Graduate Business Orientation
T/F: If a firm's stockholders are risk averse, the firm can make its stockholders better off by earning the highest possible returns on its investments.
False
T/F: In general, the more debt a firm uses, the smaller its financial leverage.
False
On a recent poll, 37 percent of Americans had a favorable opinion of the President of the United States. This is an example of _______________ statistics.
Inferential
T or F: Any change that shifts the supply curve outward to the right, and does not affect the demand curve will lower the equilibrium price and raise the equilibrium
True
T or F: Any event that causes either the demand curve or the supply curve to shift will also change the equilibrium price and quantity.
True
T or F: At equilibrium, quantity demanded equals quantity supplied.
True
T or F: Being on the PPF implies that increasing the production of one good or service can only be accomplished by decreasing the quantity produced of another good or service.
True
________ decisions refer to how a firm manages its short-term resources on a day-to-day basis.
Working capital
The price of gasoline has risen and the quantity sold has fallen. This was likely caused by
a rise in the price of crude oil.
A government policy that prevents the price of a good or service from falling below a specified level is called a price floor and usually results in
a surplus.
A central government collected taxes totaling $120 billion in the previous year. It's expenditure during the year was roughly the same. This is an example of a
balanced budget.
Jack buys a computer from Sam, knowing fully well that the technology used in it is obsolete. In this case, the trade is
beneficial to both parties.
The ________ represents income to a market maker who helps facilitate securities trading.
bid/ask spread
Long-term debt instruments used by both government and business are known as ________.
bonds
If trade between two countries is voluntary, one can expect that
both countries expect to gain something.
The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.
capital market
The ________ ratio reflects how much investors are willing to pay for a company's stock per dollar of earnings that the company generates.
price/earnings
The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded.
primary; secondary
Economic theory is a necessity, not a luxury. This statement is true because theory
provides a structure for organizing and analyzing data.
The monetary value charged to customers for the performance of services sold is called a(n)
revenue
Which of the following legal forms of organization has the ease of dissolution?
sole proprietorships
The end-of-period spreadsheet is used to
summarize account balances and adjustments for the financial statements
Profit is the difference between
the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services
T/F: Everything else being equal, the higher the discount rate, the higher the present value.
False
T/F: Based on the risks of the investments that they make, venture capital firms generally look for rates of return in the 5% to 15%
False
T/F: Firms are legally required to pay dividends to stockholders just as they must make interest payments to lenders.
False
Market Capitalization
Outstanding stock share x current market per share
T or F: A supply curve slopes upward because quantity supplied is higher when price is higher.
True
T or F: Abstraction can lead to gross distortions of pertinent facts.
True
T or F: Accrued taxes payable are generally reported on the balance sheet as a current liability.
True
T or F: Antitrust laws are designed to promote competition.
True
The largest share of the typical American family budget goes to:
housing
A demand schedule shows
how much consumers are willing and able to buy at different prices
The major coordination tasks can be summarized with the questions
how, what, for whom?
T/F: Capital markets are for investors who want a safe temporary place to deposit funds where they can earn interest and for borrowers who have a short-term need for funds.
False
Scarcity is a concept that applies to all of the following except
human wants.
How long would it take for Nico to save an adequate amount for retirement if he deposits $40,000 per year into an account beginning one year from today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement?
12.2 years
Danny Joe borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments. The interest paid in the first year is ________.
$1,155
Uncle Butch borrows $19,500 from the bank at 8 percent annually compounded interest to be repaid in 10 equal annual installments. The interest paid in the third year is ________.
$1,336.00
What annual rate of return would Grandma Zoe need to earn if she deposits $1,000 per month into an account beginning one month from today in order to have a total of $1,000,000 in 30 years?
5.98%
A beach house in Southern California now costs $350,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Eric and Karinna retire from successful careers in commercial art. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement?
$11,472
The present value of an ordinary annuity of $2,350 each year for eight years, assuming an opportunity cost of 11 percent, is
$12,093
The future value of $100 received today and deposited at 6 percent for four years is closest to ________.
$126
The tax liability of a sole proprietorship with ordinary income of $450,000 is closest to ________. Range taxable income: $0-9,525 Marginal rate: 10% 9,525-38,700 12 38,700-82,500 22 82,500-157,500 24 157,500-200,000 32 200,000-500,00 35
$133,190
Rita borrows $4,500 from the bank at 9 percent annually compounded interest to be repaid in three equal annual installments. The interest paid in the third year is ________.
$147.00
Nico makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was ________.
$15,000
Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000, and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?
$2,457
You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment?
$2,985
As of 2013, annual imports to the U.S. were approximately ____ and annual exports from the U.S. were approximately ____.
