Finance
Which of these features could accurately be included in the definition of a corporation? Select all that apply.
Division of ownership and control. Double taxation. Separate legal entity.
Which form of executive compensation is apt to reduce agency problems?
Employee stock options
Which of these best defines ethics?
Ethics is the study of values, morals, and morality.
Which of these factors are credited for providing financial institutions with high profit margins?
Expertise and unique assets
Which of these decisions help define the role of international finance? Assume the firms are U.S. firms.
Exports Ltd. decided to open a warehouse in Europe.
Which of these is not a sub-area of finance?
Financial assets
Financial decision making compares which of the following factors?
Financial decision making compares rewards with risks
Which statement best describes how finance is dependent upon accounting?
Financial decisions require an understanding of a firm's past transactions in order to plan for the future.
Which of these characteristics apply to the definition of preferred stock? Select all that apply.
Fixed periodic payments. Ownership interest in the firm.
Which of these are cash flows from financing activities? Select all that apply.
Increase in common stock. Decrease in long-term debt. Preferred stock dividend.
Which of these are additions to the cash flows from financing activities? Select all that apply.
Increase in common stock. Increase in long-term debt.
Which of these parties monitor corporate activities as part of corporate governance? Select all that apply.
Investment analysts. Credit analysts. Auditors.
Which of these correctly defined a role of investments?
Investments address the timing of cash flows most desired by investors.
What role does investors play in a financial system?
Investors have capital and they need ideas to make more money.
Which of these questions can be answered by monitoring a firm's balance sheets for last year and this year? Select all that apply.
Is the firm more or less liquid than last year? Did the firm issue additional shares of stock this year?
Which of these features is an advantage of a sole proprietorship?
Less regulation than other business forms.
Which of the following are disadvantages of a sole proprietorship? Select all that apply.
Limited ability to raise capital. Owner's liability is unlimited.
Which of these are advantages of the corporate form of business ownership? Select all that apply.
Limited liability. Legal status. Easy assess to capital.
Which type of business organization has multiple owners, profits divided by percentage of ownership, single taxation, and limited liability for some owners but not for others?
Limited partnership
What is the definition of liquidity?
Liquidity is the ease of conversion of an asset into cash as a fair value.
Which one of these is a function assigned to the company treasurer?
Management of cash
Which group has individual investors as participants and is a lender of funds to the financial markets?
People with money and no ideas lend funds to the financial markets.
Which two groups participate in the financial markets?
People with money but no ideas and people with ideas but no money.
Which of these are characteristics of a general partnership?
Profits are split among the partners. Limited access to capital.
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 which one of these?
Separation of ownership and control
Putting the interest of which party first should be the primary goal of a corporation?
Shareholders
Which one of the following is an advantage offered by a hybrid organization?
Single taxation
Which statement correctly defines the book value of a firm's assets as shown in the gross plant and equipment account?
The book value of a firm's assets in the gross plant and equipment account is the total amount the firm paid for those assets.
Which proposed firm goal is best as per owners' perspective?
The primary goal is to maximize the value of the current shareholders' stock.
What are two primary sources of friction that decrease cash flows from companies to their investors?
The two primary sources of friction are retained earnings and taxes.
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.
What result should you expect from firms that make wise financial desicions?
You should expect the wealth of individuals to increase in the future.
A firm has sales of $2,800, depreciation of $200, earnings before interest and taxes (EBIT) of $900, and other operating expenses of $400. What is the gross profit?
$1,500
A firm has sales of $8,900, depreciation of $200, cost of goods sold of $3,700, other operating expenses of $4,200, and interest of $600. What is the firm's EBIT?
$800
For taxable income of $0-$50,000, the rate is 15 percent. For incomes of $50,001-$75,000 the base tax amount is $7,500 and the rate over the base is 25 percent. What is the tax amount due on an income of $68,000?
12,000
Which one of these best defines a general partnership?
A brother and sister form a business. The brother incurs all the firm's debts and both of them are personally liable to repay all the debtors.
The fiduciary duty is violated in which one of these examples?
A corporate treasurer invests company funds in a friend's bank at a lower interest rate than that offered by other comparable banks.
What is the definition of a current asset?
A current asset is an asset that can be converted into cash within one year.
A current asset is an asset that does which of the following?
A current asset provides liquidity and a low rate of return.
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.
