FIN 3403 Quiz 1 (Ch. 1-4)

What distinguishes a public offering from a private placement? Private placements are illegal in the U.S., so the question is immaterial. Actually, these are both the same -- just different terms used by different industries. In a private placement, all investors have the opportunity to acquire a portion of the financial claims being sold, but not so in a public offering. In a public offering, all investors have the opportunity to acquire a portion of the financial claims being sold, but not so in a private placement. None of these statements is correct.

In a public offering, all investors have the opportunity to acquire a portion of the financial claims being sold, but not so in a private placement.

Since there is a virtual certainty that the U.S. government will pay interest on Treasury securities and will redeem them at face value when they mature, Treasury securities are free of any _________ risk. maturity inflation default liquidity interest rate

default

Cash available from operations after the firm pays for investments (in operating working capital and fixed assets) is called: free cash flow economic value added net income operating income gross profit

free cash flow

To raise $5 million, Southeastern Corporation decides to issue bonds. If Southeastern does not register the bonds with the SEC and then sells the entire bond issue to Metropolitan Life Insurance Company, this issue is called a(n): underwritten issue best efforts issue privileged subscription negotiated purchase private placement

private placement

Given an anticipated inflation premium of 1.30% and a nominal rate of interest of 5.20%, what is the real interest rate? Round your answer to 4 decimal places. 3.85% 4.34% 3.75% 6.57% 3.90%

3.85%

The yield curve is typically _______. downward sloping moving up and down frequently U-shaped upward sloping flat

upward sloping

What is the tax liability for a corporation with $10,800,000 in taxable income? $3,780,000 $2,160,000 $3,672,000 $2,592,000 $2,268,000

$2,268,000

Suppose your firm had the following taxable income amounts: 2015 ($5 million) operating loss 2016 $2 million 2017 $2 million 2018 $2 million After you "carry forward" the operating loss, what is the effective taxable income for 2017? $2 million $0 $3 million $1 million $4 million

$0

What is the tax liability for a corporation with $12,500,000 in taxable income? $4,375,000 $2,500,000 $4,250,000 $2,625,000 $3,000,000

$2,625,000

What is the tax liability for a corporation with $13,100,000 in taxable income? $3,144,000 $4,585,000 $2,620,000 $2,751,000 $4,454,000

$2,751,000

What is the tax liability for a corporation with $13,600,000 in taxable income? $3,264,000 $4,624,000 $2,856,000 $4,760,000 $2,720,000

$2,856,000

Suppose your firm had the following taxable income amounts: 2015 ($5 million) operating loss 2016 $4 million 2017 $4 million 2018 $4 million After you "carry forward" the operating loss, what is the effective taxable income for 2017? $4 million $2 million $0 $1 million $3 million

$3 million

What is the tax liability for a corporation with $17.5 million of taxable income? $3,675,000 $6,125,000 $3,500,000 $5,950,000 $4,200,000

$3,675,000

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $10 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability? $3,945,900 $3,954,300 $4,200,000 $3,735,900 $3,744,300

$3,945,900

Suppose your firm had the following taxable income amounts: 2015 ($2 million) operating loss 2016 ($2 million) operating loss 2017 ($2 million) operating loss 2018 $10 million After you "carry forward" the operating losses, what is the effective taxable income for 2018? $4 million $1 million $3 million $0 $2 million

$4 million

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $8 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability? $4,382,700 $4,155,900 $4,620,000 $4,365,900 $4,147,500

$4,365,900

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $6 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability? $4,794,300 $5,040,000 $4,575,900 $4,769,100 $4,785,900

$4,785,900

Last year, your company had sales of $2.4 million. The firm's costs of goods sold amounted to 34% of sales. The firm also paid cash operating expenses of $1,200,000, and had $80,500 in depreciation expense. The firm had $450,000 in 9% coupon bonds outstanding and paid $25,000 in dividends to its common stockholders. Also, the firm received $40,000 in dividend income from its holdings of other common stocks. Compute the corporation's tax liability. $55,230 $63735 $59,430 $63,630 $54,180

$59,430

Last year, your company had sales of $3.6 million, cost of goods sold of $2.3 million and operating expenses amounting to $840,000. The firm had $114,000 in depreciation expense. In addition, the firm paid 8% interest on $625,000 in bonds, received $30,000 in dividend income, and sold property for a $10,000 capital loss. What was the firm's tax payment? $62,160 $68,460 $65,310 $63,210 $59,010

$65,310

Given an anticipated inflation premium of 1.35% and a nominal rate of interest of 5.40%, what is the real interest rate? Round your answer to 4 decimal places. 6.82% 4.34% 3.85% 4.05% 4.00%

4.00%

Given an anticipated inflation premium of 1.25% and a real rate of interest of 3.75%, what is the nominal interest rate? Round your answer to 4 decimal places. 5.40% 5.05% 5.00% 5.85% 2.47%

5.05%

Given an anticipated inflation premium of 1.45% and a real rate of interest of 4.34%, what is the nominal interest rate? Round your answer to 4 decimal places. 2.47% 5.79% 5.85% 2.85% 5.00%

5.85%

According to our text, which of the following statements is true? Maximizing shareholder wealth is not good for the economy. Minimizing shareholder losses should be the goal of the firm. Profit maximization is equivalent to maximization of firm value. Maximizing shareholder wealth should be the goal of the firm. Profit maximization should be the goal of the firm.