$2.7 trillion; $2.3 trillion
Gina has planned to start her college education four years from now. To pay for her college education, she has decided to save $1,000 a quarter for the next four years in an investment account paying 12 percent interest. How much will she have at the end of the fourth year?
$20,157
Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. The Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company?
$212,000
A ski chalet at Peak n' Peak now costs $250,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Chris and Julie retire from successful investment banking careers. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?
$22,108
The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent is ________.
$253.00
Find the present value of the following stream of cash flows assuming an opportunity cost of 25 percent. Year 1-$5,000 Year 2- $25,000 Year 3- $14,000
$27,168
Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________.
$3,000 and -$7,000, respectively
A generous benefactor to a local ballet plans to make a one-time endowment that would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?
$3,000,000
The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is ________.
$31,291
Dan plans to fund his individual retirement account (IRA) by contributing $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year?
$31,875
How much money would you have to deposit today to create an income stream that pays $10,000 one year from today and continues to make annual payments forever, with payments after the first $10,000 growing at 4% per year? Assume money that you invest today to fund this income stream earns a 7% rate of return.
$333,333
In 2018, Walmart reported sales of $500.3 billion, gross profits of $126.9 billion, EBIT of $20.4 billion, and net income of $9.9 billion. The company's cost of goods sold that year equalled ________.
$373.4 billion
How much would Sophie have in her account at the end of 10 years if she deposit $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously?
$4,451
A certain investment promises to pay you $2,500 per year forever with the first payment starting 5 years from now. If you can earn a 5% return on similar investments, what's the most you would pay for this investment today?
$41,135
Entertainer's Aid plans five annual colossal concerts, each in a different nation's capital. The concerts will raise funds for an endowment which would provide the World Wide Hunger Fund with $3,000,000 per year into perpetuity. The endowment will be given at the end of the fifth year. The rate of interest is expected to be 9 percent in all future periods. How much must Entertainer's Aid deposit each year to accumulate to the required amount?
$5,569,749
A certain investment promises to pay you $2,500 per year forever with the first payment starting next year. If you can earn a 5% return on similar investments, what's the most you would pay for this investment today?
$50,000
Xiao Xin is planning to accumulate $40,000 by the end of 5 years by making 5 equal annual deposits. If she plans to make her first deposit today and can earn an annual compound rate of 9 percent on her investment, how much must each deposit be in order to accumulate the $40,000?
$6,684
A firm conducting an IPO of common stock sold 1 million new shares in the offering at an offer price of $10 per share. After the offering, the firm had 5 million shares outstanding, and the price of those shares in the secondary market was $12. The firm's market capitalization is ________.
$60 million
Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? Assume that payments come at the end of each year.
$67,803
Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no interest expense. What was Candy Corporation's earnings per share?
$7.42
The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is ________.
$71,152
James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account 20 years from today will be ________.
$98,846
IPO Underpricing
(Market price-offer price)/offer price
Common Shareholders earnings
(Net income=Total revenue-total expenses) minus preferred dividends
A data set that is not bell-shape and symmetrical has a mean equal to 50 and a standard deviation equal to 6. What is the range of values centered around the mean that would represent 95% of the data points?the variance of the following sample data set: 38, 47, 21, 37, 45, 62, 19, 40, 42
62 and 38
A data set that is not bell-shape and symmetrical has a mean equal to 50 and a standard deviation equal to 6. What is the range of values centered around the mean that would represent 99.7% of the data points?
68 and 32
What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?
7 percent
The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately ________.
7%
Which of the following is true of the current ratio?
A higher current ratio indicates a greater degree of liquidity.
Some authors claim that any point not on the frontier cannot be best. What is their reasoning to support this?
A point inside the frontier is inefficient, and represents wasted resources.
Which of the following are guidelines for behaving ethically? I. Identify the consequences of a decision and its effect on others. II. Consider your obligations and responsibilities to those affected by the decision. III. Identify your decision based on personal standards of honesty and fairness.
All the above
Which step should be completed last in an accounting cycle?
An adjusted trial balance is prepared.
The assets and liabilities of a company are $128,000 and $84,000, respectively. Stockholders' equity should equal
Assets-Liabilities = 128,000 - 84,000 = 44,000
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium, quantity demanded equals quantity supplied.
Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?
Because sometimes the market does not function well.
________ are the standards of conduct or moral judgment that apply to persons engaged in commerce.
Business ethics
Apex Inc. issues a bond of $1,000 which pays interest semiannually at a coupon interest rate of 8%. The maturity of the bond is 15 years. Where should this bond be traded?
Capital Marlet
Which of the following asset accounts is increased when a receivable is collected?
