notebook Contracting to sell your farm produce to the neighborhood grocery Converting your money market account to a mutual fund account

Converting your money market account to a mutual fund account

A capital investment that generates a 10% rate of return is worthwhile if: corporate bonds of similar risk offer 11% rates of return. the expected rate of return on the stock market is 12%. top-quality corporate bonds offer 10% rates of return. corporate bonds of similar risk offer 8% rates of return.

Corporate bonds of similar risk offer 8% rates of return

Businesses with 500+ employees are more likely to be a ?

Corporation

Corporations are referred to as public companies when their:

Corporations are referred to as public companies when their:

Double taxation

Corporations are subject to double taxation, because they pay taxes on their profits and the shareholders are taxed again when they receive dividends or sell their shares at a profit

Which one of these costs accounts for the difference between accounting income and economic value added

Cost of capital

Which one of the following is fixed for the life of a given bond? Coupon rate Yield to maturity Current yield Current price

Coupon rate

What causes bonds to sell for a premium? Long periods until maturity Investment-quality ratings Speculative-grade ratings Coupon rates that exceed market rates

Coupon rates that exceed market rates

Assume that you just deposited $1,000 into a savings account that earns an interest rate of 3% per year. How much will you be able to withdraw each year if you make your first annual withdrawal one year from today and your final withdrawal six years from today? a. $171.67 b. $199.00 c. $166.67 d. $184.60 e. $154.60

D

Common-size financial statements present all balance sheet account values as a percentage of: A. the forecasted budget. B. sales. C. total equity. D. total assets. E. last year's account value.

D

Which of the following represent problems encountered when analyzing financial statements? I. Conglomerates do not fit neatly into any one industrial classification. II. Firms use standard accounting principle. III. Accounting information often requires estimation and discretion. IV. Accounting information picture what has happened in the past and does not provide information about what will happen in the firm's future. A. I and II only B. II and IV only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

D

What is the highest marginal rate at which corporate income is taxed? A. 15% B. 34% C. 35% D. 39%

D. 39%

Cost - Accumulated Depreciation = Net Fixed Asset

Usually reported NET of accumulated depreciation

13. Which of the following statements about net working capital (NWC) is correct? A. NWC is positive for all firms. B. As NWC decreases, potential liquidity increases. C. NWC excludes inventory, which is deemed illiquid. D. Decreases in NWC can increase the firm's risk.

D. Decreases in NWC can increase the firm's risk.

19. Which of the following statements about depreciation is correct? A. Depreciation is subtracted from cost of goods sold to calculate net income. B. When depreciation expense is incurred, cash balances are reduced. C. Depreciation expense does not affect net income. D. Depreciation reduces the book value of assets.

D. Depreciation reduces the book value of assets.

Which one of the following would correctly differentiate general partners from limited partners in a limited partnership? A. General partners have more job experience. B. General partners have an ownership interest. C. General partners are subject to double taxation. D. General partners have unlimited personal liability.

D. General partners have unlimited personal liability.

Which type of financial institution generally does not accept deposits but does underwrite stock offerings? A. Insurance company B. Mutual fund C. Commercial bank D. Investment bank

D. Investment bank

Which one of these would not be paid from free cash flow? A. Cash dividends B. Repayment of principal on a long-term debt C. Repurchase of outstanding shares of common stock D. New equipment purchase

D. New equipment purchase

Which one of the following gives a corporation its permanence? A. Multiple owners B. Limited liability C. Corporation taxation D. Separation of ownership and control

D. Separation of ownership and control

1. In general, what is changing as you read down the left-hand side of a balance sheet? A. The assets are more fully depreciated. B. The assets are growing in value. C. The assets are increasing in maturity. D. The assets are becoming less liquid.

D. The assets are becoming less liquid.

20. What occurs when the value of a firm's debt exceeds the value of shareholders' equity? A. The firm is bankrupt. B. The firm's assets have no value. C. A high rate of interest is being paid on the debt. D. The firm is financed more through debt than through equity.

D. The firm is financed more through debt than through equity.

24. The gathering of related revenues and expenses into the same period, regardless of when cash is actually received or paid, is: A. cash-basis accounting. B. market-value accounting. C. book-value accounting. D. accrual accounting.

