Finance ch. 1
which questions can be answered by monitoring a firm's balance sheets for last year and this year?
1. Is the firm more or less liquid than last year? 2. Did the firm issue additional shares of stock this year?
3 decisions have the most effect on shareholder wealth:
1. deciding between debt and equity financing 2. deciding how to return profits to owners 3. deciding which project to accept
Buster's owns a machine which cost $110,000 initially. The lasteest financial statement shows depreciation expense of $22,000 and accumulated depreciation of $77,000. What is the book value of the firm's net plant and equipment?
110,000-77,000 = 33,000
long-term debt examples
15-year mortgage, 10 years bonds
balance sheet identity formula
Assets = Liabilities + Equity
Balance sheets list assets in declining order of liquidity. Which of these bests illustrates this?
Cash, accounts receivable, inventory, plant and equiptment
What does a balance sheet do?
Reports a firm's assets, liabilities, and equity at a particular point in time
What is the definition of retained earnings?
Retained earnings is the cumulative earnings a firm has reinvested rather than paid out as dividends
Net working capital is a measure of a firm's ability to pay its bills for the next year.
True
change in financial leverage does which of the following
a decrease in financial leverage decreases the risks faced by the firm
financial management
a firm decides to fund a project with borrowed funds
international finance
a firm invests overseas and encounters exchange rate risks
general partnership
a general partnership involves multiple business owners who are each personally responsible for all the partnerships' debts
financial institutions and markets
a pension fund offers its services to more employers in order to increase its size
disadvantages of sole proprietorships
ability to raise capital, type of owner liability
investments
an individual investor purchases share of stock
parties monitor corporate activities as part of corporate governance
auditors, credit analysts, investment analysts
how is a fixed asset defined
by its useful life
accounts included in net working capital
cash, accounts payable, accounts receivable
public corporation
firm owned by a large number of stockholders form the general public
most advantageous benefit of a general partnership
increased capital financing as compared to a sole proprietorship
Treasurer finance functions
interest rate hedging, managing cash, capital spending
which account is the least liquid of the current asset accounts?
inventory
advantages to the corporate from of business ownership
legal status, easy access to capital, limited liability
liabilities
liabilities are funds provided by lenders to a firm
characteristics of general partnerships
limited access to capital, profits spilt amount the partners
primary goal of a firm
maximize shareholder wealth
how is net plant and equipment calculated
net plan and equipment is equal to gross plant dn equipment less accumulated depreciation
A fixed asset is an asset that is defined as having a useful life in excess of which one of these time periods?
one year
the use of excess cash to do which of these is most apt to increase shareholder wealth?
paying dividends to shareholders
advantage of the corporate from of ownership
separate legal entity
disadvantage of the corporate form of business
separation of management and ownership
advantage of a general partnership
single taxation
two key characteristics of hybrid organization
single taxation and limited liability
ethics
study of values, morals and morality
How is the market value of an asset defined?
the amount the firm would receive if it sold the asset
Which statement correctly defines the book value of a firm's assets as shown in the gross plant and equipment account?
the book value of a firm's assets in the gross plant and equipment account is the total amount the firm paid for those assets
How is the book value of land defined
the book value of land is its historical cost, or the amount paid for that land
key disadvantage of a general partnership
unlimited liability for all of the firm's legal actions and all of its debts
time value of money (TVM)
valuing cash flows at various points in time