Introduction to Careers in Finance D9126 : 3. PRINCIPLES OF CORPORATE FINANCE

A small bakery has assets of $300,000 and liabilities of $30,000. The bakery's net worth is _____.

$270,000

An accountant is looking at the financial information for the first quarter of this year for the ABC Corporation. He sees the company has revenue of $75,000, expenses of $4,000, assets (a building) of $250,000, and liabilities of $15,000. The accountant does a cash-flow analysis to forecast income for this year and estimates it to be _____.

$300,000

The Little Maid Doll Company has assets of $50,000 and liabilities of $2,000. Revenues this quarter were $15,000, with expenses of $7,000. The company's net worth would be expressed as: _____.

$50,000/$2,000

A Big Food warehouse worker accepts delivery of 100 cases of Crispy Cereal bars. She and other workers load these onto Shelf A of the warehouse's cereal section, then load six cases of Crispy Cereal bars from Shelf D onto a truck headed for one of their retail stores. It sounds as though this inventory entered as _____.

FIFO

Critical timing means bringing a new product to market at a cost lower than a competitor.

False

Jack invests $1,000 at 6 percent interest compounded daily. Tuan invests the same amount at the same rate, but his money is compounded annually. After one year, _____.

Jack has about $18.00 more than Tuan

a method of inventory valuation

LIFO

Jackson is negotiating a new dental plan for employees of the company.

benefits manager

Erika gets all the receipts from deliveries made to and from the company's warehouse.

bookkeeper

A company's financial statement lists $3 million in equity. That amount is most likely considered to be _____.

capital

A company has long owned a large and empty warehouse building in an industrial part of a city. Two similar-sized buildings in the area have been assessed at $610,000 and $575,000. The company's building is most likely listed on their books as a(n) _____ of $600,000.

capital asset

a company bought three printers that are exclusively for printing 3D images

direct cost

Financial statements for the Collins Corporation are presently being developed. After they are completed, the corporate executives can expect to look at which two main parts of the corporation's finances? (Select all that apply.)

equity statement income statement

Jose is comparing the company's profits with other similar-sized companies and assessing short-term sales goals.

financial analyst

A small fruit juice company has developed a product that they believe will be a huge hit: The container is actually edible. The snack-size juice boxes will be sold nationwide if the company can get a lender to believe in them. It sounds as though the company needs _____.

financial leverage

Corporate finance has three main areas. These areas are _____. (Select all that apply.)

financial reporting capital budgeting balancing debt

balance sheet

financial statement which records assets and liabilities; includes all capital investments

a financial advisor believes a company's next six months will be stronger than the past six

forcast

short-term investment

funds used for operating expenses

In accounting, the acronym LIFO stands for _____.

last in, first out

A chief financial officer's responsibilities most often include _____. (Select all that apply.)

making financial decisions for the company serving on the company's board designing company benefit plans acting as corporate treasurer

capital

money used within an investment and listed on a balance sheet

funds that are needed to run the business in the short term; less than 1 year's time

operating capital

Jana looks at a client's information and advises that he should not buy a commercial building this year.

personal financial advisor

What is true about the cost of capital? (Select all that apply.)

the terms of the loan the environmental risks of acting or not acting on an initiative the opportunity cost of making an investment compared with using the capital in another way

A bank officer is reviewing the Simon Grocery Store's financial information for a possible small business loan. The bank officer sees that in the past year, two different people handled the books for the company, and one of them was not well trained. As the financial information is reviewed, the bank officer mainly needs to make sure that _____. (Select all that apply.)

the time frames are the same the methods of entering the assets use the same standard there are no irregularities across the statement

financial leverage

to take on debt in order to increase business capacity or performance

You invest $1,000 now and earn 10 percent annual interest. According to Net Present Value (NPV), _____. (Select all that apply.)

$1,000 now is the same as $1,100 next year $1,210 in 2 years is the same as $1,000 now

Interest that is compounded daily ultimately generates the same amount of money as interest compounded quarterly.

