Finance Exam #1
1. Net Income
1. Profit Margin * Sales
Book Value Assets
BV CA + BV NFA
Amortized Loan
Borrower receives money today and makes periodic payments which include both principal and interest
Pure Discount Loan
Borrower receives money today and makes repayment as a lump sum at some future point in time
Interest Only Loan
Borrower receives money today and pays periodic Interest payments and principal as a lump sum at the end of the loan.
Capital formation
Capital Market allow?
Long term funds
Capital markets deal with
Dividends Per Share
Cash Dividends/ Shares Outstanding
Risidual Claim
Common Stock is a ?
Taxable as personal income when received by shareholders even though that income was taxed at the corporate level.
Corporate dividends are:
Networking Capital
Current Assets - Current Liabilities
Short term funds
Money market deals with
Liquidity adjustment
Money market provides for?
Management greed and abuses.
The Sarbanes-Oxley Act of 2002 is a governmental response to:
Financial Leverage
The use of debt in a firm's capital is called?
Average Tax Rate
Total Tax/ Taxable Income
2. Net Income
2. Sales - Costs - Depreciation = EBIT EBIT - Interest = EBT - Taxes (%) = ___________?
3. Net Income
3. Dividends + Addition to Retained Earnings = -________?
Corporation
A business created as a distinct legal entity and treated as a legal "person" is called a:
Shareholders.
Financial managers should primarily focus on the interests of:
Earnings Per Share
Net Income/ Shares Outstanding
Simple Interest
PV* ( 1 + r * T)
-Accounts Receivable -Inventory -Fixed assets - Cash
Making investments decisions includes decisions affecting a company's:
Differences in accounting - Assumptions (e.g., LIFO v. FIFO) - Standards (e.g., U.S. v. International) - Earnings management -Fraud Industry factors in ratio analysis Extreme values
Problems with comparing ratios across companies:
It ignores the time value of money and risk
Profit maximization fails because?
Direct Finance
The flow of funds from savers directly to borrowers
Financial leverage
The more debt a firm has (percentage of assets), the greater is its degree of?
Investments and Financing
Two major decisions in finance?
Limited liability for firm debt. Ability to raise capital. Unlimited firm life.
Which of the following are advantages of the corporate form of business ownership?
General partner and Sole proprietor
Which of the following individuals have unlimited liability based on their ownership interest?
Increasing current profits when doing so lowers the value of the firm's equity.
Which one of the following actions by a financial manager is most apt to create an agency problem?
Increase in the market value per share
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
Maximize the current value per share.
Which one of the following best states the primary goal of financial management?
Corporation
Which one of the following business types is best suited to raising large amounts of capital?
Hiring outside accountants to audit the company's financial statements.
Which one of the following is an agency cost?
Corporations delisting from major exchanges.
Which one of the following is an unintended result of the Sarbanes-Oxley Act?
Corporations can raise large amounts of capital generally easier than partnerships can.
Which one of the following statements is correct about Corporations?
Agency problem.
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
Capital budgeting.
Which one of the following terms is defined as the management of a firm's long-term investments?
Capital structure.
Which one of the following terms is defined as the mixture of a firm's debt and equity financing?
Because they have been hired to represent the interests of the current shareholders.
Why should financial managers strive to maximize the current value per share of the existing stock?
Liquidity
________ refers to the speed and ease with which an asset can be converted to cash