BA 318 Terms
A corporationʹs capital losses can be carried back three years and, if any loss still remains, it may be carried forward: A) 1 year. B) 3 years. C) 5 years. D) 7 years.
c
All risk is not equal because: A) some risk is free while some is not. B) some risk is too small to be considered. C) some can be diversified away and some cannot. D) none of the above.
c
Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm's: A. capital structure. B. cash equivalents. C. working capital. D. net assets. E. fixed accounts.
c
Money market transactions include which of the following? A) any security that is paid for with cash B) all securities paid for with the proceeds of a money market account C) securities that have a maturity of less than one year
c
Shareholders' equity is equal to: A. total assets plus total liabilities. B. net fixed assets minus total liabilities. C. net fixed assets minus long-term debt plus net working capital. D. net working capital plus total assets. E. total assets minus net working capital.
c
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Sole proprietorship B. General partnership C. Limited partnership D. Limited liability company E. Corporation
c
Working capital management includes which one of the following? A. Deciding which new projects to accept B. Deciding whether to purchase a new machine or fix a current machine C. Determining which customers will be granted credit D. Determining how many new shares of stock should be issued E. Establishing the target debt-equity ratio
c
Net working capital is equal to: Answer total assets minus total liabilities. current assets minus total liabilities. total operating capital minus net income. current assets minus current liabilities.
current assets minus current liabilities.
. The primary goal of financial management is to maximize which one of the following for a corporation? A. Current profits B. Market share C. Number of shares outstanding D. Market value of existing stock E. Revenue growth
d
5. The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? A. Organizational B. Structure C. Formation D. Agency E. Territorial
d
Maximization of shareholder wealth as a goal is superior to profit maximization because: A) it considers the time value of the money. B) following the goal of shareholder wealth maximization will ensure high stock prices. C) it considers uncertainty. D) A and C.
d
The firm obtains cash from which of the following? A) from the sale of assets C) from operations B) through borrowing D) all of the above
d
Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of: A. capital structure management. B. asset allocation. C. risk management. D. capital budgeting. E. working capital management.
d
Which of the following are advantages of the corporate form of organization? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Profits taxed at the corporate level IV. Limited liability for all owners A. I and II only B. III and IV only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV
d
Which of the following statements best represents the ʺAgency Problemʺ? A) Managers might attempt to benefit themselves in terms of salary and perquisites at the expense of shareholders. B) The agency problem may interfere with the implementation of maximizing shareholder wealth. C) The agency problem results from the separation of management and the ownership of the firm. D) all of the above
d
he financial statement that summarizes a firm's accounting value as of a particular date is called the: A. income statement. B. cash flow statement. C. liquidity position. D. balance sheet. E. periodic operating statement.
d
The two principal sources of financing for corporation are: Answer debt and accounts payable. debt and equity. common equity and preferred equity. cash and common equity.
debt and equity
Which one of the following best matches the primary goal of financial management? A. Increasing the dollar amount of each sale B. Increasing traffic flow within the firm's stores C. Transforming fixed costs into variable costs D. Increasing the firm's liquidity E. Increasing the market value of firm
e
Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? A. Positive operating cash flow B. Negative cash flow to creditors C. Positive cash flow to stockholders D. Negative net capital spending E. Positive cash flow from assets
e
Which one of the following is a working capital decision? A. How should the firm raise additional capital to fund its expansion? B. What debt-equity ratio is best suited to our firm? C. What is the cost of debt financing? D. Which type of debt is best suited to finance our inventory? E. How much cash should the firm keep in reserve?
e
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts? A. Sole proprietorship B. Limited partnership C. Corporation D. Joint stock company E. General partnership Refer to section 1.3
e
Which of the following are tax deductible items to a corporation? Answer interest expenses dividends to common stockholders dividends to preferred stockholders interest expenses and dividends to preferred stockholders interest expenses, dividends to common stockholders, and dividends to preferred stockholders
interest expenses
Maximization of shareholder wealth as a goal is superior to profit maximization because: it considers the time value of the money. following the goal of shareholder wealth maximization will ensure high stock prices. it considers uncertainty. it considers the time value of the money and it considers uncertainty.
it considers the time value of the money and it considers uncertainty.
The goal of the firm should be: maximization of profits (net income per share). maximization of shareholder wealth. maximization of market share. maximization of sales.
maximization of shareholder wealth.
The true owners of the corporation are the: A) common stockholders. B) holders of debt issues of the firm. C) board of directors of the firm. D) preferred stockholders.
A) common stockholders.
