SP19: FINANCIAL MANAGEMENT - Exam 1
_________________ can be considered as the most liquid asset.
$100 of inventory that is sold today for $100 cash
Ferry Boat Corporation has the following financial information: Net fixed assets: Book value: $2,500, Market value: $3,000 Net working capital: $700 Current accounts liquidated: $1,500 ABC Corporation has $900 in long-term debt. What is the book value of equity?
2,300
Ferry Boat Corporation has the following financial information: Net fixed assets: Book value: $2,500, Market value: $3,000 Net working capital: $700 Current accounts liquidated: $1,500 ABC Corporation has $900 in long-term debt. What is the market value of equity?
2300
____________________ could be the decision to issue additional shares of stock.
A capital structure decision
____________________is a current liability.
Accounts payable to a supplier that is due next week
__________ is a current asset.
Accounts receivable
_____________________is the most liquid account.
Accounts receivable
An income statement prepared using GAAP will show revenue when it is:
Accrued
_______ can best illustrate that the management of a firm is adhering to the goal of financial management.
An increase in the market value per share
The Balance Sheet Identity is:
Assets = Liabilities + Owners Equity
Pick the generally correct statement from below. Private placements must be registered with the SEC. All secondary markets are auction markets. Dealer markets have a physical trading floor. Auction markets match buy and sell orders. Dealers arrange trades but never own the securities traded.
Auction markets match buy and sell orders.
____________________________ shows the accounting value of a firm's assets, liabilities and shareholders' equity as of a particular date.
Balance sheet
_________________ have unlimited liability for a firm's debts.
Both general partners and sole proprietors
_________ focuses on the management of a firm's long-term investments.
Capital budgeting
______________ is the mixture of a firm's debt and equity financing.
Capital structure
_________________ is the cash flow related to interest payments less any net new borrowing.
Cash flow to creditors
The correct statement is :
Corporations can have an unlimited life.
______________ are considered stakeholders of a firm.
Employees and the government
Audited financial statements were prepared according to the common set of standards and procedures specified in the __________________.
Generally Accepted Accounting Principles
______________ is considered as an agency cost.
Hiring outside accountants to audit the company's financial statements
Which of the following is a concern of working capital management?
How much inventory should be on hand for immediate sale?
Which of the following decisions is not made by a financial manager?
How should a product be marketed?
The correct statement is :
Income from both sole proprietorships and partnerships that is taxable is treated as individual income.
______________________ summarizes a firm's revenue and expenses over a period of time.
Income statement
_______________________ by a financial manager is most apt to create an agency problem.
Increasing current profits when doing so lowers the value of the company's equity
Mary and Susan are equal general partners in a gift-shop business. Although they are happy with the current management and tax situation of the business, they are uncomfortable with the unlimited liability that they have to bear. They are considering to change their current arrangement. If they want to remain as the only two owners of the business, which new form of business entity they have to adopt?
Limited liability company
Three friends want to start a small café business in Richmond, Indiana. They are Adam, Bill and Carson. Adam wants to provide the funds and limit his liability to his initial investment. He does not have any interest in the daily operation of the café. Bill has the funds to contribute. He also plan on actively participate in the café's daily operation. Carson will serve as an active consultant and manager for the café in addition to providing the funds. On the other hand, only Bill and Carson are willing to accept liability for the café's debts. They feel they have nothing to lose even if they do so. All the three friends have agreed to share the profits. At the same time, they want to keep the initial organizational cost of the business to a minimum. What is the most appropriate form of business entity for them to establish their business?
Limited partnership
Pick the correct statement related to assets' liquidity from below.
Liquid assets are valuable to a firm.
__________________ can best state the primary goal of financial management.
Maximizing the current value per share
Pick the correct statement related to net working capital from below.
Net working capital increases when inventory is sold for cash at a profit.
Pick the correct statement about net working capital from below.
Net working capital may be a negative value.
__________________are most apt to be a fixed cost.
Office salaries
___________________ is defined as the cash flow that results from a company's ongoing, normal business activities.
Operating cash flow
________________ represents a cash outflow from a corporation.
Payment of dividends
_______________ constitutes a cash flow from a corporation into the financial markets.
Payment of loan interest
_______________ is a tangible fixed asset.
Production equipment
___________________ can be used to grant an individual the right to vote on behalf of a shareholder.
Proxy
____________________ can be adopted by shareholders to replace company management.
Proxy fight
The first thing reported on an income statement would usually be:
Revenues
______________________ represents a primary market transaction.
Sale of a new share of stock to an individual investor
For debt and equity, their public offerings must be registered with the ______ .
Securities and Exchange Commission
____________________ has ultimate control of a corporation.
Shareholders
Working capital management decisions include:
Should the firm pay cash for a purchase or use the credit offered by the supplier?
Pick the correct statement from below. NASDAQ is a broker market. The NYSE is a dealer market. The exchange with the strictest listing requirements is NASDAQ. Some large companies are listed on NASDAQ. Most debt securities are traded on the NYSE.
Some large companies are listed on NASDAQ.
Which of the following is a correct statement regarding the upward chain of command in a typical corporation?
The controller reports to the chief financial officer.
Pick the correct statement about the income statement items from below.
The labor costs for producing a product are expensed when the product is sold.
