Finance 301 Chapter 1 & 2 & 5
which of the following are important when considering a partnership
*personal liability for firm debts *taxation of partnership income *fund raising limitations
Which of the following positions generally report to the chief financial officer (CFO)?
Controller, treasurer
The decision to issue additional shares of stock is an example of:
a capital structure decision.
The life of a corporation___.
is unlimited
what is the main goal of financial management
maximize the current value per share of the existing stock
you invest $500 at 10% interest. at the end of 2 years with simple interest you will have _____ and with compound interest you will have_____.
$600, $605
rank the ease (from easiest to hardest) of turning the following assets into cash
1 cash equivalents 2 accounts receivable 3inventory 4plant and equipment
How long does it take for $40 to grow to $240 at an interest rate of 6.53% compounded annually?
28.33 years
In financial markets _____ and equity securities are bought and sold
debt
a long-term liability represents a(n) _____.
debt that is not due in the coming year
Capital structure decisions include determining:
how much debt should be assumed to fund a project.
How is ownership transferred in a corporation?
ownership is transferred by gifting or selling shares of stock
a sole proprietor has ______ personal liability for all business debts and obligations.
unlimited
what is the future value of $1,000 invested for 8 years at 6%?
$1,593.85
which of the following methods can be used to calculate present value?
* time value of money table *a financial calculator *an algebraic formula
a general partnership has which of the following characteristics
*it is difficult to transfer ownership * each owner has unlimited liability for all firm debts
which of the following is included in working capital?
-accounts receivable - current (short-term assets) -accounts payable
which formula represents the present value factor?
1/(1+r)^t
liquidity refers to the ease of changing ______.
assets to cash
the idea behind ____ is that interest is earned on interest
compounding
the idea behind ____ is that interest is earned on interest.
compounding
The federal government taxed which of the following?
corporate earnings and shareholder dividends
The more debt a firm has the greater its:
degree of financial leverage
which of the following can be determined using the future value approached to compound growth developed in this chapter?
dividend growth sales growth
One disadvantage of the corporate form of business ownership is the:
double taxation of distributed profits.
Operating cash flow includes capital spending and working capital requirements
false
True or false: when using the time value of money features of a financial calculator, you should key in interest rate as a decimal
false
in the short run, all costs are fixed.
false
the controller is responsible for
financial accounting, tax payments
working capitial
firms short term assets & liabilities
why is positive net working capital important?
it means the firm should have sufficient cash to meet its current obligations.
a corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons
legal
Businesses are motivated to organize as corporations because stockholders in a corporation have ________ liability for corporate debts.
limited
capital budgeting is the process of making and managing expenditures on
long- term assets
which of the following are included in a firms capital structure
long-term debt, equity
a single cash flow is know as a:
lump sum
Whose responsibility is it to create value for a firm?
management
the price at which willing buyers and sellers would trade is called_____ value
market
The concept of the time value of money is based on the principle that a dollar today is worth ________ a dollar promised at some time in the future
more than
the basic present value equation underlies many of the
most important ideas in corporate finance
if you want to know how much you need to invest at 12% compounded annually in order to have $4,000 in five years, you will need to find a ____ value
present
When a corporation raises funs in the financial markets, the transaction occurs on the:
primary markets
The owners of a corporation are called____.
stockholders
the use of financial leverage can:
-increase the potential reward for investors - greatly magnify both gains and losses -increase the chance of financial distress and business failure
in a limited partnership, a limited partner liability for business debt is
-limited to their cash contribution to the partnership
partnerships must have atleast _______ owners
two
semi annual compounding means that interest is paid ___ per year
two times
If $100 earns compound interest for 2 years at 10 percent per year, the future value will be ______.
$121
If you invest for a single period at an interest rate of r, your money will grow to ___ per dollar invested
(1+r)
who is entitled to the residual value of a firm's cash flows?
shareholders
which of the following processes can be used to calculate future value for multiple cash flows?
* compound the accumulated balance forward one year at a time *calculate the future value of each cash flow and then add them up
Which of the following can be determined using the future value approached to compound growth developed in this chapter?
* dividend growth *sales growth
which of the following show why a corporation is the most important form of business?
*corporations can enter into contracts *corporations can sue and be sued *a corporations is a separate legal entity with the ability to acquire and exchange property
The cash flow identity reflects the fact that
- cash flow from the firms assets equals the total of cash flow to creditors and cash flow to stockholders -cash is either used to produce the product or service, pay creditors or pay out the owners of the firm. - a firm generates cash through its various activities
General partnership has which of the following characteristics
- each owner has unlimited liabilities for all firm debts -it is difficult to transfer ownership
A treasurer's responsibilities typically include:
- making financial plans - managing capital expenditure decisions - handling cash flows
which of the following are classified as liabilities on a firm's balance sheet?
- notes payable -accounts payable
the short run for a firm is the period of time during which ____.
- output can vary - some costs are fixed
which of the following is true of a sole proprietorship
-a proprietorship has limited life -it is the simplest type of business to form
which of these questions can be answered by reviewing a firms balance sheet?
-how much debt is used to finance the firm? -what is the total amount of assets the firm owns?
which of the following will be found in the liabilities section of a firms balance sheet?
-notes payable -long-term bonds issued by the firm
assets can be describer as items that
-provide market value to the firm - generate revenue -a firm owns
If you plan to put a $10,000 down payment on a house in five years and you can earn 6% per year, how much will you need to deposit today?
7,472.58
Which one of the following terms is defined as the management of a firm's long-term investments?
Capital budgeting
Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
Capital structure
what does GAAP stand for?
Generally Accepted Accounting Principles
The liability of a shareholder in a corporation is limited to which of these?
The amount the shareholder invested in the corporation
what doe stockholders' equity represent
a residual claim against the book value of the firm's assets. (the book value of the firm's assets less the book value of its liabilities.)
A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?
accounts receivable
correct version of the balance sheet equation
assets=liabilities+stock holders' equity
The rules used by a corporation to regulate its existence are known as
bylaws
Future value is the __ value of an investment at some time in the future
cash
A business created as a distinct legal entity and treated as a legal "person" is called a(n):
corporation.
Net working capital equals _____.
current assets minus current liabilities
In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the _________ of each period.
end
cost that do not change in the short run arise because of ______.
fixed commitments
A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:
general partnership.
assets are listed on a balance sheet in which order
in order of decreasing liquidity
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:
limited partner.
book value of assets is generally
not what the assets are actually worth
which of the following is a variable cost in the short run?
raw materials used in production
A business owned by a solitary individual who has unlimited liability for the firm's debt is called a
sole proprietorship.
APR
the interest rate per period multiplied by the number of periods in the year
EAR
the interest rate stated as though it were compounded once per year
capital structure
the mixture of debt and equity maintained by a firm
Why is a dollar received today worth more than a dollar received in the future?
today's dollar can be reinvested, yielding a greater amount in the future
discounting is the opposite of compounding
true
long-term liabilities are not due in the current year (from the date of the balance sheet)
true
An example of a capital budgeting decision is deciding:
whether or not to purchase a new machine for the production line.