False

Ike works for a few different companies, although his office is in none of them. Instead, he considers himself an independent advisor. Most likely, Ike is a(n) _____.

accountant

Bob's Baking Company has a net worth ratio of 13 percent. Their assets include a building worth $250,000 and cash of $10,000. The company's liabilities must be _____.

$20,000

Multiple response multiple choice: An accountant is looking at the financial information for the Speedway Corporation. She finds that there are several bills in accounts receivable. The bills most likely to be uncollectable are _____. (Select all that apply.)

Company C, a little over 90 days old Company D, a little over 120 days oldCompany D, a little over 120 days old

A company has principal of $50,000 in a bank savings instrument. At the end of each quarter, they withdraw the interest and place it into another account, bringing the principal back to $50,000. It sounds as though they are taking advantage of the features of compound interest.

False

For most large corporations, there are more direct than indirect costs.

False

Marketable securities are not securities that may be sold on a public exchange.

False

Operating capital is most often invested in a fund that keeps it safe, as it typically won't be used for a year.

False

XYZ Company is traded on the New York Stock Exchange. When the company has been trading for at least a year, it will need to file financial statements with the Securities and Exchange Commission.

False

The Mason Corporation's fiscal year is ending soon. It is most likely that date is _____. (Select all that apply.)

March 31 June 30 September 30

A business is buying a large piece of equipment. Terms of the purchase price would include the down payment (or purchase price) and the present value consideration.

True

A company is hoping to secure a $300,000 bank line of credit. It is likely the bank will first do an acid test ratio to see whether the company seems to be a good candidate for such a line.

True

A company's bank statement is reconciled each month, making it possible to compare banking activities to ensure all funds are allocated correctly.

True

A small pizza company is hoping to get a bank loan to expand the take-out portion of their business. Although most of their financial accounting and bill paying is done in-house, a bank will still expect to see and analyze a financial statement as they consider the loan.

True

An analyst is assessing a corporation's debt level by comparing it to the industry average. This is a legitimate method of assessment.

True

Artshow, a technology company, has developed a way to shrink huge files without losing clarity, something portions of the market have been eagerly waiting for. That means they can set their price at whatever they want.

True

Cost of capital refers to more than the terms of the loan and includes the environmental risks of acting or not acting on an initiative.

True

Long-term shareholders may provide funding to a company by foregoing their quarterly dividend payout.

True

A caller is looking for information about a bill he sent to the Smith Paper Company. It has not been paid and he is wondering now whether it was ever received. It is likely his call will be forwarded to the large company's _____.

accounts payable clerk

aging of accounts receivable

amount of time a company takes to collect debts

cost center

an accounting department for acquisitions or for construction

capital budgeting

an understanding of the accounting and cash-flow techniques for capital resourcing for corporations

an insurance product set up to provide the investor with a cash payout at regular intervals for a fixed rate of time or until the investor dies

annuity

Screen Saver once did business as Pure Clean, but was forced to regroup after a lawsuit by an unhappy customer group.

avoidance of regulatory burdens

Screen Saver knows that sunscreen and increased energy can blend well together, especially perhaps with athletes. They believe this could be a trend if they hit the market soon.

avoiding obsolescence or defunctness

A restaurant in a beach community has experienced a downturn in business, mainly because the area was hit by a hurricane last month. Even though the restaurant and most of the community weren't damaged, many people changed their vacation plans, making August a slow month for the restaurant. Since the restaurant has been successfully in business for over 12 years, they are able to continue to do business, most directly because they have _____.

cash reserves

the mechanism of interest rate accrual, where the rate of return adds to the principal, thereby compounding or increasing the return

compound interest

The CFO and executive team of Quick Convenience Stores find they are not able to achieve financial goals and successfully run the business. It is most likely that the _____.

corporate cash is not well managed

Screen Saver knows another company has a slightly similar product they are actively testing with competitive runners.

