FIN3000 connect

Which of the following statements always apply to corporations? - Unlimited liability - Limited life - Ownership can be transferred without affecting operations - Managers can be fired with no effect on ownership

- Ownership can be transferred without affecting operations - Managers can be fired with no effect on ownership

Which of the following are correct descriptions of large corporations? - Managers no longer have the incentive to act in their own interests. - The corporation survives even if managers are dismissed. - Shareholders can sell their holdings without disrupting the business. - Corporations, unlike sole proprietorships, do not pay tax; instead, shareholders are taxed on any dividends they receive.

- The corporation survives even if managers are dismissed. - Shareholders can sell their holdings without disrupting the business.

Which of the following forms of compensation is most likely to align the interests of managers and shareholders? - A fixed salary - A salary linked to company profits - A salary that is paid partly in the form of the company's shares

A salary that is paid partly in the form of the company's shares

A firm has a debt-to-equity ratio of .5 and a market-to-book ratio of 2. What is the ratio of the book value of debt to the market value of equity? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

BOOK DEBT-TO-MARKET EQUITY RATIO = BOOK DEBT / BOOK EQUITY * ( 1/ (MARKET EQUITY / BOOK EQUITY)) = 0.5 * (1/2) = 0.25

Torrid Romance Publishers has total receivables of $3,000, which represents 20 days' sales. Total assets are $75,000. The firm's operating profit margin is 5%. Find the firm's ROA and asset turnover ratio. (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

ASSET TURNOVER RATIO = TOTAL SALES / TOTAL ASSETS TOTAL SALES = TOTAL RECEIVABLES * 365 / DAYS OF SALES 54750 / 75000 = 0.73 = asset turnover ROA = ASSET TURNOVER * OPERATING PROFIT MARGIN = 0.73 * 0.05 = 3.65%

Chik's Chickens has accounts receivable of $6,333. Sales for the year were $9,800. What is its average collection period? (Use 365 days in a year. Do not round intermediate calculations. Round your final answer to the nearest whole number.)

AVERAGE COLLECTION PERIOD = RECEIVABLES / (NET SALES / LENGTH OF PERIOD) 6333 / (9800/365) = 235

Balance sheet items are usually entered in order of declining liquidity. Select the terms to place them in appropriate order in the balance sheet.

Asset: -Cash and marketable securities - Accounts receivable - Inventories - Total current assets - net fixed assets TOTAL ASSETS Liabilities and Equity - Debt due for repayment - Accounts payable - Total current liabilities - Long-term debt - Equity TOTAL LIABILITIES AND EQUITY (ASSETS = LIABILITIES + SHAREHOLDER'S EQUITY)

Company A pays its managers a fixed salary. Company B ties compensation to the performance of the stock. Which company's compensation package would most help to mitigate conflicts of interest between managers and shareholders?

Company B

Consider this simplified balance sheet for Geomorph Trading: Current assets$100 Long-term assets 500 $600 Current liabilities$60 Long-term debt 280 Other liabilities 70 Equity 190 $600 $600 Required: a. What is the company's debt-equity ratio? (Round your answer to 2 decimal places.) b. What is the ratio of total long-term debt to total long-term capital? (Round your answer to 2 decimal places.) c. What is its net working capital? d. What is its current ratio? (Round your answer to 2 decimal places.)

DEBT-EQUITY RATIO = TOTAL LIABILITIES / TOTAL SHAREHOLDERS EQUITY (60+280+70) / 190 = 2.15 LONG-TERM DEBT-TO-CAPITAL RATIO = LONGTERM DEBT / (LONG-TERM DEBT + SHAREHOLDER'S EQUITY) 280 / (280+190) = .60 NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES 100-60 = 40 CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES 100/60 = 1.67

Sheryl's Shipping had sales last year of $10,000. The cost of goods sold was $6,500, general and administrative expenses were $1,000, interest expenses were $500, and depreciation was $1,000. The firm's tax rate is 21%.