D. accrual accounting.

Agency problems can least be controlled by: A. establishing good internal controls and procedures. B. designing compensation packages that align manager's goals with those of the shareholders. C. corporate governance. D. electing senior managers to the board of directors.

D. electing senior managers to the board of directors.

A bond differs from a share of stock in that a bond: A. represents a claim on the firm. B. has more risk. C. has guaranteed returns. D. has a maturity date.

D. has a maturity date.

16. According to GAAP, assets and liabilities are typically recorded on the balance sheet at: A. historical cost plus depreciation. B. market value. C. salvage value. D. historical cost less depreciation.

D. historical cost less depreciation.

The primary goal of corporate management should be to: A. maximize the number of shareholders. B. maximize the firm's profits. C. minimize the firm's costs. D. maximize the shareholders' wealth.

D. maximize the shareholders' wealth.

Financing for public corporations flows through: A. the financial markets only. B. financial intermediaries only. C. derivatives markets. D. the financial markets, financial intermediaries, or both.

D. the financial markets, financial intermediaries, or both.

Risks associated with debt

Debt exposes the firm to more risk than if it is financed only with equity.

Which of the following would be considered a capital budgeting decision? -Planning to issue common stock rather than issuing preferred stock -Deciding to expand into a new line of products, at a cost of $5 million -Repurchasing shares of common stock -Issuing debt in the form of long-term bonds

Deciding to expand into a new line of products, at a cost of $5 million

Which one of the following would be considered a capital budgeting decision?

Deciding to expand into a new line of products, at a cost of $5 million

Which one of these is a capital budgeting decision?

Deciding whether to buy a new machine or repair the old machine

An increase in depreciation expense will (other things equal): increase taxable income. increase net income. decrease the market value of assets. decrease net income.

Decrease net income

Which of the following statements about net working capital (NWC) is correct? Decreases in NWC can increase the firm's risk. NWC is positive for all firms. NWC excludes inventory, which is deemed illiquid. As NWC decreases, potential liquidity increases.

Decreases in NWC can increase the firm's risk.

Which one of the following will increase the present value of an annuity, other things equal? Decreasing the interest rate Decreasing the amount of the payment Decreasing the number of payments Increasing the interest rate

Decreasing the interest rate

An increase in which one of the following will have no effect on the cash coverage ratio? Depreciation Cost of goods sold Interest Sales

Depreciation

Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?

Depreciation expense

Which of the following statements about depreciation is correct?

Depreciation reduces the book value of assets.

Partnership

Direct ownership by two or more entities who enter into a contractual relationship

Which of the following cash outflows does not reduce a firm's net income? -Income taxes -Interest expense -Dividends -Depreciation expense

Dividends

Which type of income is subject to "double taxation"? Wages Dividends Dividends and wages Capital gains

Dividends

Explain the Du Pont identity.

Du Pont Identity writes ROE as the product of three ratios as ROE = (NI / Sales) (Sales / TA) (TA / TE) Profit margin * Total asset turnover * Equity multiplier

All else remaining the same, an increase in market interest rates will: a. increase the present value of a lump sum to be received in the future b. decrease the future value of a lump sum invested today c. decrease the present value of a lump sum to be received in the future. d. increase the future value of a lump sum to be received in the future e. both c and d are correct

E

You invest $1,000 today into an investment account that will pay a stated annual rate of 12% which is compounded quarterly. What will you have in the account at the end of 5 years if the account is compounded quarterly? a. $1,250 b. $1,380 c. $1,640 d. $1,762 e. $1,806

E

What is the effective annual interest rate on a 9% APR automobile loan that has monthly payments? 9.00% 9.38% 10.94% 9.81%

EAR = [1 + (.09/12)]12 - 1 = .0938, or 9.38%

FCF =

EBIT - taxes + depreciation - (change)NWC + CapX

The Cavo Company has an ROA of 10 percent. A profit margin of 5 percent, and an ROE of 17 percent. What is the company's equity multiplier?

EM= 0.17/(.1)=1.7

Economic Value Added (EVA) and Market Value Added (MVA)

EVA: aka residual income. Deducts the cost of capital from operating income. If it is positive, then the firm's current operations are adding value for shareholders. MVA: The difference between the market value of firm's equity and its book value.

