Fin320

What is the most important difference between a corporation and all other organizational forms?

An important difference among the types of corporate organizational forms is the way they are taxed. Shareholders of a corporation pay taxes twice This system is sometimes referred to as a double taxation

A factory owner wants his workers to produce as many widgets as they can, so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random at various stages of their manufacture. If a defect is found in a widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the principal - agent problem in this case?

By supplying incentives so the agents act in the way principal desires

Which of the following statements regarding the income statement is INCORRECT? A. The income statement shows the flow of earnings and expenses generated by the firm between two dates B. The first line of an income statement lists the revenues from the sales of products or services C. The income statement shows the earnings and expenses at a given point in time D. The last or "bottom" line of the income statement shows the firm's net income

C. The income statement shows the earnings and expenses at a given point in time

Bubba is a shrimp farmer. In an ironic twist, Bubba is allergic to shellfish, so he cannot eat shrimp. Each day he has one-ton supply of shrimp. The market price of shrimp is $10,500 per ton. B) would this value change if he were not allergic to shrimp? why or why not?

No. As long as he can buy or sell shrimp at $10,500 per ton, her personal preference or use for shrimp is irrelevant to the value of the shrimp

In the United States, publicly traded companies can choose whether or not they wish to release periodic financial statements

false

To calculate cash flow's present value (PV), you must compound it

false

To enable costs and benefits to be compared, the firms convert them into cash value at the time the benefit is received

false

Trial and error is the only way to compute the internal rate of return (IRR) when interest is calculated over five or more periods

false

How do financial institutions help with risk-bearing?

insurance companies spread out risk and spreads risk across large pool of policy holders mutual funds an pension funds financial institutions not only assist with the risk-bearing of savers and investors, but must also be concerned about their own risk, spreading their loans out among a variety of clientele

Diagram shows a balance sheet for a company. All quantities are shown in millions of dollars. If a company has 4 million shares outstanding, and these shares are trading at a price of $7.99 per share, what does this tell you about how investors view this firms book value?

investors consider that the firm's market value and its book value are roughly equivalent

What checks are there on the accuracy of these statements?

public companies must use common set of rules corporations are required to hire a neutral party, known as an auditor in addition to the auditor's role in reviewing the financial statement, the Sarbanes-Oxley Act requires both CEO and CFO to personally attest to the accuracy of the financial statements.

Which of the following types of firms does NOT have limited liability?

sole proprietorship

A firm whose primary business is in a line of regional grocery store would be most likely to have to include which of the following facts, if true, in the firm's management discussion and analysis (MD&A)

that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount for the damages

which of the following amounts would be included on the right side of the balance sheet?

the amount of deferred tax liability held by the company

What is the most important type of decision that the financial manager makes?

the financial manager's most important job is to make the firms investment decisions

what is the major duty of the financial manager?

to make investment decisions to make financing decisions to manage cash flow from operating activities

The present value (PV) of a stream of cash flows is just the sum of the present values of each individual cash flow

true

the internal rate of return (IRR) is the interest rate that sets the net present value (NPV) of the cash flow to zero

true

True or False: Financial decisions require that you weigh alternatives in strictly monetary terms

False

True or False: partnerships are the most common type of business firms in the world

False

What are the disadvantages organizing a firm as a corporation?

Income to a corporation is subject to double taxation, once at the corporate level and again when received by the owners in the form of a dividend The corporation is more complicated and more expensive to set up than other business entities

What is the main reason that is is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP) when creating financial statements?

It makes it easier to compare the financial results of different firms

Which of the following best describes why the Valuation Principle is a key concept in making financial decisions?

It shows how to make the costs and benefits of a decision comparable so that we can weigh them properly

What is the financial cycle order?

People invest and save their money Money flows back to companies who use it fund growth through new products Money flows back to savers and investors

Does this imply that the Market price of Global's shares increased in 2013

The market value of a stock does not depend on the historical cost of the firms asset There are many events that may affect the future probability an increase in book value does not necessarily indicate an increase in share price

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while giving a promise to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the assets was not disclosed. Which of the following is one of the way that such a transaction is deceptive?

The off- balance sheet promises to repurchase assets should have been disclosed in management discussion analysis (MD&A) or notes to the financial statement

What four financial statements can be found in a firm's 10-k filing?

The statement of financial position The income statement The statement of cash flows The statement of stockholders' equity

On August 19, 2004 Google IPO offered 19,605,052 shares at a price of U.S. $85 per share, which were sold in an online auction in a bid to make the shares more widely available. Which of the following statements best describes why these are considered a primary market transaction?

The transaction was between the corporation and investors.

Bubba is a shrimp farmer. In an ironic twist, Bubba is allergic to shellfish, so he cannot eat shrimp. Each day he has one-ton supply of shrimp. The market price of shrimp is $10,500 per ton. A) what is the value of a to shrimp to him?

The value of the tonne of shrimp to Bubba is $10,500 because that is the market price

What are the advantages organizing a firm as a corporation?

There is no limit on the number of owners a corporation may have, thus allowing the corporation to raise substantial amounts of capital The life of the business can continue beyond the death of any of the owners The liability of the owners is limited to the amount of their investment in the firm

The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its material online. In order to raise the funds to make this purchase, the financial manager decides to sell more stock in the company. How is the financial manager raising funds in this case?

by raising the company's equity by encouraging new owners to take a stake in the company

accounts payable is _____

current liability