critical timing advantages

A corporation's executive officers are reviewing all pertinent financial data before they decide whether to buy a new warehouse building. It sounds as though they are most likely doing a _____.

fundamental analysis

The three financial activities occurring in a corporate setting are _____. (Select all that apply.)

monitoring operations financing activities to develop the business investing revenues over the short and long term

Short-term capital is best described as capital that can be turned into liquid - usable - funds in less than ____.

one-year

"ABC Corporation has plenty of funds right now to effectively perform its business activities."

operating capital

A company is purchasing 16 cases of printer paper, a printer cartridge, and an office chair to replace one that cannot be repaired. These purchases will most likely be paid for out of the _____.

operating fund

A corporate investor is reading the most recent financial statement for the ABC Company. She can expect to find the business transactions for the company classified into _____. (Select all that apply.)

operating transactions investing transactions financing activities

"The company is paying stipends to John Smith and Andrea Lowell, who retired in 2005 and 2011, respectively. Each had over 25 years of service to ABC Corporation."

pension fund

a type of annuity that pays a fixed payout at regular intervals forever

perpetuity

Two financial techniques used in planning and forecasting the use of corporate money are _____. (Select all that apply.)

present value compound interest

Mira watches the markets and advises clients to sell some shares when she notices a downturn trend.

stockbroker

A $300,000 loan will provide much-needed capital, and the company can deduct the interest paid.

tax advantages

Terri is busy from the beginning of the year until after the first quarter putting together and filing people's materials for the Internal Revenue Service.

tax preparation specialist

A large company puts their investment funds in two accounts, each totaling $200,000. They most likely used two accounts because _____.

the FDIC insures funds up to $250,000

Company XYZ needs money for capital investment. The most likely ways they will obtain money are from _____. (Select all that apply.)

the company's owners a third-party lender shareholders

When a company invests a portion of its revenue, it is electing to forego _____.

the present value of the funds used to make those investments

secured creditors

1st

common stockholders

4th

A shareholder holds 100 shares of common stock in a sporting good company. Another shareholder holds 100 shares of preferred stock in the same company. A dividend is declared. Both shareholders are entitled to a dividend check.

False

Angelo owns 1,000 shares of common stock in the Gilbert Corporation He will certainly be entitled to a dividend within the next six months.

False

Most corporations structure debt in a similar way, and business practices do not change much within and between types of industry.

False

Preferred stock is paid out before common stock, is more expensive upfront than common stock, and is not subject to risk.

False

Tim is the CFO of the ABC Corporation. The corporation has not paid out a dividend in the past three quarters. At the annual shareholder meeting, Tim works hard to convince potential investors that ABC is an excellent investment. This is considered a form of fraud.

False

A company's new accountant must calculate the compound interest rate on the company's investment. What information will she need to make this calculation? (Select all that apply.)

Interest is compounded daily. The interest rate is 6 percent. The investment began on 3/31/14.

True facts about preferred stock include which of the following? (Select all that apply.)

It is always more expensive per share than the corporation's common stock. It can be in different classes: Preferred A, Preferred B.

Zee Company has a $250,000 line of credit with Capital Financial Bank. This would be listed as a capital liability on Zee Company's financial statements.

True

Eddie works for the Starr Battery Company, as part of their business operations. What are the most likely positions he would hold? (Select all that apply.)

manufacturing the batteries distributing the batteries

To calculate dividend yield, the analyst would need to know _____. (Select all that apply.)

rate of return time increment price

The Dodd-Frank Act _____. (Select all that apply.)

seeks to eliminate fraud affects financial reporting

Tanya has 100 shares of ABC Corporation's publicly traded common stock. The quickest way for her to make money from the stock is _____.

selling it at a profit

The ABC corporation is has a capital investment of $200,000 on their financial statements. Their accountant knows they can take advantage of _____. (Select all that apply.)

depreciation deductions interest deductions

The ABC Corporation has declared a dividend. Nora is a preferred stockholder. She would be paid her dividend _____. (Select all that apply.)