EBIT

Earnings before interest and taxes

Which one of these best defines the objective of a well-functioning financial market?

Establishing accurate security prices

Which of the following is least likely to represent an agency problem?

Executive incentive compensation plans

Which of the following actions does not help reduce risk?

Extending the service warranty for your notebook → Converting your money market account to a mutual fund account Contracting to sell your farm produce to the neighborhood grocery Buying Japanese yen now when you plan to study in Japan next year

You invested $5,000 this morning with City Bank at 4.2 percent interest for 15 years. This afternoon, you discovered that you can invest your money at 4.8 percent interest after 15 years at Country Bank. If you choose to invest at Country Bank for additional 25 years, how much will you have at the end of 40 years?

FV = $5,000 × (1 + 0.042)15 × [1 + 0.048]^25 = $9,268 [1 + 0.048]^25 = 29,923.88

Based on generally accepted accounting principles, assets are recorded on the balance at their current market value. True False

False

Boards of directors are generally appointed by the firm's senior officers.

False

Depreciation charge is a cash payment. True False

False

Hedge fund managers, unlike mutual fund managers, do not receive fund-performance-related fees. True False

False

T/F: The networking capital of a firm will decrease when accrued wages are paid with cash.

False

The derivative market is also a source of financing for corporations. True False

False

The effects of the financial crisis of 2007-2009 were confined to the U.S. and domestic companies. True False

False

The liability of sole proprietors is limited to the amount of their investment in the company.

False

The opportunity cost of capital is the capital outlay required to undertake a real investment opportunity.

False

Capital budgeting decisions are used to determine how to raise the cash necessary for investments. True False

False, it is the decision to invest in tangible or intangible assets.

The primary goal of any company should be to maximize current period profits. True False

False, the goal should be to maximize the current value of the company.

The liability of sole proprietors is limited to the amount of their investment in the company. True False

False, they have unlimited liability.

Which of the following statements best distinguishes the difference between real and financial assets? -Real assets have less value than financial assets. -Real assets are tangible; financial assets are not. -Financial assets represent claims to income that is generated by real assets. -Financial assets appreciate in value; real assets depreciate in value.

Financial assets represent claims to income that is generated by real assets

What best distinguishes the difference between real and financial assets?

Financial assets represent claims to income that is generated by real assets.

Which of the following statements best distinguishes the difference between real and financial assets?

Financial assets represent claims to income that is generated by real assets.

T or F: the sale of policies is a source of financing for insurance companies.

true

If the Department of Treasury issues a new 30-day Treasury Bond, the bond will be issued in the following market:

Fixed-income market and money market

The cost of capital: for risky investments is normally higher than the firm's borrowing rate. is the interest rate that the firm pays on a loan from a bank or insurance company. is the expected rate of return on a capital investment. is an opportunity cost determined by the risk-free rate of return.

For risky investments is normally higher than the firm's borrowing rate

What is a bond?

type of loan

Market Value ratios

what investors think about the firm and its future prospects example: P/E Ratio

Which of the following is least liquid?

Foreign currency U.S. Treasury bonds → Rare coins Savings deposit

What is the fundamental difference between IFRS and GAAP? GAAP relies more on specific rules but not the spirit of the rules. GAAP relies more on general principles as well as the spirit of those rules. GAAP relies more on general principles but ignores the spirit of those principles. GAAP relies more on specific rules and the spirit of the rules.

GAAP relies more on specific rules and the spirit of the rules

What correctly applies to a limited partnership?

General partners have unlimited personal liability.

Suppose Dee's just acquired the assets of Flo's Flowers. The book value of Flo's Flowers assets was $68,000 but Dee's paid a total of $75,000. The additional $7,000 paid by Dee's will be recorded on Dee's balance sheet as: accounts payable. other current assets. goodwill. property, plant, and equipment.

Goodwill

Which one of the following is an intangible asset?

Goodwill

Which one of these was a major cause of the deep recession and severe unemployment throughout much of Europe that followed the financial crisis of 2007-2009? Risk-adverse investor attitudes Government actions to lower government debt Investor speculation Government actions to raise interest rates

Government actions to lower government debt

The financial crisis of 2007-2009 contributed to the largest sovereign default in history by which one of these countries? Italy Greece Portugal Ireland

Greece

A total debt ratio of .35:

would exist if a firm had liabilities of $700 and assets of $2,000.