EBIT = REVENUE - ADMINSTRATIVE EXPENSES - COGS -DEPRECIATION 10000 - 6500 - 1000 - 1000 = 1500 NET INCOME = TAXABLE INCOME - TAXES (taxable income = ebit - interest) taxable income = 1500-500= 1000 taxes = 1000 * .21 = 210 net income = 1000 - 210 = 790 OR net income = taxable income * (1-tax rate) 1000 * .79 = 790 CASH FLOW = NET INCOME + DEPRECIATION 790 + 1000 = 1790

Home Depot entered fiscal 2017 with a total capitalization of $21,880 million. In 2017, debt investors received interest income of $869 million. Net income to shareholders was $8,630 million. (Assume a tax rate of 21%.) Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

ECONOMIC VALUE ADDED = AFTER-TAX INTEREST + NET INCOME - (COST OF CAPITAL * TOTAL CAPITALIZATION) after-tax income = tax rate * interest income ((1-0.21) * 869) + 8630 - ( .10 * 21880) = 7128.51

The table below contains data on Fincorp Inc. The balance sheet items correspond to values at year-end 2018 and 2019, while the income statement items correspond to revenues or expenses during the year ending in either 2018 or 2019. All values are in thousands of dollars. 2018 2019 Revenue$4,000 $4,100 Cost of goods sold 1,600 1,700 Depreciation 500 520 Inventories 300 350 Administrative expenses 500 550 Interest expense 150 150 Federal and state taxes* 400 420 Accounts payable 300 350 Accounts receivable 400 450 Net fixed assets† 5,000 5,800 Long-term debt 2,000 2,400 Notes payable 1,000 600 Dividends paid 410 410 Cash and marketable securities 800 300 * Taxes are paid in their entirety in the year that the tax obligation is incurred. † Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed. Construct a statement of cash flows for Fincorp for 2019. (Enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign.)

Fincorp Inc. Statement of Cash Flows ($ in 000s) Cash flows from operations Net income $760 Noncash expenses Depreciation expense $520 Changes in working capital Change in accounts receivable (50) Change in inventories (50) Change in accounts payable 50 Total change in working capital (50) Cash provided by operations $1,230 Cash flows from investments Cash used for additions to property, plant and equipment (1,320) Cash used for investments (1,320) Cash flows from financing activities Reductions in notes payable (400) Additions to long-term debt 400 Dividends paid (410) Cash used for financing activitiess (410) Net decrease in cash and cash equivalents $(500)

QuickGrow is in an expanding market, and its sales are increasing by 25% per year. Would you expect its net working capital to be increasing or decreasing?

Increasing (net working capital = assets - liabilities) (if assets are increasing, the net working capital is also increasing)

Here is a simplified balance sheet for Locust Farming: Locust Farming Balance Sheet ($ in millions) Current assets$42,524 Long-term assets 46,832 Total$89,356 Current liabilities$29,755 Long-term debt 27,752 Other liabilities 14,317 Equity 17,532 Total$89,356 Locust has 657 million shares outstanding with a market price of $83 a share. a. Calculate the company's market value added. (Enter your answers in millions.) b. Calculate the market-to-book ratio. (Round your answer to 2 decimal places.)

MARKET VALUE = # shares x market price per share 657 x 83 = 54531 MARKET VALUE ADDED = market value - shareholders' equity 54531 - 17532 = 36999 MARKET-TO-BOOK RATIO= market value / equity 54531/17532 = 3.11 INCREASE IN VALUE OF EQUITY - market value added / equity 36999/17532 = 2.1103696 *100 == 211.04 %

Which of the following are financial markets? check all that apply NASDAQ Vanguard Explorer Fund JPMorgan Chase Chicago Mercantile Exchange

NASDAQ Chicago Mercantile Exchange

The year-end 2018 balance sheet of Brandex Inc. listed common stock and other paid-in capital at $1,100,000 and retained earnings at $3,400,000. The next year, retained earnings were listed at $3,700,000. The firm's net income in 2019 was $900,000. There were no stock repurchases during the year. What were the dividends paid by the firm in 2019?

NET INCOME = INCREASE IN RETAINED EARNINGS + DIVIDENDS dividends = net income - increase in retained earnings 900000 - (3700000-3400000) = 900000 - 300000 = 600000

A firm's income statement included the following data. The firm's average tax rate was 20%. Cost of goods sold$8,000 Income taxes paid$2,000 Administrative expenses$3,000 Interest expense$1,000 Depreciation$1,000

NET INCOME = TAXABLE INCOME - TAXES income taxes paid (2000) / .20 = 10000 (taxable income) 10000 - 2000 = 8000 REVENUES = TAXABLE INCOME + EXPENSE 10000 + (8000 + 3000 + 1000 + 1000) = 23000 EBIT = REVENUE - EXPENSES (not interest or tax) 23000 - 8000 - 3000 - 1000 = 11000