Cash
________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period.
Compound interest
________ analysis involves the comparison of different firms' financial ratios at the same point in time.
Cross-sectional
T/F: Earnings per share represents the dollar amount earned and distributed to shareholders.
False
In accordance with the debit and credit rules, which of the following is true?
Debits increase assets.
The ________ ratio measures the proportion of total assets financed by the firm's creditors.
Debt
How will an increase in price tend to affect demand?
Demand will not change.
Greg Chappell , one of the world's best cricketer, hit 15,921 test runs. This is an example of _______________ statistic
Descriptive
The ________ created new agencies including the Financial Stability Oversight Council and the Bureau of Consumer Financial Protection.
Dodd-Frank Wall Street Reform and Consumer Protection Act
Gently Laser Clinic purchased laser equipment for $8,500 and paid $2,250 down, with the remainder to be paid later. The correct entry would be
Equipment 8,500 Accounts Payable 6,250 Cash 2,250
The market for short-term bank deposits denominated in dollars and other currencies is the ________.
Eurocurrency Market
Which of the following is not a symptom associated with a price floor?
Excess of quantity demanded over quantity supplied.
T of F: Venture capital firms are usually organized as corporations, and the public shareholders of the VC firm have a stake in the investments that the firm makes.
False
T or F: "Correlation" is a measure of how one variable causes another to change.
False
The year in which the respondents were born. This is an example of _______________ data.
Interval
Which of the following is excluded when calculating the quick ratio?
Inventory
If price rises, what happens to demand for a product?
It does not change.
Which of the following is true of preferred stock?
It has features of bonds and a common stock.
Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from Crystal Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The contribution of the $6,000 should be recorded on the accounting records of which of the following entities?
Karen Meyer's personal records and the American Red Cross
Accrued expenses are ordinarily reported on the balance sheet as
Liabilities
Is faster economic growth unambiguously better?
No, because growth has an opportunity cost.
Do all valuable items have price tags? A. No, because some valuable items have no opportunity cost. B. Yes, because everything has its market price. C. Yes, because price is the measure of opportunity cost. D. No, some have no explicit price on them
No, some have no explicit price on them.
A decrease in supply will have what effect on equilibrium price and quantity?
Price will increase; quantity will decrease.
In the United States, most workers
Produce services rather than goods
Which of the following is true regarding cash flow?
Profits do not necessarily result in cash flows available to the stockholders.
If a firm has no liabilities or debt of any kind on its balance sheet, then which of the following is true?
ROE = ROA
Average monthly rainfall in inches for the city of Wilmington throughout the year. This is an example of _______________ data.
Ratio
Average rain fall in inches for the city of Chicago throughout the year. This is an example of _______________ data.
Ratio
Average snowfall in inches for the city of Chicago throughout the year. This is an example of _______________ data.
Ratio
Average snowfall in inches for the city of Granger throughout the year. This is an example of _______________ data.
Ratio
Which of the following is a limitation of ratio analysis?
Ratios that reveal large deviations from the norm merely indicate the possibility of a problem.
Net Income/Loss Equation
Revenues - Expenses
Suppose Tammy grew up on a farm and is very good at plowing. In addition suppose she is a popular country singer who earns $4,000 per performance. If her husband Bob can plow (but not as well as Tammy) but he can't carry a tune, then it would be most efficient if
Tammy specialized in singing and Bob in plowing.
Which of the following acts regulates the secondary market?
The Securities Exchange Act of 1934
Which of the following is true of stakeholders?
They are groups having a direct economic link to a firm.
Which of the following is an attribute of investment bankers?
They bear the risk of selling a security issue.
investment bankers?
They bear the risk of selling a security issue.
Net profit after Taxes formula
Total revenue minus Total expenses (interest and taxes only)
T or F: A graph with a positive slope indicates that the variables depicted on the axes move in the same directions.
True
T or F: A minimum wage law may cause unemployment among low-skill workers.
True
The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales.
common-size income statement
You invest a certain amount of money today. The process of determining how much money that investment will produce in the future is called ________.
compounding
A crisis in the financial sector often spills over into other industries because when financial institutions ________ borrowing, activity in most other industries ________.
contract; slows down
The ________ has a role that focuses on budgeting, accounting, and tracking the performance of a single business unit.
controller
The term "double taxation" means that ________.
corporations pay tax on the income they earn and then shareholders pay tax on income that the corporation distributes to them
Opportunity cost is the
cost of the best option forgone as a result of choosing an alternative.
Agency costs are ________.
costs that shareholders bear because managers pursue their own interests rather than acting in the interests of shareholders
Close the dividends account
debit retained earnings, credit dividends
A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to
decrease an asset, decrease a liability
The amount earned during the accounting period on each outstanding share of common stock is called ________.
earnings per share
The production possibilities curve illustrates the basic principle that
if all resources of an economy are in use, more of one good can be produced only if less of another is produced.