Which one of these correctly applies to mutual funds

you can generally buy addition shares in the fund at any time

Short selling involves selling a security:

you do not own.

One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks: do not have any income tax liability. can shift loan risk to their deposit customers. have information to evaluate creditworthiness. are motivated by the potential for profit.

Have information to evaluate creditworthiness

Given a set future value, which of the following will contribute to a lower present value? - Less frequent discounting - Lower discount factor - Fewer time periods - Higher discount rate

Higher discount rate

-Lower financial stress -Lower return on less risky assets

Higher liquidity means

According to GAAP, assets and liabilities are typically recorded on the balance sheet at:

Historical cost less depreciation

Debt Management Ratios

How a firm has financed its assets example: Debt-to-Capital

Payout policy

How much profit to reinvest in the company and how much to distribute to investors

1. Which of the following is considered a "secondary market" transaction? I. Kate, the president of Logistics, Inc., sells some of her shares in the firm on the NYSE. II. General Motors offers newly issued shares of stock to the general public. III. Margie calls her broker and requests that all her shares of TLC be sold. IV. Al gifts shares of Logon stock to his wife. V. Apple Inc., repurchases its own shares for $480 per share.

I II IV

Corporate debt instruments are most commonly traded: on NASDAQ. in the over-the-counter market. in the money market. on the NYSE.

In the over-the-counter market

Which of the following changes in working capital will result in an increase in cash flows?

Increase in accounts payable

Which of the following changes in woring capital will result in a decrease in cash flows ?

Increases in inventories.

Which of the following financial intermediaries has shown a preference for investing in long-term financial assets? -Commercial banks -Insurance companies -Finance companies -Savings banks

Insurance companies

Which one of the following financial intermediaries has shown the greatest preference for investing in long-term financial assets? Finance companies Savings banks Insurance companies Commercial banks

Insurance companies

Which one of these may provide a financial return to some investors while not providing any financial return to other investors?

Insurance companies

The existence of goodwill on a corporate balance sheet indicates that the corporation has: depreciated its tangible assets. intangible assets from past acquisitions. retained earnings resulting from past income. been profitable in the past.

Intangible assets from past acquisitions

Capital Markets

Interest rates, financial markets and institutions

How is the relationship between a bond's credit rating and its interest rate best defined? Inverse relationship Logarithmic Direct relationship Unrelated

Inverse Relationship

"Balanced" mutual funds: charge a management fee that is proportionate to the investment return. invest in both stocks and bonds. spread their investments equally over a specified geographic area. spread their investments equally over various industries.

Invest in both stocks and bonds

Which one of these enterprises generally acts as an underwriter for an initial public offering? Insurance company Investment bank Government Commercial bank

Investment Bank

Investing and Financial Decisions

Investment Decision: aka capital budgeting. Decide which real assets to invest in Finance Decision: Decide how to raise the funds necessary to pay for those investments

Which type of financial institution generally does not accept deposits but does underwrite stock offerings

Investment bank

Which type of financial institution generally does not accept deposits but does underwrite stock offerings? Mutual fund Commercial bank Insurance company Investment bank

Investment bank

Which type of financial institution generally does not accept deposits but does underwrite stock offerings?

Investment bank.

Which one of these was a contributing factor to the need for many foreign banks to seek aid from their governments as a result of the financial crisis of 2007-2009? Currency controls Interest rate spikes Investments in U.S. subprime mortgages Decrease in their exchange rates

Investments in U.S. subprime mortgages

Which of the following is more likely to be correct if market value of equity is less than book value of equity? -Investors anticipate excellent earning potential. -Investors anticipate low earning potential. -Assets have been fully depreciated. -The company is bankrupt.

Investors anticipate low earning potential

A bond differs from a share of stock in that a bond: has guaranteed returns. represents a claim on the firm. has a maturity date. has more risk.

It has a maturity date

Which one of the following statements is most likely correct for a firm with an average collection period of 90 days? Its average daily sales are high. It is providing financing for approximately 25% of its annual sales. Its current ratio will be high. Its average daily sales are low.

It is providing financing for approximately 25% of its annual sales.