The table below contains data on Fincorp Inc. The balance sheet items correspond to values at year-end 2018 and 2019, while the income statement items correspond to revenues or expenses during the year ending in either 2018 or 2019. All values are in thousands of dollars. 2018 2019 Revenue$4,000 $4,100 Cost of goods sold 1,600 1,700 Depreciation 500 520 Inventories 300 350 Administrative expenses 500 550 Interest expense 150 150 Federal and state taxes* 400 420 Accounts payable 300 350 Accounts receivable 400 450 Net fixed assets† 5,000 5,800 Long-term debt 2,000 2,400 Notes payable 1,000 600 Dividends paid 410 410 Cash and marketable securities 800 300 * Taxes are paid in their entirety in the year that the tax obligation is incurred. † Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed. What was the change in net working capital during the year?

NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES (current assets => cash and marketable securities, inventories, accounts receivable) (current liabiltiies => accounts payable, notes payable) net working capital 2018: (800+350+400) - (300+1000) = 200 net working capital 2019: (300+350+450) - (350+600) = 150 difference = 2019 - 2018 = 150-200 = -50 decrease by 50

Last year Electric Autos had sales of $100 million and assets at the start of the year of $150 million. If its return on start-of-year assets was 15%, what was its operating profit margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places)

OPERATING PROFIT MARGIN = return of assets * (assets/sales) .15 x (150/100) = .225

Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT(Figures in $ millions) Net sales$13,193 Cost of goods sold 4,060 Other expenses 4,049 Depreciation 2,518 Earnings before interest and taxes (EBIT)$2,566 Interest expense 685 Income before tax$1,881 Taxes (at 35%) 658 Net income$1,223 Dividends$856 BALANCE SHEET(Figures in $ millions) End of Year Start of YearAssets Cash and marketable securities$89 $158 Receivables 2,382 2,490 Inventories 187 238 Other current assets 867 932 Total current assets$3,525 $3,818 Net property, plant, and equipment 19,973 19,915 Other long-term assets 4,216 3,770 Total assets$27,714 $27,503 Liabilities and shareholders' equity Payables$2,564 $3,040 Short-term debt 1,419 1,573 Other current liabilities 811 787 Total current liabilities$4,794 $5,400 Long-term debt and leases 7,018 6,833 Other long-term liabilities 6,178 6,149 Shareholders' equity 9,724 9,121 Total liabilities and shareholders' equity$27,714 $27,503 Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

RETURN ON EQUITY (use average balance sheet figures) = NET INCOME /SHAREHOLDER'S EQUITY 1223 / ((9724+9121)/2) *100 = 12.98% RETURN ON ASSETS (use average balance sheet figures) = [NET INCOME + (INTEREST EXPENSE X (1-TAX RATE))] / (TOTAL LIAILITIES AND SE) [1223 + (658x(1-0.35))] / ((27714+27503)/2) = 6.04% RETURN ON CAPITAL (use average balance sheet figures) = [NET INCOME + (INTEREST EXPENSE X (1- TAX RATE))] / (LONG-TERM DEBT AND LEASES + SE) [1223 + (658x(1-0.35))] / ((7018+9724+6833+9121)/2) = 10.20% DAYS IN INVENTORY (use start-of-year balance sheet figures) = INVENTORIES / (COGS/365, OR LENGTH PERIOD) 238 /(4060/365) = 21.40 days INVENTORY TURNOVER (use start-of-year balance sheet figures) = COGS / INVENTORIES 4060/238 = 17.06 AVERAGE COLLECTION PERIOD (use start-of-year balance sheet figures) = RECEIVABLES / (NET SALES / LENGTH OF PERIOD) 2490 / (13193/365) = 68.89 days OPERATING PROFIT MARGIN = [NET INCOME + (INTEREST EXPENSE X (1- TAX RATE ))] / NET SALES (1223 + (685 x (1-0.35)) / 13193 = 12.64% LONG-TERM DEBT RATIO use end-of-year balance sheet figures) = LONG-TERM DEBT-EQUITY RATIO X EQUITY LONG-TERM DEBT RATIO = lONG TERM DEBT AND LEASES / (LONG-TERM DEBT AND LEASES + SE) LONG-TERM DEBT-EQUITY RATIO = LONG-TERM DEBT / EQUITY TOTAL DEBT RATIO use end-of-year balance sheet figures) = (TOTAL CURRENT LIABILITIES + LONG-TERM DEBT AND LEASES + OTHER LONG-TERM LIABILITIES) / TOTAL ASSETS TIMES INTEREST EARNED = EBIT / INTEREST EXPENSE CASH COVERAGE RATIO = (EBIT + DEPRECIATION) / INTEREST EXPENSE (2566+2518) / 685 = 7.42 CURRENT RATIO use end-of-year balance sheet figures) = TOTAL CURRENT ASSETS / TOTAL CURRENT LIABILITIES 3525 /4794 = 0.74 QUICK RATIO use end-of-year balance sheet figures) = (CASH AND MARKETABLE SECURITIES + RECEIVABLES) / TOTAL CURRENT LIABILTIES (89 + 2382) / 4794 = 0.52