What is the definition of a sole proprietorship?
A sole proprietorship is a business entity that is not legally separate from its owners.
Which of the following statements correctly describe the statement of cash flows?
A statement of cash flows summarizes the sources and uses of cash by type of cash flow. A statement of cash flows reconciles the noncash balance sheet and income statement items to changes in the cash and marketable securities accounts.
Which one of these relationships best fits the definition of a fiduciary relationship?
Al's retirement funds are managed by the trust department at the local bank.
Which of these is a monitor of corporate governance? Select all that apply.
Board of directors. Securities and Exchange Commission.
A restriction on which factor is a disadvantage of a hybrid organization?
Business lines
Rank these assets in order of liquidity with the most liquid asset listed first.
Cash, Accounts receivable, Inventory, Plant and equipment
Which of these characteristics apply to a marketable security? Select all that apply.
Convertible to cash within one year or less. Provides a low rate of return.
Why is corporate governance so important?
Corporate governance helps align managers' goals with shareholders' goals.
Which one of these best defines corporate governance?
Corporate governance is the ongoing process of monitoring managers and aligning their incentives with shareholder goals.
Cash flows from financing activities are defined as the cash flows resulting from which one of the following?
Debt and equity financing transactions
Which three decisions have the most effect on shareholder wealth? Select all that apply.
Deciding between debt and equity financing. Deciding which project to accept. Deciding how to return profits to owners.
Which of these are added or subtracted from net income to compute the net cash flows from operating activities? Select all that apply.
Depreciation. Decrease in accrued wages and taxes. Increase in inventory.
Which firm is a borrower of funds in the financial markets?
Ken's has a new product that it is ready to market to the public as soon as financing can be arranged.
Which one of these relationships is correct given an income statement of a firm with financial leverage and positive net income?
Net income < EBIT < Gross profit
What is the definition of net income?
Net income is the after tax profit or loss earned over a specified period of time.
Identify the item for which the government has not put a restriction for hybrid organizations?
Number of employees
Which characteristic is an advantage of a hybrid organization?
Owners' liability
Which of these is most apt to lessen the probability of an agency problem with an employee?
Paying a bonus for good performance
What are the two key characteristics of a hybrid organization?
Single taxation and limited liability.
Which one of these is not one of the four basic financial statements?
Statement of ratios
What is the best definition of a financial market?
A financial market is defined as the places and processes that facilitate the trading of financial assets between investors.
What is the definition of a general partnership?
A general partnership involved multiple business owners who are each personally responsible for all of the partnership's debts.
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.
Which is the best definition of a hybrid organization?
A hybrid organization is a business form that has some attributes of a corporation and some of proprietorships/partnerships.
How is 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 decisions regarding the firm's future.
What is the definition of an agency problem?
An agency problem is defined as the difficulties that arise when a principal hires an agent and cannot fully monitor the agent's actions.
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.
How can EBT be defined?
EBT is earnings before taxes, also referred to as taxable income.
Which one of the following is an advantage of a sole proprietorship?
Ease of formation
Finance and its functions affect which aspects of business and personal life?
Finance affects all levels of a business organization as well as many areas of personal life.
Which of these is an example of how finance is used throughout a firm?
Finance can be used for cost/benefit analysis.
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 of the following are finance functions that fall under the supervision of the treasurer?
Managing cash. Capital Spending. Interest Rate Hedging.
What should be the primary goal of a firm?
Maximize shareholder wealth
Which of these examples best defines a liquid asset?
Mia sold 100 shares of stock today at the going market price.
How is risk defined?
Risk is a potential future negative impact to value and/or cash flows.
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.
The subarea of finance known as financial management addresses which of these decisions? Select all that apply.
Should a firm issue debt or equity? How can a firm attract more capital financing? How can corporate taxes be minimized?
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.
Which party has a residual claim to a firm's cash flows?
Stockholders
The profitability of financial market intermediaries depends upon which of these?
Successful execution of unique professional services
How is the time value of money (TVM) theory best defined?
TVM is the theory and application of valuing cash flows at various point in time.
Which aspect of a corporation is viewed as a disadvantage?
Taxation
How is the book value of land defined?
The book value of land is its historical cost, or the amount paid for that land.
Which one of these is NOT a financial decisions made within a firm?
The president decided to fire the company treasurer for ethical violations.
The current value of 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.