When Tri-C Corp. compares its ratios to industry averages, it has a higher current ratio, an average quick ratio, and a lower inventory turnover. What might you assume about Tri-C? Its average inventory is too high. Its cost of goods sold is too low. Its cash balance is too low. Its current liabilities are too low.

Its average inventory is too high.

Assuming at the $50,000 income level that the corporate tax rate increases from 15 to 25%, which of the following statements is correct for a firm with $75,000 income? -Its marginal tax rate is 15%. -Its average tax rate is 25%. -Its marginal tax rate is 18.33%. -Its average tax rate is 18.33%.

Its average tax rate is 18.33%

Present in order of permanency (Fixed Assets)

Land, Building, equipment, and vehicles

Which one of these is a disadvantage of the corporate form of business?

Legal requirements

During the Financial Crisis of 2007-2009, the U.S. government bailed out all of the following firms except: Freddie Mac. AIG. Lehman Brothers. Fannie Mae.

Lehman Brothers

During the Financial Crisis of 2007-2009, the U.S. government bailed out the following firms except:

Lehman Brothers.

Assets =

Liabilities + Equity

The current ratio is a good proxy for a firm's: degree of leverage. efficiency. profitability. liquidity.

Liquidity

For any type of business, what are three major financial management decisions?

Long-term investment or capital budgeting decision Long-term financing or capital structure decision Net working capital decision

Agency Problem

Managers are agents for stockholders, and are tempted to act in their own interests rather than maximizing value

Which of the following financial intermediaries can loan money directly to businesses?

→ Insurance companies

Which of the following financial intermediaries has shown a preference for investing in long-term financial assets?

→ Insurance companies

Which of the following financial markets is in one centralized location?

→ NYSE NASDAQ The over-the-counter market The European Monetary Union

mutual funds have a tax advantage

→ Pension funds기금은 특정 공공사업 자금을 마련하기 위해 정부지원 등을 받아 설립된다. 넓은 의미로 정부기능의 일부다.

Market Value and Book Value

Market Value: Value of assets or liabilities were they to be resold in a market Book Value: Value of assets or liabilities according to the balance sheet

Which one of these statements is correct? Net income is also called economic value added. Market value added measures the difference between the total market value and the total book value of equity. EVA considers the cost of long-term debt financing but excludes the cost of equity financing. EVA measures the net profit of a firm after deducting the cost of the assets used in the production process.

Market value added measures the difference between the total market value and the total book value of equity.

What values would most likely interest a shareholder?

Market value of equity

Which of the following values would most likely interest a shareholder? -Book value of equity -Market value of equity -Historical cost of equity -none of these

Market value of equity

Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1,000 shares of outstanding stock? -Market value of liabilities exceeds book value of liabilities. -Market value of liabilities equals $1 million. -Book value per share equals $1,000. -Market value per share equals $2,000

Market value of liabilities equals $1 million

Which of the following statements is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1,000 shares of outstanding stock? Market value of liabilities exceeds book value of liabilities. Market value per share equals $2,000. Market value of liabilities equals $1 million. Book value per share equals $1,000.

Market value of liabilities equals $1 million

What is true for a corporation with $1 million market value of equity, $2 million market value of assets, and 1,000 shares of outstanding stock?

Market value of liabilities equals $1 million.

Which of the following assets is likely to be considered the most liquid?

Marketable securities

Which of the following assets is likely to be considered the most liquid? -Marketable securities -Net fixed assets -Accounts payable -Inventories

Marketable securities

Which of the following statements is not characteristic of mutual funds?

→ They are financial institutions. They raise money by selling shares to investors. They pool the savings of many investors. They offer professional management.

Which of the following appears to be the most appropriate goal for corporate management?

Maximizing market value of the company's shares

Which of the following appears to be the most appropriate goal for corporate management? -Maximizing market value of the company's shares -Maximizing the company's market share -Maximizing the current profits of the company -Minimizing the company's liabilities

Maximizing market value of the company's shares

Which of the following functions does not require financial markets?

→ Transporting of cash across time Provision of liquidity Risk reduction by investment in diversified portfolios Provision of trade information

A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant run by her family. Which type of financing is she looking to obtain? Public bond issue IPO Futures contract on a commodity Micro loan

Micro loan

U.S. bonds and other debt securities are mostly held by:

→ institutional investors. households. foreign investors. state and local governments

Short-term financing decisions commonly occur in the _______.