Keller Cosmetics maintains an operating profit margin of 5% and asset turnover ratio of 3. a. What is its ROA? (Round your answer to 2 decimal places.) b. If its debt-equity ratio is 1, its interest payments and taxes are each $8,000, and EBIT is $20,000, what is its ROE? (Round the intermediate calculations and the final answer to 2 decimal places.)

ROA = ASSET TURNOVER RATIO* OPERATING PRODIT MARGIN = 3 * 0.05 = 15% ROE = (ASSETS / EQUITY) * ROA * (NET INCOME / AFTER-TAX OPERATING INCOME) NET INCOME = EBIT - INTEREST - TAXES = 20000 - 8000 - 8000 = 4000 TAX RATE = TAXES / EBT = 8000 / (20000-8000) = 67% ROE = (2/1) * 15 * ((4000)/ (4000 + (8000 * (1-0.67))) = 18.07%

In the past year, TVG had revenues of $3 million, cost of goods sold of $2.5 million, and depreciation expense of $200,000. The firm has a single issue of debt outstanding with book value of $1 million on which it pays an interest rate of 8%. What is the firm's times interest earned ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

TIMES INTEREST EARNED = EBIT / INTEREST EBIT = revenues -cogs - depreciation 3000000 -2500000 -200000 = 300000 INTEREST = interest rate * book value?? 0.08 * 100000 = 80000 TIMES INTEREST EARNED = 300000/ 80000 = 3.75

Lever Age pays an 8% rate of interest on $10 million of outstanding debt with face value $10 million. The firm's EBIT was $1 million. a. What is its times interest earned? (Round your answer to 2 decimal places.) b. If depreciation is $200,000, what is its cash coverage ratio? (Round your answer to 1 decimal place.)

TIMES INTEREST EARNED = EBIT/ INTEREST EXPENSE Interest Expense = 0.08 * 10000000 = 800000 Times Interest Earned = 1000000/800000 = 1.25 CASH COVERAGE RATIO = (EBIT +DEPRECIATION) / INTEREST EXPENSE (1000000 +200000) / 800000 = 1.5

A firm has a long-term debt-equity ratio of 0.4. Shareholders' equity is $1 million. Current assets are $200,000, and the current ratio is 2. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.)

TOTAL DEBT RATIO = LONG-TERM DEBT / EQUITY LONG-TERM DEBT = LONG-TERM DEBT-EQUITY RATIO * EQUITY = 0.4*1000000 = 400000 = long-term debt CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES CURRENT LIABILITIES = CURRENT ASSETS / CURRENT RATIO = 200000/2 = 100000 = current liabiltiies TOTAL LIABILTIES = CURRENT LIABILITIES + LONG-TERM DEBT = 100000 + 400000 = 500000 TOTAL ASSETS = TOTAL LIABILITIES + EQUITY = 500000 + 1000000 = 1500000 **TOTAL DEBT RATIO = TOTAL DEBT / TOTAL ASSETS = 500000 / 1500000 = 0.33

We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might do the following: a. Make shareholders as wealthy as possible by investing in real assets. b. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. c. Choose high- or low-risk assets to match shareholders' risk preferences. d. Help balance shareholders' checkbooks. However, in well-functioning capital markets, shareholders will vote for only one of these goals. Which one will they choose?