Economic analysis and policy are made more difficult by
inadequate and imperfect information.
Which of the following applications of the rules of debit and credit is true?
increase Equipment with a debit and the normal balance is a debit
A firm with a low net profit margin can improve its return on total assets by ________.
increasing its total asset turnover
A firm with a total asset turnover lower than industry standard may have ________.
insufficient sales
The payments to owners of capital include
interest and profits
The ________ measures the activity, or liquidity, of a firm's stock of goods.
inventory turnover ratio
Financial reports are used by
investors, creditors, customers, and the government
Economics
is a broad-ranging discipline.
The tendency of opportunity cost to increase as production increases
is a general principle, but not a universal fact.
In early 2018, Facebook's market/book ratio was close to 7.0. A market/book ratio that much greater than 1.0 for Facebook means that ________.
the book value of Facebook's equity is far less than the total market value of the company's stock
What mechanism assures that producers use inputs efficiently?
the desire for profit
Which of the following characteristics of a PPF indicates that tradeoffs must be made?
the downward slope
The business entity assumption means that
the entity is an individual economic unit for which data are recorded, analyzed, and reported
The 1981 tax reform act reduced taxes on high-income individuals. Many economists believed that high tax rates would deter high-income individuals from working and investing, thus slowing the growth of income. This illustrates the issue of
the equality-efficiency trade-off.
T or F One piece of evidence suggesting that the stock market is efficient is that most individual investors cannot earn returns that beat the overall market average return, but professional investors such as mutual fund and pension fund managers generally do earn higher-than-average returns.
False
T or F: A contour map illustrates a cause and effect relationship among three variables.
False
T or F: A model that is an oversimplification for one purpose will likely be an oversimplification for other purposes as well.
False
T or F: A ray through the origin always has a slope of one.
False
T or F: All economic transactions involve only buyers and sellers; no third parties are involved.
False
T or F: American households spend more of their incomes on goods than on services.
False
T or F: An income statement is a summary of the revenues and expenses of a business as of a specific date.
False
T or F: An increase in price will decrease demand.
False
T or F: Balance sheet accounts are not considered real accounts.
False
T or F: By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated.
False
T or F: Economists are often required to make unrealistic assumptions concerning the problems they are investigating.
False
T or F: Even though international trade in undertaken voluntarily, a country that engages in trade may not benefit from it.
False
T or F: Government production accounts for about half of all GDP in the United States.
False
T or F: Governments of market-oriented economies never tamper with the price mechanism.
False
T or F: If society produces at a point inside the production possibilities frontier, it is characterized by full employment of resources.
False
T or F: If the PPF for guns and butter is bowed outward from the origin, this indicates constant opportunity cost between the two goods.
False
T or F: If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.
False
T or F: If the liabilities owed by a business total $300,000 and stockholders' equity is equal to $300,000, then the assets also total $300,000.
False
T or F: In economic theorizing, common sense will always lead to the correct answer.
False
T or F: Net income and net profit do not mean the same thing.
False
T or F: Only economists and other "social" scientists have areas of dispute within their disciplines.
False
T or F: Opportunity cost is the highest possible price you can receive when you sell an object.
False
T or F: Profits account for about 30 cents out of each dollar spent on goods in the United States.
False
T or F: Proper ethical conduct implies that you only consider what's in your best interest.
False
T or F: Purchasing supplies on account increases liabilities and decreases equity.
False
T or F: Since it spent over $3.6 trillion in 2010, opportunity cost was not an issue for the U.S. government.
False
T or F: The U.S. economy has grown steadily over the years.
False
T or F: The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error will be detected when the adjusted trial balance is prepared.
False
T or F: The balance of the account can be determined by adding all of the debits, adding all of the credits, and adding the amounts together.
False
T or F: The concept of opportunity cost is more applicable to society as a whole than it is for an individual household.
False
T or F: The primary financial statements of a corporation are the income statement, retained earnings statement, and the balance sheet.
False
T or F: The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing entities.
False
T or F: The stockholders' rights to the assets rank ahead of the creditors' rights to the assets.
False
T or F: There are about 5 million business firms in the Unites States.
False
T or F: There are never any adverse consequences of government attempts to modify the laws of supply and demand.
False
T/F For any interest rate and for any period of time, the more frequently interest is compounded, the greater the amount of money that has to be invested today in order to accumulate a given future amount.
False
T/F: A corporation's stockholders elect its CEO.