Money markets

Short-term financing decisions commonly occur in the:

Money markets

Short-term financing decisions commonly occur in the: primary markets. capital markets. money markets. secondary markets.

Money markets

Compared to buying stocks and bonds directly, what are the advantages of investing in a mutual fund? -Mutual funds are efficiently diversified and professionally managed. -Investment returns are never taxed until withdrawn from the fund. -You can buy additional shares in the fund or cash out at any time. -All of these.

Mutual funds are efficiently diversified and professionally managed

Compared to buying stocks and bonds directly, what are the advantages of investing in a mutual fund?

Mutual funds are efficiently diversified변화가많은 and professionally managed.

Even though you have no idea who you will marry, you are planning an elaborate wedding for 6 years from now. The estimated cost of the wedding is $75,000 and you expect to earn 5.5 percent on your savings, compounded monthly. How much do you need to save each month for this purpose assuming that you have no money saved as of today?

N: 6X12 Rate: 5.5/12 PV:0 PMT: ? 881.59 FV: 75000

Which of the following financial markets is not located in one centralized location? -NYSE -LSE -NASDAQ -CBOT

NASDAQ

Which of the following financial markets is in one centralized location? -NYSE -NASDAQ -The over-the-counter market -The European Monetary Union

NYSE

Which of the following financial markets is not located in one centralized location?

NYSE LSE → NASDAQ CBOT

Retained earnings result from:

Net income not paid to the shareholders.

Dividends paid by the firm?

Net income- difference in retained earnings

A firm has $600,000 in current assets and $150,000 in current liabilities. Which of the following is correct if it uses cash to pay off $50,000 in accounts payable?

Net working capital will not change - reason assets decrease by 30,000 and liability decreased by 30,000 ( working capital is Assets- Liability

What happens to a firm's net worth as it uses cash to repay accounts payable?

Net worth remains constant.

Which one of these would not be paid from free cash flow?

New equipment purchase

Which one of these would not be paid from free cash flow? Repayment of principal on a long-term debt Cash dividends Repurchase of outstanding shares of common stock New equipment purchase

New equipment purchase

If a firm's statement of cash flows shows that cash was used for investments, which of the following would seem most likely?

New machines were acquired.

When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives: the dollar amount of the transaction, less brokerage fees. nothing. the dollar value of the transaction. only the par value of the common stock

Nothing

You will make annual deposits of $5,000 into the retirement savings account that pays 10 percent interest compounded quarterly. If your first payment is made one year from now, how much will you have in your account in 35 years?

Nper: 35 Rate: EAR=(1+.1/4)^4-1=10.38 PV:0 PMT: 5000 FV: $1,479,613.10

A 7-year annuity of $8,000 semiannual payments will begin 10 years from now, with the first payment coming 10.5 years from now. If the discount rate is 9 percent compounded semiannually, what is the value of this annuity four years from now?

Nper: 7X2 Rate: 9/2 Pv:0 PMT: 8000 FV: 81,782.60 Nper: 6X2 Rate: 9/2 PV:? 48,224.25 PMT: 0 FV: 81,782.60

Current period depreciation expense is listed:

On the income statement

In a statement of cash flows, which category includes depreciation expense as a line item?

Operations

In a statement of cash flows, which category includes depreciation expense as a line item? None of these; depreciation is a noncash expense. Investments Financing Operations

Operations

According to Murphy (2002), which component of CEO compensation experienced the most dramatic increase during the 1990s?

Options

Foreign currencies are traded: over the counter. on both the NYSE and NASDAQ. on the Intercontinental Exchange. only by banks in New York and London.

Over the counter

You are 22 years old today. You want to retire at age 55 and have $3 million at that time. Assume you can earn an average annual rate of return of 8.8 percent. Your hope is that you will win the lottery today and be able to fund your retirement dream with one lump sum deposit today. How much would you have to win, after taxes, to make an investment today sufficient to fund your dream?

PV = $3,000,000 / (1 + 0.088)^(55 − 22) = $185,510

Write a present value factor (PVF) and future value factor (FVF), given interest rate r and time period t.