after secured creditors before common stockholders

Company A takes on debt to invest in a small catering business they believe will do well. After a year, the catering business asks for an additional investment from Company A. At this point, Company A must decide whether it wants additional _____.

financial leverage

A company invests a large amount of its assets in a somewhat risky stock. The two most likely reasons for this investment are to _____. (Select all that apply.)

generate income to stay in business grow the company

A company invests a large amount of its assets in a somewhat risky stock. The two most likely reasons for this investment are to _____. (Select all that apply.)

generate income to stay in business own part of a competitive company

A financial manager suggests to the president of a small company that she should be making investments with money presently in the bank. Before any investing is done, the financial manager will need to know _____. (Select all that apply.)

how long the company is willing to go without the money whether the company is willing to accept risk for a higher return

Financial leverage has to do with _____. (Select all that apply.)

using capital borrowing money increasing the value of the corporation

An elderly business owner is still listed as president of a large company although he does not physically work there anymore. He does still make important business decisions, although his daughter is wondering whether this is a good idea. This is most likely because she is considering his _____.

valuable consideration

The S & P 500 is determined by _____.

Dow Jones

A company's profitability is found by dividing the total expenses into the total income.

True

Andy wants to pass his CPA test. After he does that, he will be most directly qualified to be _____. (Select all that apply.)

a controller an accountant

Carmen is reviewing payroll tax information and will report to the company president when she has a financial report ready.

controller

ABC Furniture Company is not able to sell any new furniture in the town of Oxford, since many of the town's people were recently laid off from the town's biggest employer. Rumors persist that the employees will be called back to work, and also that a huge corporation will be buying a large empty building in town and converting it into a factory. For this reason, ABC Furniture has decided to ride out this downturn. If the company has been managed well, they should be able to operate in the short term using their ____.

corporate reserves

Mack meets with the Clark family to talk about how best to work with their parents' estate.

investment advisor

"We have great assurance here that ABC is financially secure. This particular security is a strong holding with low risk."

investment funds

In the world of finance, GAAP is used mainly because it _____.

is a way to standardize accounting procedures

Capital budgeting is a financial activity that most directly involves _____. (Select all that apply.)

managing cash flows reporting on a business's financial activities obtaining the funds to operate a business optimally

bondholders

2nd

A small company has assets of $100,000; cash on hand at $5,000; and two loans: one at $25,000 and one at $10,000. The company's debt to equity ratio would be _____.

3 percent

preferred stockholders

3rd

EFG Company has a quite a bit of borrowed money on their books. The loan considered short term is _____.

$250,000 line of credit

A financial analyst is looking at the XYZ Corporation's financial statements to evaluate its leverage. What are the two most basic evaluation questions the analyst should be asking? (Select all that apply.)

Are there any regulatory or court rulings that will adversely impact this industry? How much debt does the firm have overall?

Warren Buffett is best known for _____.

Berkshire Hathaway

One reason the Dodd-Frank Wall Street Reform and Consumer Protection Act was created and passed was _____.

Enron fraud

Greg Danvers is the chief financial officer for a manufacturer of very high-end entertainment equipment. They are about to introduce the next generation home theater at the same time the value of their stock has begun to dip. He knows that if investors lose faith and begin selling the company's stock, they will no longer have the line of credit from the bank necessary to complete production of their new products. What steps can he take to increase the value of the company stock and prevent any further loss of investors? (Select all that apply.)

He can declare a moderate dividend on each share of stock which should reassure investors. He can work with their bank and brokerage house to raise awareness of the value of the company, hoping to attract new shareholders.

Teck Technology Company is ready to make an initial public offer of their stock. They must have had investment analysts review their financial performance before the offering.

True

The value of preferred stock is similar to that of an AAA bond

True

The XYZ Corporation has funds earmarked for a possible addition to their factory that would add a new shipping area and connect the factory with the warehouse. These funds would be listed as a separate line item on a balance sheet.