a

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2019. INCOME STATEMENT OF QUICK BURGER CORP., 2019(Figures in $ millions) Net sales$27,567 Costs 17,569 Depreciation 1,402 Earnings before interest and taxes (EBIT)$8,596 Interest expense 517 Pretax income 8,079 Federal taxes (@ 21%) 1,697 Net income$6,382 BALANCE SHEET OF QUICK BURGER CORP., 2019(Figures in $ millions) Assets2019 2018 Liabilities and Shareholders' Equity2019 2018 Current assets Current liabilities Cash and marketable securities$2,336 $2,336 Debt due for repayment — $367 Receivables 1,375 1,335 Accounts payable$3,403 3,143 Inventories 122 117 Total current liabilities$3,403 $3,510 Other current assets 1,089 616 Total current assets$4,922 $4,404 Fixed assets Long-term debt$13,633 $12,134 Property, plant, and equipment$24,677 $22,835 Other long-term liabilities 3,057 2,957 Intangible assets (goodwill) 2,804 2,653 Total liabilities$20,093 $18,601 Other long-term assets 2,983 3,099 Total shareholders' equity 15,293 14,390 Total assets$35,386 $32,991 Total liabilities and shareholders' equity$35,386 $32,991 In 2019 Quick Burger had capital expenditures of $3,049. a. Calculate Quick Burger's free cash flow in 2019. (Enter your answer in millions.) b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 21%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places) c. What would the company's free cash flow have been if it was all-equity financed? (Enter your answer in millions.)

a. FREE CASH FLOW = CASH FLOW FROM OPERATIONS - CAPITAL EXPENDITURES CASH FLOW FROM OPERATIONS = net income + interest + depreciation - additional net working capital ADDITIONAL NET WORKING CAPITAL = current assets - current liabilities (find diff by 2019-2018) additional working capital = (1375-1335) + (122-117) + (1089-616) - (3403-3143) = 258 cash flow from operations = 6382 + 517 + 1402 - 258 = 8043 capital expenditures = 3049 FREE CASH FLOW = 8043 -3049 = 4994 b. ADDITIONAL TAX = tax increase due to $517 million more in taxable income $108.57 = (517 x 0.21) (interest expense x tax %) c. FREE CASH FLOW = CASH FLOW FROM OPERATIONS - CAPITAL EXPENDITURES additions to net working capital = 258 (part a) cash flow from operations (all-equity financed so no interest) = 6791 + 0 + 1402 -258 = 7935 FREE CASH FLOW = 7935 - 3049 =4886

Which of the following are real assets, and which are financial? a. A share of stock b. A personal IOU c. A trademark d. A truck e. Undeveloped land f. The balance in the firm's checking account g. An experienced and hardworking sales force h. A bank loan agreement

a. A share of stock==> financial asset b. A personal IOU==> financial asset c. A trademark==> real asset d. A truck==> real asset e. Undeveloped land==> real asset f. The balance in the firm's checking account==> financial asset g. An experienced and hardworking sales force==> real asset h. A bank loan agreement==> financial asset

In each case, choose the firm that you expect to have the higher asset turnover ratio. To guide your answer, think about the likely nature of each firm's business model. For example, would the firm require a lot or a little capital? Would it strive for high sales or high profit margins?

a. Economics Consulting Group b.Catalog Shopping Network c.Standard Supermarkets

Consider the table shown below to answer the question posed in part a. Parts b and c are independent of the given table. Number of Share(millions)× Stock Price= MarketCapitalization($ millions) Callaway Golf (ELY)94.6 × $16.36 = $1547.66 Alaska Air Group (ALK)123.4 × $61.96 = $7645.86 Yum! Brands (YUM)332.5 × $85.13 = $28,305.73 Caterpillar Tractor (CAT)147.4 × $597.63 = $88,090.66 Microsoft (MSFT)7,705.0 × $91.27 = $703,235.35 a. The price of Yum! Brands stock has risen to $180. What is the market value of the firm's equity if the number of outstanding shares does not change? (Enter your answer in billions rounded to 3 decimal places.) b. The rating agency has revised Catalytic Concepts' bond rating to A (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? (Enter your answer as a percent rounded to 1 decimal place.) c. A farmer and a meatpacker use the commodity markets to reduce their risk. One agrees to buy live cattle in the future at a fixed price, and the other agrees to sell. Which one sells? A farmer A meatpacker

a. Market Value of Yumi Brands = (332.50 * $180) / 1000 = $59850 / 1000 = $59.85 b. the interest rate is 3.8%. Rate corresponding to credit rating A. (Credit Rating & Interest Rate in Table 2.2 will be the answer) c. a farmer (because the farmer raises them and sell it for consideration and meat picker needs beef for his business)

The founder of Alchemy Products Inc. discovered a way to turn gold into lead and patented this new technology. He then formed a corporation and invested $200,000 in setting up a production plant. He believes that he could sell his patent for $50 million. a. What is the book value of the firm? (Enter your answer in dollars.) b. What is the market value of the firm? (Enter your answer in dollars not in millions.) c. If there are 2 million shares of stock in the new corporation, what is the book value per share? (Round your answer to 2 decimal places.) d. If there are 2 million shares of stock in the new corporation, what is the price per share? (Round your answer to 2 decimal places.)

