Finance 3000 Chapter 1 - Mizzou Hegger

One change brought by TCJA is that only the interest on the first ___________ of mortgage debt is deductible.

$750,000

Which of these is a monitor of corporate governance? Select all that apply.

- Board of directors - Securities and Exchange Commission

Which three decisions have the most effect on shareholder wealth? Select all that apply.

- Deciding how to return profits to owners - Deciding between debt and equity financing - Deciding which project to accept

Which of these features could accurately be included in the definition of a corporation? Select all that apply.

- Double taxation - Separate legal entity - Division of ownership and control

Which of the following are the well-developed viewpoints that have arisen regarding the goal of a firm?

- Emphasize social responsibility (Shareholder POV) - Maximize shareholder wealth (Owner POV)

Which of these parties monitor corporate activities from outside as part of corporate governance? Select all that apply.

- Investment analysts - Credit analysts - Auditors

What are the two key characteristics of a hybrid organization?

- Single taxation - limited liability

Financial management involves decisions about which of the following?

- which projects to fund - how to minimize taxation - what type of capital should be raised

The TCJA established a flat corporate tax rate of:

21 percent (21%)

Which one of these best defines a general partnership?

A brother and sister form a business. The brother incurs all the firm's debts but the sister has to repay all the debtors.

What is the definition of a fiduciary relationship?

A fiduciary relationship is a legal duty between two parties where one party must act in the interest of the other party.

What is the primary function of a financial institution?

A financial institution facilitates cash flows between investors and companies.

Definition of a general partnership:

A form of business organization where the partners own a business together and are personally liable for legal actions and debts of the firm.

Which one of these examples best illustrates the definition of time value of money?

A gift of $10,000 to be received in two years is worth $8,900 today.

How is a public corporation defined?

A public corporation is a firm owned by a large number of stockholders from the general public.

Which of these provides the best description of the difference between accounting and finance?

Accounting records past activities of a firm while finance helps with decisions regarding the firm's future.

Which one of these functions is a treasury function?

All are correct: - Managing the firm's pension plan - Managing cash and credit - Issuing and repurchasing financial securities such as stocks and bonds - Deciding how and when to spend capital for new and existing projects - Hedging (reducing the firm's potential risks) against changes in foreign exchange and interest rates

Which of these best illustrates how funds flow in a financial system?

An individual invests in a bank savings account and the bank lends money to companies.

Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors?

Dividends

Which of these best defines ethics?

Ethics is the study of values, morals, and morality.

Which of these is an example of how finance is used throughout a firm?

Finance can be used for cost/benefit analysis.

This subarea of finance looks at firm decisions in acquiring and utilizing cash received from investors or from retained earnings.

Financial Management

What role does a financial institution play in a financial system?

Financial institutions must distribute capital in an efficient manner.

Financial management relates to which one of the following?

Financial management relates to a firm's decisions regarding the acquisition and use of funds.

Which one of these features would be considered the most advantageous benefit of a general partnership?

Increased capital financing as compared to a sole proprietorship

Which one of the following statements correctly identifies a group that supplies money to the financial markets?

Individuals saving for retirement provide money to the financial markets.

This subarea of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms' securities to buy, and how to be paid back in the form that the investor wishes.

Investments

Which of these correctly defines a role of investments?

Investments address the timing of cash flows most desired by investors.

Which one of these features is an advantage of a sole proprietorship?

Less regulation than other business forms

Which one of these is an example of a borrower in the financial markets?

Lester's wants to expand its operations but has insufficient cash to do so.

The use of excess cash to do which of these is most apt to increase shareholder wealth? Select all that apply.

Paying dividends to shareholders

A discussion of risk in which of the following terms best serves as an overall definition of risk?

Risk is best defined in terms of the probability of a loss and the expected magnitude of that loss.

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

Separation of management and ownership

Corporate governance is the set of laws, policies, incentives, and monitors designed to handle issues arising from:

Separation of ownership and control

An agency problem is defined as a situation where a firm's managers fail to put the interests of which one of these parties first when making decisions?

Shareholders

Which one of the following is an advantage offered by a hybrid organization?

Single taxation

Which one of these is an advantage of a general partnership?

Single taxation

You are comparing four stocks of equal risk. Which stock should have the highest price in today's market?

Stock A currently pays $2 a year in dividends and increases that amount by $.50 annually. Reason: There is another stock that is expected to pay higher future dividends and thus will have a higher price.

The profitability of financial market intermediaries depends upon which of these?

Successful execution of unique professional services

Which of these is an example of a personal financial decision?

Sue opted to increase her company retirement plan contribution to 6 percent of her salary.

How is the time value of money (TVM) theory best defined?

TVM is the theory and application of valuing cash flows at various points in time.

Which one of the following best illustrates the definition of a sole proprietorship?

Ted was forced to sell his personal home in order to pay the debts of a business he owned in entirety.

The current value of a financial asset is determined by which of the following cash flows?

The value of a financial asset is determined by the asset's expected future cash flows.

What is the time value of money?

Time value of money involves valuing a cash flow or value at a time period other than when that cash flow or value occurs. There is no time movement of money in this answer.

Travis owns a bakery and Mia is a baker. How could an agency relationship exist between these two individuals?

Travis could hire Mia to work for him. Travis would be the principal and Mia would be the agent.

True or false: After TCJA, U.S. companies are more likely to "bring home" foreign profits due to the new flat tax rate.

True

Definition of an agency relationship:

Whenever one party (the principal) hires someone else (the agent) to work for him or her, their interaction is called an agency relationship.

What result should you expect from firms that make wise financial decisions?

You should expect the wealth of individuals to increase in the future.

A person who works for a firm, but is not necessarily an owner, is called

an agent

This group is elected by stockholders to oversee management in a corporation.

board of directors

This subarea of finance helps facilitate the capital flows between investors and companies.

financial institutions and markets

This subarea of finance is important for adapting to the global economy.

international finance

This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run.

maximizing shareholder value

For corporations, maximizing the value of owner's equity can also be stated as

maximizing the stock price.

When determining a form of business organization, all of the following are considered EXCEPT

the physical location of the business.