Which one of the following is most apt to align management's priorities with shareholders' interests? A. Increasing employee retirement benefits B. Compensating managers with shares of stock that must be held for 3 years before the shares can be sold C. Allowing a manager to decorate his or her own office once he or she has been in that office for a period of 3 years or more D. Increasing the number of paid holidays that long-term employees are entitled to receive E. Allowing employees to retire early with full retirement benefits
B. Compensating managers with shares of stock that must be held for 3 years before the shares can be sold
Which of the following is an advantage of the sole proprietorship? A) double taxation for its owners B) limited liability for its owners C) no significant legal requirements for starting the business D) easily transferred ownership
C) no significant legal requirements for starting the business
When evaluating an investment project, which of the following best describes the financial information needed by the decision maker? after-tax accounting profits pre-tax accounting profits adjusted for any accounting method changes incremental cash flows before taxes so the decision will not be biased by a tax code that may change in the future after-tax incremental cash flows to the company as a whole
after-tax incremental cash flows to the company as a whole
The firm obtains cash from which of the following? Answer from operations from the sale of assets through borrowing all of these
all of these
Which of the following are characteristics of a limited partnership? Limited partners may not participate in the management of the limited partnership. There must be one or more general partners. General partners have unlimited liability. all of these
all of these
Which of the following statements best represents the "Agency Problem"? Managers might attempt to benefit themselves in terms of salary and perquisites at the expense of shareholders. The agency problem results from the separation of management and the ownership of the firm. The agency problem may interfere with the implementation of maximizing shareholder wealth. all of these
all of these
In order to reduce agency problems, managers may be provided compensation that includes: a fixed salary so managers' pay is not at risk, allowing managers to focus on the company's business. a bonus based on the level of profit achieved during the year. an option to buy the company's stock. Incentive pay for achieving higher sales than last year.
an option to buy the company's stock.
Advantages of the corporate form of business organization include: A) minimal legal requirements. B) easier transfer of ownership. C) double taxation. D) none of the above.
b
All of the following forms of business organizations provide limited liability to all owners except: A) Corporation. B) Limited Partnership. C) Limited Liability Company. D) S-Type Corporation.
b
Jamie is employed as a commercial loan officer for a regional bank centered in the Midwestern section of the U.S. Her job falls into which one of the following areas of finance? A. International finance B. Financial institutions C. Corporate finance D. Capital management E. Investments
b
The calculation of free cash flow is always prepared for: A) the standard reporting period (five years in the United States). B) a specific period of time. C) one particular point in time. D) each quarterly report.
b
Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50/50 basis. Which type of entity did they create if they have no personal liability for the firm's debts? A. Limited partnership B. Corporation C. Sole proprietorship D. General partnership E. Public company
b
Which of the following are tax-deductible for a corporation? A) preferred stock dividends B) interest expense C) common stock dividends D) all of the above E) only A and B above
b
Which one of the following is a capital structure decision? A. Determining the optimal inventory level B. Establishing the preferred debt-equity level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales E. Determining when suppliers should be paid
b
Which of the following best describes free cash flow from an asset perspective? Answer earnings before interest and taxes Cash flows generated from accruals and accounts payable The after-tax cash flows generated from operations less the firm's investments in operating working capital, fixed and other assets Cash available to common stockholders that have no cost to the firm
The after-tax cash flows generated from operations less the firm's investments in operating working capital, fixed and other assets
Capital market instruments include: A) corporate equities. C) Treasury bills. B) commercial paper. D) negotiable certificates of deposit.
a
What information does a firmʹs statement of cash flows provide to the viewing public? A) a report documenting a firmʹs cash inflows and cash outflows from operating, financing, and investing activities for a defined period of time B) a report of investments made and their cost for a specific period of time C) an itemization of all of a firmʹs assets, liabilities, and equity for a defined period of time D) a report of revenues and expenses for a defined period of time
a
ʺThe markets are quick and the prices are rightʺ describes a market that is: A) efficient. B) effervescent. C) effluent. D) effective.
a
What information does a firm's income statement provide to the viewing public? Answer an itemization of all of a firm's assets and liabilities for a defined period of time a complete listing of all of a firm's cash receipts and cash expenditures for a defined period of time a report of revenues and expenses for a defined period of time a report of investments made and their cost for a specific period of time
a report of revenues and expenses for a defined period of time
All risk is not equal because: Answer some can be diversified away and some cannot. some risk is free while some is not. some risk is too small to be considered. none of these.
some can be diversified away and some cannot.
What financial statement explains the changes that took place in the firm's cash balance over a period? Answer statement of cash flow balance sheet income statement none of these
statement of cash flow
