chapter 1
Previously issued securities are traded among investors in the secondary markets (T/F)
True
the opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markers on investments with the same risk as the form's capital investments. (T/F)
True
total tax bill divided by total taxable income
average tax rate
A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who profits from this sale? a. IBM b. the first investor c. the second investor d. profit is split between IBM and the investor
b
One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks: a. can shift loan risk to their deposit customers b. are motivated by the potential for profit c. do not have any income tax liability d. have information to evaluate creditworthiness
d
which one of the following is least liquid? a. foreign currency b. U.S treasury bonds c. real estate d. savings deposits
c
long-term financing decisions commonly occur in the
capital markets
a subprime mortgage...
carries an interest rate below the prime rate
when the management of a business is conducted by individuals other than the owners, the business is most likely to be a:
corporation
new working capital is calculated by taking the difference between
current assets and current liabilities
A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant run by her family. Which type of financing is she looking to obtain? a. Public bond issue b. IPO c. Futures contract on a commodity d. Micro loan
d
Assuming at the $50,000 income level that the corporate tax rate increases from 15 to 25%, which of the following statements is correct for a firm with $75,000 income? a. Its marginal tax rate is 15%. b. Its average tax rate is 25%. c. Its marginal tax rate is 18.33%. d. Its average tax rate is 18.33%.
d
An investment in real estate is more liquid than an investment in stock (T/F)
false
a financial intermediary invests in real assets rather than financial assets (T/F)
false
for corporate bonds, the higher the credit quality of an issuer, the higher the interest rate (T/F)
false
insider trading is the purchase or sale of shares based on information that is not available to public investors, and such behavior is accepted by the securities exchange commissions(T/F)
false
the liability of sole proprietors is limited to the amount of their investment in the company (t or f)
false
show revenue, expenses, and net income of a firm over a period of time
income statement
"balanced" mutual funds...
invest in both stocks and bonds
tax rate that is paid on each additional dollar of income
marginal tax rate
current value of an asset
market value
The separation of ownership and management is one distinctive feature of corporations (T/F)
true
Compared to buying stocks and bonds directly, what are the advantages of investing in a mutual fund? a. mutual funds are efficiently diversified and professionally managed b. investment returns are never taxed until withdrawn from the fund c. you can buy additional shares in the fund or cash out at any time throughout the day s. all of these
a
One common reason for partnerships to convert to a corporate form of organization is that the partnership a.faces rapidly growing financing requirements. b.wishes to avoid double taxation of profits. c. has issued all of its allotted shares. -agreement d.expires after ten 10 years.
a
The term "capital structure" refers to a. the manner in which a form obtains its long-term sources of funding b. the length of time needed to repay debt c. whether the firm invests in capital budgeting projects d. which specific assets the firm should invest in
a
Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm? a. treasurer b. controller c. chief operating officer d. board of directors
a
a capital investment that generated a 10% rate of return is worth while if a. corporate bonds of similar risk offer 8% rate of return b. corporate binds of similar risk offer 11% rate of return c. top-quality corporate bonds offer 10% rate of return d. the expected rate of return on the stock market is 12%
a
in a firm having both the treasurer and a controller, which of the following would most likely be handled by the controller? a. internal auditing b. credit management c. banking relationships d. insurance
a
what happens to a firm's net worth as it uses cash to repay accounts payable? a. net worth is unchanged b. new worth decreases c. net worth increases d. new worth decreases temporarily, until cash is replenished
a
when corporations need to raise funds through stock issues, they rely on the a. primary market b. secondary market c. tertiary market d. centralized NASDAQ exchange
a
which of the following would not be considered a real asset? a. a corporate bond b. a machine c. a patent d. a factory
a
a bond differs from a share of stock in that
a bond has a maturity date
How may a reduction in cash dividends be in the best interests of current shareholders? a. a reduction of cash dividends is always in the best interests of current shareholder b. the firm will have available cash to increase current investment and future profits c. reduced dividends increase managerial compensation, thus increasing their motivation d. a reduction of cash dividends cannot be in the best interests of current shareholders
b
If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has: a. no retained earnings. b. long-term debt. c. no accumulated depreciation. d. current assets
b
Which of the the following would be considered a capital budgeting decision a. planning to issue common stock rather than issuing regretted stock b. deciding to expand into a new line of products, at a cost of $5 mil c. repurchasing shares of common stock d. issuing debt in the form of long-term bonds
b
ethical decision making in business: a. reduces the firm's profits b. required adherence to implied rules, as well as written c. is not in the best interests of shareholders d. is less important than good capital budgeting