True

The bookkeeper for the ABC Company is recording every business transaction made by ABC. She adds operating expenses, loan costs, and investing information. It sounds as though the bookkeeper is doing the job correctly.

True

XYZ Corporation is publicly traded and pays out a quarterly dividend. Why does the company pay that dividend? (Select all that apply.)

The dividends entice investors. Dividends are a way to manage corporate earnings. The dividends are an incentive for corporate workers.

The ABC Company borrows money to expand their furniture plant. Which of the following statements are very likely true? (Select all that apply.)

This loan is secured by the value of the plant. This loan is secured by other business assets. The loan is made based on forecasted future returns from the investment.

The interest paid on a loan is deductible as a business expense.

True

A corporate finance officer is including a $100,000 equipment loan on the company's financial statements. He correctly lists it twice: the debt is a liability on the balance sheet and the interest is an expense on the profit and loss statement.

True

A small shoe company is acquiring a warehouse to store materials, some equipment, and tools. To optimize financial return, key criteria of the investment that need to be considered are _____. (Select all that apply.)

asset value of the property in the future asset value of the property today

Ted is investing some money he inherited. All of the investment opportunities he sees are offering the same interest rate. To make the most return on this investment, he should find an account or instrument where the interest is _____.

compounded daily

A company president is acquiring property to expand a furniture business. To optimize financial return, it is certain the company's president should first look at these three most important considerations: _____. (Select all that apply.)

contract terms negotiated price value of the acquisition

"ABC Corporation has a very healthy rainy day fund. It's great that they have been able to set this aside in case market conditions change."

corporate reserves

A company borrows $250,000 to produce a hooded towel for teens, a product that seems as though it will become popular quickly. The company is trying to taking advantage of _____.

critical timing

The dividend yield for a share of stock is based on _____. (Select all that apply.)

current dividend rate price of the stock

a company van is now being used for two reasons: to drop employees at a research facility and to deliver products to customers once a week

indirect cost

Angelo is a corporate financial officer for ZeeTeck, a software company. He is trying to get favorable terms for $50,000 loan for his company to purchase new equipment. He will need to pay close attention to the _____.

interest rate on the loan

Twenty-five years ago, a well-run company making film for cameras would probably not have problems getting a loan for equipment. Today, a loan to that company for the same purpose would not be probable, mainly because of _____.

obsolescence

A sports equipment company is being sued by a customer who was hurt in one of their stores. The company already knows they will win the lawsuit, since the customer has unsuccessfully placed a similar suit with another area store. With relation to this lawsuit, potential investors will want to be aware of _____.

possible regulatory burdens

The value of common and preferred stock can be explained as being somewhat similar to that of bonds. Using this way of thinking, _____. (Select all that apply.)

preferred stock is like an AAA bond common stock is like a B bond

A new corporate employee is reviewing the company's most recent financial statement. She sees a large sum in the "Other" category. She knows this probably means _____.

the situation should be researched further

Which of the following might be considered business risks to a small software development firm? (Select all that apply.)

the transition from installed software to cloud-based, inexpensive apps they do not engineer the introduction of a new generation of software as a service from a well-funded startup venture

The small ZYX sock company is seeing their profitability affected. This would most likely be from the fact that _____. (Select all that apply.)

there are accounts receivable totaling $10,000 and over ninety days old payroll taxes in the amount of $7,500 have not yet been paid they have excess inventory that may no longer be relevant

A new food store in town sells approximately the same inventory as another store a mile away. Their prices are a bit higher than the other store, and the store's operating costs are also a bit higher, mainly because their cash registers use a powerful computer system to provide the manager with up-to-the-minute inventory, sales, and other information. This company _____. (Select all that apply.)

will not make money because their prices are higher than their competitor will not make money because their operating costs are higher than their competitor

A corporate officer is reading a financial closing statement. It is most likely this financial information would represent the _____. (Select all that apply.)

year-end statement for the business final statement for a business that just closed end of a period of doing business internationally closing of an event that was run for the past three months