Chapter 1

E. Compound interest

Interest earned on both the initial principal and the interest reinvested from prior periods is called _____________ A. Growth B. Annual interest C. Simple interest D. Interest on interest E. Compound interest

B. Current assets divided by current liabilities

The current ratio is measured as: A. Current assets minus current liabilities B. Current assets divided by current liabilities C. Current liabilities minus inventory, divided by current liabilities D. Cash on hand divided by current liabilities E. Current liabilities divided by current assets

A. Income statement

The financial statement summarizing a firm's performance over a period of time is the: A. Income statement B. Balance sheet C. Statement of cash flows D. Tax reconciliation statement E. Shareholder's equity sheet.

B. Balance sheet

The financial statements showing a firm's accounting value on a particular date is the: A. Income statement B. Balance sheet C. Statement of cash flows D. Tax reconciliation statement E. Shareholder's equity sheet.

A. Working capital management

The management of the firm's short-term assets and liabilities is called: A. Working capital management B. Financial depreciation C. Capital budgeting D. Agency cost analysis

B. Capital structure.

The mix of debt and equity capital for a firm is referred to as the firm's: A. Capital budgeting B. Capital structure C. Cost analysis D. Cash management E. Working capital management

C. The agency problem

The possibilities of conflict of interest between the stockholders and management of the firm is called: A. The shareholders' conundrum B. Corporate breakdown C. The agency problem D. Corporate activism

B. Maximize the value of the existing stock.

The primary goal of financial management is to: A. Minimize operational costs and maximize firm efficiency. B. Maximize the value of the existing stock. C. Avoid financial distress. D. Maximize current dividends per share of the existing stock. E. Maintain steady growth in both sales and net earnings.

C. Corporations generally find it easier to raise large amounts of capital.

Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership A. Corporate investors are exposed to unlimited liability. B. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. C. Corporations generally find it easier to raise large amounts of capital. D. Less of a corporation's income is generally subject to federal taxes. E. Corporations generally face fewer regulations.

A. For each $1 of sales the firm earns twenty cents of income

Which of the following is a correct interpretation of a profit margin of 0.20? A. For each $1 of sales the firm earns twenty cents of income B. For each $1 of sales the firm earns twenty cents before operating expenses C. For each $1 of sales, $2 falls to the bottom line D. It takes sales of $1 to generate $20 in net profit after taxes E. It takes twenty cents in sales to generate $1 in profit

B. The life of the corporation is unlimited.

Which of the following is a true statement concerning corporations? A. The equity that can be raised by the corporation is limited to the current shareholders' personal wealth. B. The life of the corporation is unlimited C. The corporation has limited liability for business debts D. When dividends are paid, corporate profits are taxed once. E. It is difficult to transfer ownership of corporate shares

C. It is usually easier to transfer ownership in a corporation than in a partnership

Which of the following statements is CORRECT? A. Corporate shareholders are exposed to unlimited liability. B. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. C. It is usually easier to transfer ownership in a corporation than in a partnership. D. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small. E. Corporations generally face fewer regulations than sole proprietorships

A. Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management.

Which of the following statements is CORRECT? A. Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management. B. The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden. C. Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value. D. Hostile takeovers are most likely to occur when a firm's stock sells at a price above its intrinsic value because its management has been issuing overly optimistic statements about its likely future performance. E. In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that involve primarily research and development.

C. deciding whether or not to open a new store

Which one of the following is a capital budgeting decision? A. determining how much debt should be borrowed from a particular lender B. deciding when to repay a long-term debt C. deciding whether or not to open a new store D. determining how much money should be kept in the checking account E. determining how much inventory to keep on hand

C. Net working capital

__________________ refers to the difference between a firm's current assets and its current liabilities. A. Operating cash flow B. Capital spending C. Net working capital D. Cash flow from assets E. Cash from to creditors