Finance ch. 1

which questions can be answered by monitoring a firm's balance sheets for last year and this year?

1. Is the firm more or less liquid than last year? 2. Did the firm issue additional shares of stock this year?

3 decisions have the most effect on shareholder wealth:

1. deciding between debt and equity financing 2. deciding how to return profits to owners 3. deciding which project to accept

Buster's owns a machine which cost $110,000 initially. The lasteest financial statement shows depreciation expense of $22,000 and accumulated depreciation of $77,000. What is the book value of the firm's net plant and equipment?

110,000-77,000 = 33,000

long-term debt examples

15-year mortgage, 10 years bonds

balance sheet identity formula

Assets = Liabilities + Equity

Balance sheets list assets in declining order of liquidity. Which of these bests illustrates this?

Cash, accounts receivable, inventory, plant and equiptment

What does a balance sheet do?

Reports a firm's assets, liabilities, and equity at a particular point in time

What is the definition of retained earnings?

Retained earnings is the cumulative earnings a firm has reinvested rather than paid out as dividends

Net working capital is a measure of a firm's ability to pay its bills for the next year.

True

change in financial leverage does which of the following

a decrease in financial leverage decreases the risks faced by the firm

financial management

a firm decides to fund a project with borrowed funds

international finance

a firm invests overseas and encounters exchange rate risks

general partnership

a general partnership involves multiple business owners who are each personally responsible for all the partnerships' debts

financial institutions and markets

a pension fund offers its services to more employers in order to increase its size

disadvantages of sole proprietorships

ability to raise capital, type of owner liability

investments

an individual investor purchases share of stock

parties monitor corporate activities as part of corporate governance

auditors, credit analysts, investment analysts

how is a fixed asset defined

by its useful life

accounts included in net working capital

cash, accounts payable, accounts receivable

public corporation

firm owned by a large number of stockholders form the general public

most advantageous benefit of a general partnership

increased capital financing as compared to a sole proprietorship

Treasurer finance functions

interest rate hedging, managing cash, capital spending

which account is the least liquid of the current asset accounts?

inventory

advantages to the corporate from of business ownership

legal status, easy access to capital, limited liability

liabilities

liabilities are funds provided by lenders to a firm

characteristics of general partnerships

limited access to capital, profits spilt amount the partners

primary goal of a firm

maximize shareholder wealth

how is net plant and equipment calculated

net plan and equipment is equal to gross plant dn equipment less accumulated depreciation

A fixed asset is an asset that is defined as having a useful life in excess of which one of these time periods?

one year

the use of excess cash to do which of these is most apt to increase shareholder wealth?

paying dividends to shareholders

advantage of the corporate from of ownership

separate legal entity

disadvantage of the corporate form of business

separation of management and ownership

advantage of a general partnership

single taxation

two key characteristics of hybrid organization

single taxation and limited liability

ethics

study of values, morals and morality

How is the market value of an asset defined?

the amount the firm would receive if it sold the asset

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

How is the book value of land defined

the book value of land is its historical cost, or the amount paid for that land

key disadvantage of a general partnership

unlimited liability for all of the firm's legal actions and all of its debts

time value of money (TVM)

valuing cash flows at various points in time