False
T/F: A sole proprietor has unlimited liability; his or her total investment in the business, but not his or her personal assets, can be taken to satisfy creditors.
False
T/F: A treasurer is responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
False
T/F: Common stock dividends paid to stockholders is equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.
False
T/F: FThe current ratio provides a measure of a firm's ability to meet its long-term obligations.
False
T/F: In a securities market, the bid price is typically higher than the ask price.
False
T/F: In finance we say that the goal of the firm ought to be to maximize profits.
False
T/F: In general, with an amortized loan, the payment amount remains constant over the life of the loan, the principal portion of each payment declines over the life of the loan, and the interest portion of each payment grows over the life of the loan.
False
T/F: In the OTC market, the ask price is the highest price offered by a dealer to purchase a given security.
False
T/F: One reason that firms exist is that most investors are risk averse, so they are not willing to make the kinds of risky investments that firms typically undertake.
False
T/F: Since individuals generally have opportunities to earn positive rates of return on their funds, the timing of cash flows does not have any significant economic consequences.
False
T/F: Subprime mortgages are mortgage loans made to borrowers with high incomes and better than average credit histories.
False
T/F: The DuPont system allows a firm to break its return on equity into a profit-on-sales component, an efficiency-of-asset-use component, and a liquidity component.
False
T/F: The Eurocurrency market is a market where investors can exchange currencies, for example by trading dollars for euros.
False
T/F: The Financial Accounting Standards Board (FASB) is the federal regulatory body that governs the sale and listing of securities.
False
T/F: The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.
False
T/F: The board of directors is responsible for managing day-to-day operations and carrying out the policies established by the chief executive officer.
False
T/F: The current ratio provides a measure of a firm's ability to meet its long-term obligations.
False
T/F: The effective rate of interest and compounding frequency are inversely related.
False
T/F: The effective rate of interest is the contractual rate of interest charged by a lender or promised by a borrower.
False
T/F: The gross profit margin measures the percentage of each sales dollar left after a firm has paid for its goods and operating expenses.
False
T/F: The higher the value of the times interest earned ratio, the higher is the proportion of the firm's interest income compared to its contractual interest payments.
False
T/F: The lower the fixed-payment coverage ratio, the lower is the firm's financial leverage.
False
T/F: The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long-term funds to make transactions.
False
T/F: The total asset turnover ratio measures the liquidity of a firm's assets.
False
T/F: When computing an interest or growth rate, the rate will decrease with an increase in future value, holding present value and the number of periods constant.
False
Within the United States, the dominant body in the primary development of accounting principles is the
Financial Accounting Standards Board (FASB)
Reduction taxes is an example of
Fiscal police initiative
T or F:
In scientific language, a theory is an untested assertion of alleged fact.
Which of the following is true of sole proprietorships and corporations?
In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.
The race of the respondents in the survey classified as White, African American, Asian, or Other. This is an example of _______________ data.
Nominal
The voting intentions of the respondents in the survey classified as Republican, Democrat, or Undecided. This is an example of _______________ data.
Nominal
Performance rating of employees classified as Above Expectations, Meets Expectations, or Below expectations. This is an example of _______________ data
Ordinal
Future Value (FV)
PV x (1+r)^time
T or F: Abstraction is used in economics to omit unnecessary details and focus on the essence of the problem being studied.
True
T or F: Demand curves can be affected by the prices of related goods.
True
T or F: Economic theory is necessary and extremely important because of its relationship to economic policy.
True
T or F: Economics studies the logic of choices made from among available possibilities.
True
T or F: GDP is a measure of the total output of an economy.
True
T or F: In both the 1970s and the 1990s, extreme economic events caused unemployment to move in the same direction as inflation.
True
T or F: In economics the true cost of making a choice is the value of what must be given up.
True
T or F: One important role for government as referee is in defining and enforcing property rights.
True
T or F: Over the last several years and until recently, the United States has had lower unemployment rates than most European countries.
True
T or F: Productivity growth is the main cause of rising living standards.
True
T or F: Rational decision making must always be based on the concept of opportunity cost.
True
T or F: Real GDP per capita in the U.S. grows over time.
True
T or F: Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
True
T or F: Small business investment companies (SBICs) are corporations chartered by the federal government that can borrow at attractive rates from the U.S. Treasury and use the funds to make venture capital investments in private companies.
True
T or F: Technological advances shift the supply curve rightward.
True
T or F: The Eurocurrency market is a market for short-term bank deposits denominated in U.S. dollars or other easily convertible currencies.
True
T or F: The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
True
T or F: The U.S. government spent over $3.6 trillion in budget year 2010.
True
T or F: The balance sheet represents the accounting equation.
True
T or F: The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.