The correct statement is :
The life of a sole proprietorship is limited.
Pick the correct statement from below. The publicly traded shares of a NYSE-listed firm must be worth at least $250 million. The NYSE is the largest dealer market for listed securities in the United States. The listing requirements for the NYSE are more stringent than those of NASDAQ. Any corporation desiring to be listed on the NYSE can do so for a fee. The NYSE is an OTC market functioning as both a primary and a secondary market.
The listing requirements for the NYSE are more stringent than those of NASDAQ.
Pick the correct statement about corporate tax rates from below.
The marginal tax rate for a company can be either higher than or equal to the average tax rate.
The correct statement is :
The owner of a sole proprietorship is personally responsible for all of the company's debts.
We calculate _______________ tax rate by dividing total taxes by total taxable income.
average
The book value of a firm is ____________________________________.
based on the firm's historical costs of assets and liabilities
As a financial manager, John should strive to maximize the current value per share of his company's existing stock. To do so, he will be able to ________.
best represent the interests of the current shareholders
To avoid the substantial reporting required by the Sarbanes-Oxley Act, a firm can opt to "go dark" so it________ .
can provide less information to its shareholders than it did prior to "going dark".
We call the cash flow that is available for distribution to a corporation's creditors and stockholders __________________.
cash flow from assets
Cash flow from assets equals:
cash flow to creditors + cash flow to stockholders
A __________ is a distinct legal entity and treated as a legal "person".
corporation
Among the following, ___________ can raise largest amount of capital.
corporation
The form of business organizations which have all the respective rights and privileges of a legal person is __________________.
corporation
Agency problems most likely occur in _______________________.
corporations
An unintended result of the Sarbanes-Oxlay Act is that _________________.
corporations delisting from major exchanges
Net working capital is estimated as ______________________.
current assets minus current liabilities
A _________ __________ is one that has a life of less than one year, meaning they must be paid within the year.
current liability
The articles of incorporation ____________________________.
describe the purpose of the firm and set forth the number of shares of stock that can be issued
Corporate bylaws _________________________.
determine how a corporation regulates itself
Which of the following is a disadvantage of a corporation?
double taxation of distributed profits
The market value of a firm includes ____________________ but the book value of the firm does not include that.
employee's experience
Noncash items are _________________________.
expenses that do not directly affect cash flows
Another name for cash flow from assets is ____________________________.
free cash flow
A _______________ is a business formed by two or more individuals who each have unlimited liability for all of the firm's business debts.
general partnership
Although _______________________is included in a firm's market value, it is excluded from the firm's accounting value.
good reputation of the firm
A limited partnership ________________.
has at least one partner who has unlimited liability for all of the partnership's debts
Being a limited partner, Bob has the advantage of ___________.
having maximum loss limited to his capital investment
The determination of __________________ represents a capital structure decision.
how much debt should be assumed to fund a project
For a sole proprietorship and a partnership, their growth is often limited by their ________________.
inability to raise cash
That ______________________ is true according to generally accepted accounting principles.
income is recorded based on the realization principle
Assuming that there are no golden parachutes, ________________ is least apt to help convince managers to work in the best interest of the stockholders.
increasing managers' base salaries
A general partner ____________________.
is personally responsible for all partnership debts
A limited liability company ___________________.
is taxed similar to a partnership
A ________________ will not lose more than his/her investment in the partnership.
limited partner
The Sarbanes-Oxley Act of 2002 is a governmental response to:
management greed and abuses.
By the Sarbanes-Oxley Act of 2002, the _______ of a public company are responsible for the accuracy of the company's financial statements.
managers
The _______________tax rate is defined as the percentage of the next dollar you earn that must be paid in taxes.
marginal
Financial managers should always make the decisions which focus on increasing the ______________________.
market value per share of outstanding stock
NetWare, which is a partnership with five partners, ______________.
must distribute 20 percent of the profits to each partner
The responsibility of a controller include _________________.
processing cost reports
Shareholders' equity of a firm _____________________________.
represents the residual value of the firm
The market value of an asset depends on:
riskiness and cash flows.
The value of a firm's net working capital can be reduced by the firm's ___________________ .
sale of inventory at a loss
Jonathan sold 1,000 shares of Facebook stock which is listed on NASDAQ. The transaction must occur in the ____________ .
secondary, dealer market
Whose interests should financial managers primarily focus on?
shareholders
A _____________ is a business owned by a solitary individual who has unlimited liability for the firm's debt.
sole proprietorship
Dividends paid out by a corporation are __________________.
taxable income of the recipient even though that income was previously taxed
Working capital management deals with the decisions such as ________________.
the minimum level of cash to be kept in a checking account
When a firm's degree of financial leverage increases, _____________________.
the probability that the firm will encounter financial distress increases
In a typical corporation, the treasurer in general reports directly to the _____________________.
vice president of finance.
The transaction that John sold 100 shares of Dell stock on the New York Stock Exchange _____________.
was facilitated in the secondary market
To make sure a correct capital budgeting analysis for a project, as a financial manager, Timothy will analyze __________ when evaluating the timing of the project's cash flows.
when each cash flow is expected to occur
The decision that makes on _____________________ is considered as a capital budgeting decision.
whether or not to purchase a new machine for the production line
A firm's ________ includes its short-term assets and short-term liabilities.
working capital