a. book value = $200000 b. Market value = value of patent + value of production plant = $50200000 c. book value per share = $0.10 d. price per share = 25.10 (market value / # shares)

Suppose Home Depot's Stock price falls by 10% in a given year. a. Will the firm's market value added increase or decrease? b. How will this change affect your assessment of the performance of the firm's management? c. Now suppose that in the same year, the broad stock market fell by 20%, a lot more than the decline in Home Depot's stock. Did the Home Depot able to manage the recession better than most other firms? d. Can we relate market value added to our evaluation of firm's performance considering broad market performance as a benchmark?

a. decrease b. will downgrade your evaluation of the success of firm management c. yes d. yes

Will the following actions increase or decrease the firm's cash balance? a. The firm sells some goods from inventory. b. The firm sells some machinery to a bank and leases it back for a period of 20 years. c. The firm buys back 1 million shares of stock from existing shareholders.

a. increase b. increase c. decrease

Would the following events increase or decrease a firm's current ratio? (If there is no effect, select "No change".)

a.Inventory is sold. No change b.The firm takes out a bank loan to pay its suppliers. Increase c.The firm arranges a line of credit with a bank that allows it to borrow at any time to pay its suppliers. No change d.A customer pays its overdue bills. No change e.The firm uses cash to buy additional inventory. No change

During the last year of operations, Theta's accounts receivable increased by $10,000, accounts payable increased by $5,000, and inventories decreased by $2,000. What is the total impact of these changes on the difference between profits and cash flow?

decrease in 3000 increase in accounts receivable --> decrease in cash flow increase in accounts payable --> increase in cash flow decrease in inventories --> decrease in cash flow -10000 + 5000 - 2000 = -3000

a. Financing for public corporations must flow through financial markets. b. Financing for private corporations must flow through financial intermediaries. c. Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London. d. Derivative markets are a major source of finance for many corporations. e. The opportunity cost of capital is the capital outlay required to undertake a real investment opportunity. f. The cost of capital is the interest rate paid on borrowing from a bank or other financial institution.

false false false false false false

a. The financial crisis was largely caused by banks taking large positions in the options and futures markets. b. The prime cause of the financial crisis was an expansion in bank lending for the overheated commercial real estate market. c. Many subprime mortgages were packaged together by banks for resale as mortgage-backed securities (MBSs). d. The crisis could have been much more serious if the government had not stepped in to rescue Merrill Lynch and Lehman Brothers. e. The crisis in the eurozone finally ended when other eurozone countries and the IMF provided a massive bailout package to stop Greece from defaulting on its debts.

false false true false false

a. Exchange traded funds are hedge funds that can be bought and sold on the stock exchange. b. Hedge funds provide small investors with low-cost diversification. c. The sale of insurance policies is a source of financing for insurance companies. d. In defined-contribution pension plans, the pension pot depends on the rate of return earned on the contributions by the employer and employee.

false false true true

Read the following passage and choose the appropriate terms to complete the sentences. Financial markets and ______ channel _______ to ______. They also channel money from individuals who want to _____ for the future to those who need cash to spend today. A third function of financial markets is to allow individuals and businesses to adjust their risk. For example, _______, such as the Vanguard Index fund, and ______, such as SPDR's or "spiders," allow individuals to spread their risk across a large number of stocks. Financial markets provide other mechanisms for sharing risks. For example, a wheat farmer and a baker may use the ________ to reduce their exposure to wheat prices. Financial markets and intermediaries allow investors to turn an investment into cash when needed. For example, the _______ of public companies are ______ because they are traded in huge volumes on the ______. ______ are the main providers of payment services by offering checking accounts and electronic transfers. Finally, financiterm-12al markets provide information. For example, the ____ of a company that is contemplating an issue of debt can look at the yields on existing ____ to gauge how much interest the company will need to pay.

financial intermediaries savings real investments save mutual funds ETFs commodity markets shares liquid stock market banks CFO bonds

Is limited liability always an advantage for a corporation and its shareholders?

no

Can cash flow from operations be positive if net income is negative? Can it be negative if net income is positive?

yes, b/c depreciation can be positive yes, a large portion of sales could be made on credit so cash flow could be negative (cash flow = net income + depreciation)