FIN 310-Part 3

The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?

B. Corporate accounting and financial fraud

Security dealers:

B. buy and sell from their own inventory.

Corporate shareholders:

C. have the ability to change the corporation's bylaws.

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firms:

Capital structure.

Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.

D. PV = $600/(1 + .07)^6

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

Sole proprietorship

In a general partnership, each partner is personally liable for:

C. the total debts of the partnership, even if he or she was unaware of those debts.

Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money?

D. 8 percent interest for 9 years

Which one of the following will increase the present value of a lump sum future amount to be received in 15 years?

D. A decrease in the interest rate

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

D. Agency

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

D. Cash management

Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years:

D. Kurt will have a larger account value than Stacey will.

What is the primary goal of financial management for a sole proprietorship?

D. Maximize the market value of the equity

Which one of the following is the correct formula for the current value of $600 invested today at 5 percent interest for 6 years?

D. PV = $600 / (1 + .05)^6

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of:

D. an agency conflict.

The goal of financial management is to increase the:

D. current market value per share.

A sole proprietorship:

D. has its profits taxed as personal income.

Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year's interest earnings is called:

D. interest on interest.

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

D. stakeholder.

The primary goal of financial management is to maximize:

D. the market value of existing stock.

All else held constant, the future value of a lump sum investment will decrease if the:

E. interest is changed to simple interest from compound interest.

The issuer of a security must be involved in all _____ transactions involving that security.

E. primary market

Limited liability companies are primarily designed to:

E. provide limited liability while avoiding double taxation.

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:

E. stakeholders.

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today:

E. will be greater if you invest with Northern Bank.

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

B. Corporation

An agency issue is most apt to develop when:

C. the control of a firm is separated from the firm's ownership.

Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

A. 6.5 percent simple interest

Which one of the following parties can sell shares of ABC stock in the primary market?

A. ABC company

Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?

A. International finance

Katlyn needs to invest $5,318 today in order for her savings account to be worth $8,000 six years from now. Which one of the following terms refers to the $5,318?

A. Present value

Which one of the following is contained in the corporate bylaws?

A. Procedures for electing corporate directors

Given an interest rate of zero percent, the future value of a lump sum invested today will always:

A. remain constant, regardless of the investment time period.

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?

B. Increase the protections against corporate fraud

Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called:

B. compounding.

Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth today is called:

B. discounting.

Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the:

B. future value.

The relationship between the present value and the investment time period is best described as:

B. inverse.

A corporation

B. is a legal entity separate from its owners.

A limited liability company LLC

B. prefers its profits be taxed as personal income to its owners.

Which one of the following occupations best fits into the corporate area of finance?

C. Chief financial officer

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?

C. Limited partnership

Which one of the following is an advantage of being a limited partner?

C. Losses limited to capital invested

Which one of the following statements about a limited partnership is correct?

C. There must be at least one general partner.

A private placement is most apt to involve:

C. a life-insurance company.

The interest rate used to compute the present value of a future cash flow is called the:

C. discount rate.

When conducting a financial analysis of a firm, financial analysts

C. frequently use accounting information.

The future value of a lump sum investment will increase if you:

C. increase the time period.

By definition, a bank that pays simple interest on a savings account will pay interest:

C. only on the principal amount originally invested.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the:

C. secondary market.

Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value?

E. 4 percent interest, compounded annually

Which one of the following statements is correct?

E. All over-the-counter sales occur in dealer markets.

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

E. Capital expenditures

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 business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

E. General partnership

Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount?

E. Increasing the interest rate

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

E. Investments

Which one of the following statements correctly applies to a sole proprietorship?

E. Obtaining additional equity is dependent on the owner's personal finances.

Capital budgeting includes the evaluation of which of the following?

E. Size, timing, and risk of future cash flows

Which one of the following correctly defines a common chain of command within a corporation?

E. The controller reports directly to the chief financial officer

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:

E. compound interest.

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

E. discounted cash flow valuation.

The Sarbanes-Oxley Act of 2002 has:

E. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management.

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:

working capital management