True
T or F: The money market is a market where investors trade highly liquid securities with maturities of 1 year or less.
True
T or F: The personal income tax is the single largest source of revenue for the federal government.
True
T or F: The production possibilities frontier slopes downward and to the right because of limited resources.
True
T or F: The steepness of a curve is partially determined by the units of measurement.
True
T or F: The total market value of capital assets in the United States is about $30 trillion dollars.
True
T.F: One sign that the stock market is efficient is that prices in the market move seemingly at random, display almost no predictable, repeating patterns.
True
T/F: A higher earnings per share (EPS) does not necessarily translate into a higher stock price.
True
T/F: A prospectus is a portion of the security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position.
True
T/F: An efficient market is a market that establishes correct prices for the securities that firms sell and allocates funds to their most productive use as a result of the intense competition among investors.
True
T/F: Both current and prospective shareholders are interested in the firm's current and future level of risk and return, which directly affect share price.
True
T/F: Creditors are primarily interested in short-term liquidity of the company and its ability to make interest and principal payments.
True
T/F: Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of the country where the bank is located.
True
T/F: For any positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.
True
T/F: Future value increases with increases in the interest rate or the period of time funds are left on deposit.
True
T/F: In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.
True
T/F: In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.
True
T/F: Investors who are risk averse will make risky investments as long as they expect compensation for doing so.
True
T/F: One sign that the stock market is efficient is that prices in the market move seemingly at random, display almost no predictable, repeating patterns.
True
T/F: Return on total assets (ROA) measures the overall effectiveness of management in generating profits with its available assets.
True
T/F: Risk, the magnitude and timing of cash flows are the key determinants of share price, which represent the wealth of the owners in the firm.
True
T/F: Securitization is the process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market.
True
T/F: The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict-of-interest problems of corporations.
True
T/F: The Securities Act of 1933 focuses on regulating the sale of securities in the primary market, whereas the 1934 Act deals with the regulations governing the transactions in the secondary market.
True
T/F: The annual percentage rate (APR) is the nominal rate of interest, found by multiplying the periodic rate by the number of periods in one year.
True
T/F: The annual percentage yield (APY) is the effective rate of interest that must be disclosed to customers by banks on their savings products as a result of "truth in savings laws."
True
T/F: The financial leverage multiplier is the ratio of a firm's total assets to common stock equity.
True
T/F: The liquidity of a business firm refers to its ability to pay its short-term obligations as they come due.
True
T/F: The marginal tax rate represents the rate at which the next dollar of income is taxed.
True
T/F: The net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and common stock dividends, have been deducted.
True
T/F: The nominal and effective rates are equivalent for annual compounding.
True
T/F: The process of taking cash flow that is received or paid in the future and stating that cash flow in present value terms is called discounting.
True
T/F: Time-series analysis evaluates the performance of various firms at the same point in time using financial ratios.
True
T/F: Typically, higher coverage ratios are preferred, but a very high ratio may indicate under-utilization of fixed-payment obligations, which may result in unnecessarily low risk and return.
True
T/F: When computing the number of deposits needed to accumulate to a future sum, it will take longer if the interest rate decreases, holding the future value and deposit size constant.
True
T/F: When considering a firm's financial decision alternative, financial managers should accept only those actions that are expected to maximize shareholder value.
True
T/F: When venture capitalists invest money in a firm, they are making a private equity investment.
True
Tor F: One problem with the European Union's choice regarding equality versus efficiency is that it may inadvertently shrink the size of its "economic pie".
True
When computing an interest or growth rate, the rate will increase with an increase in future value, holding present value and the number of periods constant.
True
Assume a new technology further reduces the cost of producing calculators. Also assume that consumers have cut back on their scheduled purchases in anticipation of even more cost-saving developments. As a result, we can expect
a decrease in price but no predictable change in output.
A supply curve can be thought of as
a graphical representation of the information in a supply schedule
When variable A rises by 10 units, variable B rises by 15 units. The slope of the line describing this relationship is
a. either 2/3 or 1.5, depending on which variable goes on which axis of the graph.
Earnings available for common stockholders is calculated as net profits ________
after taxes minus preferred dividends
Earnings available for common stockholders is calculated as net profits ________.
after taxes minus preferred dividends
Government plays a role in which type of economy?
all economies
An important assumption that is made when constructing a demand schedule is that
all other determinants of demand are held constant.
The Gramm-Leach-Bliley Act ________.
allows business combinations between commercial banks, investment banks, and insurance companies
Slope will vary
along a curve (as opposed to a straight line).
The term red herring refers to ________.
an early version of the prospectus with red printing to indicate that the information the document contains is not final
The stockholders' annual report must include ________.
an income statement
A decrease in price of a certain good most likely will lead to
an increase in quantity demanded but no change in demand.