b
the ability to turn an investment back into cash when needed it a. durability b. liquidity c. agility d. manageability
b
which of the following statements is not a characteric of mutual funds? a. they are finaical intermediaries b. they are more liquid than individual stocks c. they pool the savings of many investors d. they offer professional managment
b
which of the following statements is true fora corporation with 1 million market value of equity, 2 million market value of assets, and 1000 shares of outstanding stock? a. market value of liabilities exceeds book value of liabilities b. market value of liabilities equals 1 million c. book value per share equals 1000 d. market market value per share equals 2000
b
which on the following financial intermediaries has shown the greatest preference for investing in long-term financial assets? a. commercial banks b. insurance companies c. finance companies d. saving banks
b
shows how profitable the firm has been during the past year
balance sheet
snapshots of the form's assets and liabilities at one particular moment
balance sheet
historical cost adjusted for depreciation
book value
value of asset or liabilities according to the balance sheet
book value
when subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:
book value of an asset
"Double taxation" refers to: a. all partners paying equal taxes on profits b. corporations paying taxes on both dividends and retained earnings c. paying taxes on profits at the corporate level and dividends at the personal level d. the fact that marginal tax rates are doubled for corporations
c
A company can pay for its expansion in all the following ways except: a. by using the earning generated from its sales of obsolete equipment b. by persuading the director;s moth to make a personal loan to the company c. by purchasing bonds in the secondary market d. by selling stock for a new subsidiary
c
Suppose Dee's just acquired the assets of Flo's Flowers. The book value of Flo's Flowers assets was $68,000 but Dee's paid a total of $75,000. The additional $7,000 paid by Dee's will be recorded on Dee's balance sheet as: a. accounts payable. b. other current assets. c. goodwill. d. property, plant, and equipment.
c
You can buy silver in the: a. capital markets. b. foreign exchange markets. c. commodities markets. d. option markets
c
a manager's compensation plan that offers financial incentives for increase in quaterly profitability may create agency problems in that: a. the mangers are not motivated by personal gain b. the board of directors may claim the credit c. short-term, not- long term profits become the focus d. investors desire stable profits
c
insurance companies primarily reduce an individual's risk by: a. transporting the risk forward in time b. providing payment services c. spreading that risk across many individuals d. providing low-interest rate loans
c
the best criterion for the success in a capital budgeting decision would be to: a. minimize the cost of investment b. maximize the number of capital budgeting projects c. maximize the value added to the firm d. finance all capital budgeting projects with debt
c
which of the following changes in working capital will result in an increase in cash flows? a. increase in accounts receivable b. increase in inventories c. increase in accounts payable d. decrease in other current liabilities
c
which of the following statements best distinguishes the difference between real and financial assets? a. real assets have less value than financial assets b real assets are tangible; financial assess are not. c. financial assets represent claims to income that is generated by real assets d. financial assets appreciate in value. real assets depreciate in value
c
When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives: a. the dollar value of the transaction b. the dollar amount of the transaction, less brokerage fees c. only the par value of the common stock d. nothing
d
a chief financial officer would typically: a. report to the treasurer, but supervise the controller b. report to the controller, but supervise the treasurer c. report to both the treasure and controller d. supervise both the treasurer and controller
d
short-term financing decisions commonly occur in the a. primary markets b. secondary markets c. capital markets d. money markers
d
which of the following would be considered an advance of the sole proprietorship form of organization? a. wide access to capital markets b. unlimited liability c. a pool of expertise d. profits taxed at only one level e. both b and d
d
which one of these enterprises generally acts as an underwriter for an initial public offering? a. commercial bank b. government c. investment bank d. insurance company
d
Agency problems can best be characterized as:
differing incentives between managers and owners.
financial mangers should only accept investment projects that
earn a higher rate of return than shareholders can get by investing on their own
A corporation's board of directors is elected by
shareholders
the board of directors is elected a representative of the corporation's
shareholders
shows the firm's cash receipts and cash payments over a period of time
statement of cash flows
when a corporation fails, the maximum that can be lost by an individual shareholder is:
the amount of their initial investment
in general, which is changing as you read down the left hand side of a balance sheet?
the assets are becoming less liquid
Financial assets have value because they are claims on the form's real assets and the cash that those assets will product (T/F)
true
facebook's decision to spend $700 million to acquire Instagram is an investment decision (t of f)
true