Maximizing shareholder wealth should be the goal of the firm.

Which of the following best describes the goal of the firm? Maximizing the value of the firm's debt. Maximizing the firm's profits. Minimizing the firm's risk. Maximizing the value of the firm's equity. Maximizing the current dividend paid to shareholders.

Maximizing the value of the firm's equity.

What business type is a business owned by individual, therefore subject to a limited life and unlimited liability? Limited partnership Corporation General partnership An association Sole proprietorship

Sole proprietorship

Which of the term structure theories claims that investors require maturity premiums to compensate them for buying securities that expose them to the risks of fluctuating interest rates? The unbiased expectations theory. The market segmentation theory. The term structure of interest rates theory. The liquidity preference theory. The yield curve theory.

The liquidity preference theory.

Which of the term structure theories claims that investors are limited to certain maturity ranges due to legal restrictions and personal preferences? The yield curve theory. The liquidity preference theory. The market segmentation theory. The term structure of interest rates theory. The unbiased expectations theory.

The market segmentation theory.

What distinguishes the money market from the capital market? The money market deals with stocks, whereas the capital market deal with bonds. The money market deals with instruments valued at $1 million or less, whereas the capital market deals with larger instruments. The money market deals with short-term instruments, whereas the capital market deals with long-term instruments. The money market deals with cash instruments, whereas the capital market deals with real assets. None of these statements is correct.

The money market deals with short-term instruments, whereas the capital market deals with long-term instruments.

What is underwriting? Underwriting is the process of placing debt with a private equity group. Underwriting is the process of firm selling new securities directly to the public. None of these describe the process of underwriting. Underwriting is the process of a mutual fund selling new shares to the public. Underwriting is the process of purchasing and selling of a new security issue by an investment banker.

Underwriting is the process of purchasing and selling of a new security issue by an investment banker.

Suppose your firm selects an investment banking firm to assist with your firm's $10 million stock issue. The investment banker will act as a broker and will attempt to sell each new share of stock for a commission for each share sold. This distribution method is referred to as ________. a best efforts offer a competitive bid an underwritten rights offer a privileged subscription a negotiated purchase

a best efforts offer

If an issuing firm sells securities to the investing public without involving an investment banker, the issue is called: a privileged subscription a best efforts offer a negotiated purchase a direct sale a private placement

a direct sale

If a new security issue is marketed to a definite and select group of investors (such as current stockholders, employees or customers) the issue is called: a privileged subscription a competitive bid a best efforts offer an underwritten rights offer a negotiated purchase

a privileged subscription

The sale of additional stock by a company whose shares are already publicly traded is called: a seasoned equity offering an underwritten rights offer an initial public offering (IPO) a negotiated purchase a privileged subscription

a seasoned equity offering

The New York Stock Exchange is an example of _________. a secondary market. an over-the-counter market. a derivative securities market. a commodity exchange. a primary market.

a secondary market.

Dividends received by the firm: are not taxed. are considered capital gains are taxed like ordinary income are usually 50% excluded from taxation are treated as an operating expense

are usually 50% excluded from taxation

Dividends received by the firm: are not taxed. are usually 50% excluded from taxation are treated as an operating expense are taxed like ordinary income are considered capital gains

are usually 50% excluded from taxation

Capital losses may be _______. carried back 3 years or carried forward up to 5 years carried back 2 years or carried forward up to 20 years deducted from the current year's earnings paid off by the stockholders allocated over the next 3 years

carried back 3 years or carried forward up to 5 years

Net operating losses may be _______. allocated over the next 3 years carried forward indefinitely. paid off by the stockholders carried back 3 years or carried forward up to 5 years deducted from the current year's earnings

carried forward indefinitely.

Capital market instruments include _________. accounts receivable. Treasury bills. cash. corporate bonds. commercial paper.

corporate bonds.

The legal form of business that allows a firm to function separate and apart from its owners is the _________. general partnership association limited partnership corporation sole proprietorship

corporation

Of the legal forms of organizations discussed in chapter 1, which form of organization has the advantage of limited liability for all owners? corporation. limited partnership. sole proprietorship. general partnership.

corporation.

Which of the following are tax deductible expenses for a corporation? common stock dividends the repayment of debt outstanding preferred stock dividends land purchases interest paid on debt

interest paid on debt

Which of the following are tax deductible expenses for a corporation? interest paid on debt land purchases common stock dividends the repayment of debt outstanding preferred stock dividends

interest paid on debt

The least liquid current asset is _______. inventory cash accounts receivable plant and equipment common equity

inventory

The true owners of a corporation are the _______. stockholders employees bondholders stakeholders members of the board of directors

stockholders

If Electro Corporation sells a $20 million stock issue to an investment banking firm such as Merrill Lynch, this transaction takes place in: the primary money market. the secondary capital market. the private placement market. the primary capital market. the secondary money market.

the primary capital market.

If you sell 100 shares of General Electric common stock, this transaction takes place in: the primary money market. the secondary money market. the primary capital market. the private placement market. the secondary capital market.

the secondary capital market.