PVF: 1/(1+r)t FVF: (1+r)t

Payout Ratio Formula

Payout Ratio + Plowback Ratio = 1

Primary Market vs Secondary Market

Primary Market: Market for sale of newly issued securities Secondary Market: Market in which previously issued securities are traded among investors

If market values of equity exceed book values of equity, then: equity has been depreciated too rapidly. the firm is holding too much cash. the firm uses accrual-based accounting. profit potential is expected to be attractive.

Profit potential is expected to be attractive

Which of the following would be considered an advantage of the sole proprietorship form of organization? -Wide access to capital markets -Unlimited liability -A pool of expertise -Profits taxed at only one level

Profits taxed at only one level

What is a disadvantage to incorporating a business?

Profits taxed at the corporate level and the shareholder level

Which of the following is a disadvantage to incorporating a business?

Profits taxed at the corporate level and the shareholder level

Businesses with 0-4 employees are more likely to be a ?

Proprietorship or partnership

Which of the following is not typically considered a function of financial intermediaries?중개자의 기능이아닌

Providing a payment mechanism → Investing in real assets Accumulating funds from smaller investors Spreading, or pooling risk among individuals

Which one of these ratios is commonly referred to as the acid-test ratio

Quick Ratio

Which one of these ratios is commonly referred to as the acid-test ratio? Cash ratio Quick ratio Cash coverage ratio Times interest earned ratio

Quick ratio

ROA Formula

ROA= Aftertax Operating Income / Assets or ROA= Asset Turnover x Operating Profit Margin

Which of the following is the least effective measure of operating performance

ROE

Which of the following is the least effective measure of operating performance? All of these are equally ineffective measures of operating performance. ROA ROC ROE

ROE

Marginal rate

Rate paid on the next $1 of taxable income

Real Assets and Financial Assets

Real Assets: used to produce goods and services Financial Assets: financial claims to income generated by the firm's real assets

Which one of the following is least liquid?

Real Estate

Which of the following should NOT be a function provided by financial intermediaries?

Reduce liquidity.

For the most recent year, Seether, Inc. had sales of $465,000, cost of goods sold of $208,730, depreciation expense of $60,400, and additions to retained earnings of $72,800. The firm currently has 20,000 shares of common stock outstanding, and dividend per share is $1.35. Assuming 35% income tax rate, what was the times interest earned ratio?

Sales 465000 CGS 208730 Dep 60400 EBIT 195870 Interest 42331.54 EBT 153538.5 Tax 53738.46 NI 99800 72800 27000 EBT(1-.35) 99800 TIE 4.627047

A primary market would be utilized when _______.

Securities are initially issued.

Investment

Security and Market analysis Portfolio theory

Which one of the following gives a cooperation its permanence?

Separation of ownership and control

Which one of the following gives a corporation its permanence? - Limited liability - Separation of ownership and control - Corporation taxation - Multiple owners

Separation of ownership and control

Goals of the Corporation

Shareholders desire wealth maximization. Profit maximization. Opportunity cost of capital (aka rate of return investors can earn)

Which of the following is a capital budgeting decision?

Should the rim shut down and unprofitable factory?

Which one of these parties cannot invest in a hedge fund?

Small retail investors

Which one of these parties cannot invest in a hedge fund? Wealthy individuals Insurance companies Small retail investors Pension funds

Small retail investors

Stakeholder

Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm

How do stocks come into existence?

When a company incorporates it creates stock shares that it sells to investors.

Sustainable Growth Formula

Sustainable Growth (G) = ROE x Plowback Ratio

What is the relationship between an annually compounded rate and the annual percentage rate (APR) which is calculated for truth-in-lending laws for a loan requiring monthly payments? - The answer depends on the interest rate. - The APR is higher than the annually compounded rate. - The APR is lower than the annually compounded rate. - The APR equals the annually compounded rate.

The APR is lower than the annually

Firms can often determine the current price of any commodities they use in their production process by consulting the price quotes provided by: their investment bank. the New York Mercantile Exchange. the Standard & Poor's market indexes. the New York Stock Exchange.

The New York Mercantile Exchange

Assume a bond has been owned by four different investors during its 20-year history. Which one of the following is most apt to have been different for each of these owners? Yield to maturity Par value Coupon frequency Coupon rate

Yield to maturity