Time-series analysis is often used to ________.
assess developing trends
The account type and normal balance of Prepaid Expense is
asset, debt
In the chart of accounts, the balance sheet accounts are normally listed in which order?
assets, liabilities, stockholders' equity
A(n) ________ is useful in evaluating credit policies.
average collection period
The ________ is useful in evaluating credit policies that a firm extends to its customers.
average collection period
The ________ ratio may indicate poor collections procedures or a relaxed credit policy.
average collection period
Unearned Fees appear on the
balance sheet as a current liability
If a voluntary trade takes place,
both parties will benefit from the transaction.
In a ________ market, the buyer and seller are brought together to trade securities in an organization called ________.
broker; securities market
Corporate owners earn a return ________.
by realizing gains through increases in share price and cash dividends
Government can obtain funds ________.
by selling debt securities
An effective ethics program ________.
can enhance a corporation's value
For more than a thousand years, the Catholic Church required its members to abstain from meat on Fridays. Catholics customarily ate fish on Friday. After 1966 abstinence from meat on Fridays was no longer required. Consequently, the
demand curve for fish shifted to the left.
According to the data on real U.S. GDP,
economic growth has been irregular, with periodic downturns.
The 2002 Sarbanes-Oxley Act was designed to ________.
eliminate the many disclosure and conflict-of-interest problems of corporations
Which of the following groups are considered to be internal users of accounting information?
employees and managers
Investment banks are institutions that ________.
engage in trading and market making activities
In 1980, in order to stimulate agricultural production, Fidel Castro allowed Cuban farmers to sell their goods directly to consumers and keep whatever profit they made. Some farmers were earning $50,000 per year, compared with the average worker income of $2,400. The workers resented this. Castro denounced the farmers as "capitalist gangsters" and closed the free markets. Cuban cash income declined five percent and fresh vegetables were in short supply. This illustrates the economic concept of the
equality-efficiency trade-off.
Prepaid expenses are eventually expected to become
expenses when their future economic value expires or is used up
To an economist, theory can be thought of as
explanation of mechanisms behind observed phenomena
When residents surrounding an airport complain about noise from aircraft landings and takeoffs, the relevant economic analysis is that of
externalities.
On the balance sheet, net fixed assets represent ________.
gross fixed assets at cost minus accumulated depreciation
The ________ indicates the percentage of each sales dollar remaining after the firm has paid for its goods.
gross profit margin
The dramatic increase in the standard of living since the Industrial Revolution
has not meant unlimited abundance for societies or persons.
When home prices are falling, we would expect a(n) ________.
high mortgage default rates
If a market system is functioning well, we can conclude that goods with
high opportunity costs tend to have high money costs.
The Public Company Accounting Oversight Board (PCAOB) ________.
is a not-for-profit corporation that oversees auditors of public corporations
If production involves constant opportunity cost, the production possibilities curve
is a straight line.
Which of the following best describes accounting?
is an information system that provides reports to users regarding economic activities and condition of a business
A firm's P/E ratio tends to be higher if ________.
its risk is lower and its growth prospects are higher
An increase in the price of gasoline shifts the demand for tires to the
left, because gasoline and tires are normally used together.
Debts owed by a business are referred to as
liabilities
Progressive income taxes are designed to
make the distribution of income more equal.
Two common areas of accounting that respectively provide information to internal and external users are
managerial accounting and financial accounting
In order to make an optimal choice we must use
marginal analysis.
US Treasury Bills is a
marketable security
In the 19th century, Russian peasants noticed that during cholera epidemics there were lots of doctors around; in an attempt to eliminate cholera, they killed all the doctors. This is an example of
mistaking correlation with causation.
The ________ is created by a financial relationship between suppliers and demanders of short-term funds.
money market
The principle of the time value of money basically says that ________.
money received today is more valuable than money received in the future because money in the future is more risky
Earning per share (EPS)
net income - preferred dividends/ dividing by the weighted average common shares outstanding.
As a key participant in financial transactions, individuals are ________.
net suppliers of funds because they save more money than they borrow
Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms.
older; newer
The ________ measures the percentage of profit earned on each sales dollar before interest and taxes but after all costs and expenses.
operating profit margin
An annuity with an infinite life is called a(n) ________.
perpetuity
Which of the following suggests that the "laws" of supply and demand are being disobeyed?
persistent shortages or surpluses
Lines, ration coupons, and black markets are symptoms of a
price ceiling
An increase in the price of music downloads changes demand from
shift demands to the left
All other factors held constant, if the price of game consoles rise, the demand for gaming titles will
shift to the left, because they are normally used together.
