Ch 1 Smartbook

Which one of the following statements correctly identifies a group that supplies money to the financial markets? Banks provide money to the financial markets. The research and development departments of major corporations provide money to the financial markets. Individuals saving for retirement provide money to the financial markets. Young, start-up firms provide money to the financial markets.

Individuals saving for retirement provide money to the financial markets.

Financial institutions contribute to the dynamics of which one of the following rates? Inflation rates Exchange rates Interest rates Dividend growth rates

Interest rates

The subarea of finance known as financial management addresses which of these decisions? Select all that apply. Should a firm issue debt (bonds) or equity (stocks)? How can a firm attract more capital financing? How can corporate taxes be minimized? How might foreign political risk affect the value of a new project?

Should a firm issue debt (bonds) or equity (stocks)? How can a firm attract more capital financing? How can corporate taxes be minimized?

True or false: Managerial finance helps managers make decisions related to cash management, capital investments, and risk reduction.

True

Which firm is a borrower of funds in the financial markets? a) JKL Co. has developed a new product but has discovered there is no market demand for it. b) Sid's has been in business for three years but is now closing its doors. c) Ken's has a new product that it is ready to market to the public as soon as financing can be arranged. d) Lew's is very successful and has excess cash available so is expanding its product line.

c) Ken's has a new product that it is ready to market to the public as soon as financing can be arranged.

What are two primary sources of friction that decrease cash flows from companies to their investors? a) The two primary sources of friction are dividend and interest payments. b) The two primary sources of friction are taxes and dividend payments. c) The two primary sources of friction are retained earnings and taxes. d) The two primary sources of friction are retained earnings and dividend payments.

c) The two primary sources of friction are retained earnings and taxes.

Which one of these is an example of a borrower in the financial markets? a) Ted's wants to open an additional retail outlet and plans to use its current excess cash to pay the initial opening costs. b) Lester's wants to expand its operations but has insufficient cash to do so. c) Rich's is closing a manufacturing plant and plans to sell all the assets of that plant. d) Sally wants to invest money for the next five years for an extended vacation.

b) Lester's wants to expand its operations but has insufficient cash to do so.

Which group has individual investors as participants and is a lender of funds to the financial markets? a) People with ideas and no money lend funds to the financial markets. b) People with money and no ideas lend funds to the financial markets. c) People with both money and ideas lend funds to the financial markets. d) People with no ideas and no money lend funds to the financial markets.

b) People with money and no ideas lend funds to the financial markets.

What result should you expect from firms that make wise financial decisions? a) You should expect investors to lose their excess funds. b) You should expect the wealth of individuals to increase in the future. c) You should expect the economy to remain stable over time. d) You should expect firms to decrease their level of output.

b) You should expect the wealth of individuals to increase in the future.

Which of these correctly defines a role of investments? a) Investments are concerned with which operations should be conducted overseas. b) Investments addresses which projects a firm should finance. c) Investments address the timing of cash flows most desired by investors. d) Investments are concerned with helping banks determine the amount of capital they can lend.

c) Investments address the timing of cash flows most desired by investors.