FINA 4315 Mid Term Exam Review

Gross profit is calculated as:

Total sales - cost of sales.

Do corporate decisions that increase the value of the firm's equity benefit society as a whole?

Yes, as long as the increase in the value of the firm's equity does not come at the expense of others.

Which of the following organization forms accounts for the most revenue?

"C" corporation

U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form?

10 - K

Which of the following is/are an advantage of incorporation?

Access to capital markets Limited liability Unlimited life All of these

Which of the following adjustments is NOT correct if you are trying to calculate cash flow from financing activities?

Add dividends paid

Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities?

Add increases in accounts receivable

Which of the following statements is FALSE?

Bid prices exceed ask prices.

Which of the following is (are) deducted from EBIT to determine net income?

Both Interest expense and Corporate taxes

Which of the following statements regarding the income statement is INCORRECT?

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

Which of the following statements is FALSE?

If the corporation fails to satisfy debt holders' claims, debt holders may lose control of the firm.

Which of the following is (are) deducted from EBIT to determine pretax income?

Interest expense

If Moon Corporation has depreciation or amortization expense, which of the following is TRUE?

Its EBITDA/Interest Coverage ratio will be greater than its EBIT/Interest Coverage ratio.

Which of the following is NOT an advantage of a sole proprietorship?

Limited liability

Which of the following statements regarding perpetuities is FALSE?

PV of a perpetuity = r/c

Four types of firms

Sole proprietorship, partnership, limited liability company, corporation

A limited liability company is essentially:

a limited partnership without a general partner.

You overhear your manager saying that she plans to book an Ocean-view room on her upcoming trip to Miami for a meeting. You know that the interior rooms are much less expensive and that your manager is traveling at the Company's expense. This use of additional funds comes about as a result of:

an agency problem.

Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago. This reduction in value results in:

an impairment charge.

An investment is said to be liquid if the investment:

can easily be converted into cash.

Accounts payable is a:

current liability.

The firm's revenues and expenses over a period of time are reported on the firm's:

income statement or statement of financial performance.

The statement of financial performance is also known as the:

income statement.

A sole proprietorship is owned by

one person

If shareholders are unhappy with a CEO's performance, they are most likely to

sell their shares.

The largest stock market in the world by market capitalization is:

the New York Stock Exchange.

By evaluating cost and benefits using competitive market prices, we can determine whether a decision will make the firm and its investors wealthier. This central concept is called:

the Valuation Principle.

The person charged with running the corporation by instituting the rules and policies set by the board of directors is called:

the chief executive officer.

If we use future value rather than present value to decide whether to make an investment:

we will make the same decision using either future value or present value.

If you buy shares of Coca-Cola on the secondary market:

you buy the shares from another investor who decided to sell the shares.