By definition, the money market involves the buying and selling of ________.
short-term securities
Which of the following forms of organizations is the easiest to form?
sole proprietorships
A firm's annual stockholders' report ________.
summarizes and documents the firm's financial activities during the past year
The primary risk of mortgage-backed securities is ________.
that homeowners may not be able to, or choose not to, repay their loans
An industry can be defined as
the group of all firms that sell a product.
One of the most important changes in the composition of the labor force in the United States has been
the major increase in the number of women who work outside the home.
Under a flat tax structure, where the same tax rate applies to all income levels ________.
the marginal tax rate is equal to the average tax rate
A fiscal year that ends when business activities have reached their lowest point is called
the natural business year.
Information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements can be found on ________.
the notes to the financial statements
An efficient market is one where ________.
the price of a security is an unbiased estimate of its true value
In general, most corporate capital gains are taxed at ________ tax rate.
the regular corporate
In January, 2,500 quarts of ice cream are sold in Boston at $2 a quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in quantity sold and price may have been caused by
the release of a medical study showing that ice cream consumption improves mental health.
Corporate governance refers to ________.
the rules, processes, and laws by which companies are operated, controlled, and regulated
During a war, a government will often draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?
the value of the civilian goods no longer produced by the new soldiers
The opportunity cost of any good or service is the
the value of the next best alternative
The opportunity cost to you of an action is
the value to you of the next best action you could have taken.
A mixed economy is one in which
there is some public influence over free markets.
Communication skills are very important to financial and nonfinancial managers because ________.
they work together in cross-functional teams and need to understand how members of their teams think
A recession can best be defined as a period of time in which
total output of the economy falls.
That the total dollar amount of the debits equals the total dollar amount of the credits in the ledger accounts can be verified through a(n):
trial balance
A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n)
underwriting syndicate
A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________.
underwriting syndicate
One difference between angel investors and venture capitalists is ________.
venture capitalists are typically businesses, whereas angel investors are usually individuals
Suppose a firm that is normally very profitable barely does better than breaking even this year, i.e., it earns a very small profit. That firm's P/E ratio is likely to be ________.
very high
A horizontal line has a slope of
zero
Regarding economic models, which of the following statements is NOT true?
An economic model can provide answers for policy makers.
Imagine that the state legislature raises the tax on gasoline by 10 cents/gallon. What most likely happens next?
Service station operators pass along as much of the tax to you as they can, probably about 6 cents/gallon.
Corporation A owns a small percentage of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends. Corporation A pays tax at a 21% rate and is allowed to exclude from taxable income 50% of dividends received from other firms. The incremental taxes that Corporation A must pay on the dividends received are ________.
$10,500
The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3 percent, is ________.
$11,464
The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.
$178,571
Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm's net profit after taxes?
$49,000
Find the present value of the following stream of cash flows assuming an opportunity cost of 9 percent. Year: 1-5 Amount: $10,000/yr Year:6-10 Amount: $16,000yr
$79,345
Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to ________.
13%
Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business earns $50,000 in income this year. Its average tax rate is closest to ________.
14%
What is the approximate number of Americans who have jobs?
144 Million
How many years would it take for Harry to save an adequate amount for retirement if he deposits $2,000 per month into an account beginning today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement?
15 years
A charitable foundation has $500,000 invested in an account that earns 7%. The foundation has promised to begin making annual payments to beneficiaries in one year, and the first payment will be $25,000. The foundation has promised that future payments will grow at a constant rate forever. At what rate can the foundation afford to increase payments assuming that it makes no additional deposits into the account?
2%
A firm conducting an IPO of common stock sold 1 million new shares in the offering at an offer price of $10 per share. After the offering, the firm had 5 million shares outstanding, and the price of those shares in the secondary market was $12. The firm's IPO was underpriced by ________.
20%
What annual rate of return would Jia need to earn if she deposits $20,000 per year into an account beginning one year from today in order to have a total of $1,000,000 in 30 years?
3.3%
For those workers who are given fringe benefits such as health insurance and pensions, the additional income this amounts to over and above the average hourly wage can be as much as (for some workers)
30-40%
Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.?
34 percent
In 2018, Target Corp. reported sales of $71.9 billion, cost of goods sold of $51.1 billion, operating profit of $4.3 billion, and net income of $2.9 billion. Target has no preferred stock outstanding. It's net profit margin that year was ________.
4%
In its 2018 fiscal year, the data storage company, NetApp Inc., reported that it had 267.9 million shares of common stock outstanding, trading at a price of about $68 per share. On the firm's balance sheet, the value of common stock equity was reported as $2.067 billion. NetApp's market/book ratio was ________.
8.8