Finance 301 Chapter 1 & 2 & 5

which of the following are important when considering a partnership

*personal liability for firm debts *taxation of partnership income *fund raising limitations

Which of the following positions generally report to the chief financial officer (CFO)?

Controller, treasurer

The decision to issue additional shares of stock is an example of:

a capital structure decision.

The life of a corporation___.

is unlimited

what is the main goal of financial management

maximize the current value per share of the existing stock

you invest $500 at 10% interest. at the end of 2 years with simple interest you will have _____ and with compound interest you will have_____.

$600, $605

rank the ease (from easiest to hardest) of turning the following assets into cash

1 cash equivalents 2 accounts receivable 3inventory 4plant and equipment

How long does it take for $40 to grow to $240 at an interest rate of 6.53% compounded annually?

28.33 years

In financial markets _____ and equity securities are bought and sold

debt

a long-term liability represents a(n) _____.

debt that is not due in the coming year

Capital structure decisions include determining:

how much debt should be assumed to fund a project.

How is ownership transferred in a corporation?

ownership is transferred by gifting or selling shares of stock

a sole proprietor has ______ personal liability for all business debts and obligations.

unlimited

what is the future value of $1,000 invested for 8 years at 6%?

$1,593.85

which of the following methods can be used to calculate present value?

* time value of money table *a financial calculator *an algebraic formula

a general partnership has which of the following characteristics

*it is difficult to transfer ownership * each owner has unlimited liability for all firm debts

which of the following is included in working capital?

-accounts receivable - current (short-term assets) -accounts payable

which formula represents the present value factor?

1/(1+r)^t

liquidity refers to the ease of changing ______.

assets to cash

the idea behind ____ is that interest is earned on interest

compounding

the idea behind ____ is that interest is earned on interest.

compounding

The federal government taxed which of the following?

corporate earnings and shareholder dividends

The more debt a firm has the greater its:

degree of financial leverage

which of the following can be determined using the future value approached to compound growth developed in this chapter?

dividend growth sales growth

One disadvantage of the corporate form of business ownership is the:

double taxation of distributed profits.

Operating cash flow includes capital spending and working capital requirements

false

True or false: when using the time value of money features of a financial calculator, you should key in interest rate as a decimal

false

in the short run, all costs are fixed.

false

the controller is responsible for

financial accounting, tax payments

working capitial

firms short term assets & liabilities

why is positive net working capital important?

it means the firm should have sufficient cash to meet its current obligations.

a corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons

legal

Businesses are motivated to organize as corporations because stockholders in a corporation have ________ liability for corporate debts.

limited

capital budgeting is the process of making and managing expenditures on

long- term assets

which of the following are included in a firms capital structure

long-term debt, equity

a single cash flow is know as a:

lump sum

Whose responsibility is it to create value for a firm?

management

the price at which willing buyers and sellers would trade is called_____ value

market

The concept of the time value of money is based on the principle that a dollar today is worth ________ a dollar promised at some time in the future

more than

the basic present value equation underlies many of the

most important ideas in corporate finance

if you want to know how much you need to invest at 12% compounded annually in order to have $4,000 in five years, you will need to find a ____ value

present

When a corporation raises funs in the financial markets, the transaction occurs on the:

primary markets

The owners of a corporation are called____.

stockholders

the use of financial leverage can:

-increase the potential reward for investors - greatly magnify both gains and losses -increase the chance of financial distress and business failure

in a limited partnership, a limited partner liability for business debt is

-limited to their cash contribution to the partnership

partnerships must have atleast _______ owners

two

semi annual compounding means that interest is paid ___ per year

two times

If $100 earns compound interest for 2 years at 10 percent per year, the future value will be ______.

$121

If you invest for a single period at an interest rate of r, your money will grow to ___ per dollar invested

(1+r)

who is entitled to the residual value of a firm's cash flows?

shareholders

which of the following processes can be used to calculate future value for multiple cash flows?

* compound the accumulated balance forward one year at a time *calculate the future value of each cash flow and then add them up

Which of the following can be determined using the future value approached to compound growth developed in this chapter?

* dividend growth *sales growth

which of the following show why a corporation is the most important form of business?

*corporations can enter into contracts *corporations can sue and be sued *a corporations is a separate legal entity with the ability to acquire and exchange property

The cash flow identity reflects the fact that

- cash flow from the firms assets equals the total of cash flow to creditors and cash flow to stockholders -cash is either used to produce the product or service, pay creditors or pay out the owners of the firm. - a firm generates cash through its various activities

General partnership has which of the following characteristics

- each owner has unlimited liabilities for all firm debts -it is difficult to transfer ownership

A treasurer's responsibilities typically include:

- making financial plans - managing capital expenditure decisions - handling cash flows

which of the following are classified as liabilities on a firm's balance sheet?

- notes payable -accounts payable

the short run for a firm is the period of time during which ____.

- output can vary - some costs are fixed

which of the following is true of a sole proprietorship

-a proprietorship has limited life -it is the simplest type of business to form

which of these questions can be answered by reviewing a firms balance sheet?

-how much debt is used to finance the firm? -what is the total amount of assets the firm owns?

which of the following will be found in the liabilities section of a firms balance sheet?

-notes payable -long-term bonds issued by the firm

assets can be describer as items that

-provide market value to the firm - generate revenue -a firm owns

If you plan to put a $10,000 down payment on a house in five years and you can earn 6% per year, how much will you need to deposit today?

7,472.58

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing?

Capital structure

what does GAAP stand for?

Generally Accepted Accounting Principles

The liability of a shareholder in a corporation is limited to which of these?

The amount the shareholder invested in the corporation

what doe stockholders' equity represent

a residual claim against the book value of the firm's assets. (the book value of the firm's assets less the book value of its liabilities.)

A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?

accounts receivable

correct version of the balance sheet equation

assets=liabilities+stock holders' equity

The rules used by a corporation to regulate its existence are known as

bylaws

Future value is the __ value of an investment at some time in the future

cash

A business created as a distinct legal entity and treated as a legal "person" is called a(n):

corporation.

Net working capital equals _____.

current assets minus current liabilities

In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the _________ of each period.

end

cost that do not change in the short run arise because of ______.

fixed commitments

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

general partnership.

assets are listed on a balance sheet in which order

in order of decreasing liquidity

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

limited partner.

book value of assets is generally

not what the assets are actually worth

which of the following is a variable cost in the short run?

raw materials used in production

A business owned by a solitary individual who has unlimited liability for the firm's debt is called a

sole proprietorship.

APR

the interest rate per period multiplied by the number of periods in the year

EAR

the interest rate stated as though it were compounded once per year

capital structure

the mixture of debt and equity maintained by a firm

Why is a dollar received today worth more than a dollar received in the future?

today's dollar can be reinvested, yielding a greater amount in the future

discounting is the opposite of compounding

true

long-term liabilities are not due in the current year (from the date of the balance sheet)

true

An example of a capital budgeting decision is deciding:

whether or not to purchase a new machine for the production line.