SM 412 Exam 1
Which of the following is a picture or snapshot of the financial condition of an organization at a specific point in time?
Balance sheet
Typically, owners in a specific industry compete for wealth maximization. Owners in sport might not be interested in this goal. Rather, they may be interested in __________.
all of the above, including: -Winning championships -Seeking celebrity status -Protecting a community asset
Which ratio is an indication of whether an organization can meet its current liabilities―those due within a year―with its current assets?
Current ratio
Which of the following is the depreciation method that is most aggressive at allocating loss of useful life to the early years of the asset's use?
Double-declining balance
Three interrelated sectors exist within finance. The goal or outcome of those working in which of the following sectors is to acquire and secure funds to maximize shareholder wealth?
Financial management
This type of financing includes charitable donations, either cash or in-kind, made to an organization and is the primary source or operating and investing income for major collegiate sports programs.
Gift
For all sport and entertainment organizations, __________ financing may include land use, tax abatements, direct facility financing, and infrastructure improvements.
Government
In general, the chances of receiving back an investment in a large market Major League Baseball team is __________ that for a small market team.
Greater than
Which of the following is calculated by investigating changes in the Consumer Price Index (CPI)?
Inflation rate
Three interrelated sectors exist within finance. Which of the following sectors focuses on security choices made by individual and institutional investors as portfolios are being built?
Investments
Which of the following is a single cash flow per year forever into the future?
Perpetuity
Which of the following was the first major professional sports team to declare bankruptcy in the middle of a long-term facility lease?
Phoenix Coyotes
One source of risk is current economic conditions. Of the following, which is impacted by changes in current economic conditions?
Positioning, operating budgets, & league loan pools
Gift financing is a minor source of operating income for major collegiate sports programs.
false
Liabilities include what the organization owns, such as cash and inventory.
false
Macroeconomics refers to the study of issues that occur at the firm level
false
The single entity structure is used by MLB, the NBA, the NHL, and the NFL.
false
The sport industry is classified as an industry by the U.S. Census Bureau.
false
The statement of cash flows shows revenues coming in to and expenses going out of an organization
false
Yankee Stadium was financed by the team using a form of equity financing.
false
Statement of cash flow sections include operating activities, investing, and financing.
true
Teams must understand the sources of risk they face when building and funding a new venue.
true
The Federal Reserve can manipulate the discount rate and the federal funds rate, which then usually cause banks to adjust their rates on various loans to correspond with the actions of the Federal Reserve.
true
The Federal Reserve creates and removes money from the economy by issuing and purchasing government securities.
true
The Gross Domestic Sports Product (GDSP) is the market value of a nation's output of sport-related goods and services in a given year.
true
The U.S. government as well as state and local governments have established a variety of tax laws that affect the sport industry.
true
The balance sheet, income statement, and statement of cash flows are vital tools to be used by financial managers.
true
The largest grouping of sport businesses is within NAICS 71, the Arts, Entertainment, and Recreation segment.
true
The nominal interest rate is the interest rate on a given debt security.
true
The price-to-earnings, or P/E, ratio gives an estimate of how much money investors will pay for each dollar of the company's earnings.
true
The single entity structure is used by Major League Soccer.
true
The sport industry relies on the discretionary income of spectators and participants.
true
The statement of cash flow compared to an income statement, provides a simpler explanation of cash generated/spent.
true
The three sections of the balance sheet are assets, liabilities, and owners', or shareholders', equity.
true
When deferring salaries, players and the team must estimate the potential impact of various rates of inflation, especially when salaries are deferred for extended periods of time.
true
What is determined by comparing the risk of one asset to another?
Level of risk
If it is expected that it will be hard to sell a security, which of the following will be added?
Liquidity premium
Which of the following is today's value of a future cash flow?
Present value
Which of the following is an estimate of how much money investors will pay for each dollar of the organization's earnings?
Price-to-earnings ratio
What is the interest rate that banks charge their best customers?
Prime rate
Of the following statements regarding the Arts, Entertainment, and Recreation segment (NAICS 71) of our economy, which of the following is true?
Rising incomes and increasing leisure time over the next 10 years should lead to an increase in demand in this sector.
Risk increases as the length of time funds are invested increases. What is this known as?
Risk of time
Which of the following is the nominal or quoted risk-free rate of interest?
The real-risk-free rate plus an inflation premium
When the citizens of Hamilton County, Ohio, decided to raise their taxes to fund two new sports stadiums rather than to raise taxes for something like improving the educational system in the county, they missed a chance to improve the educational system. What is this known as?
An opportunity cost
A series of equal payments or receipts made at any interval of time is referred to as which of the following?
Annuity
For this type of bond, the annualized interest rate on the bonds is reset at auctions held every 7 to 35 days.
Auction-rate bonds
The major disadvantages of forming a business under a _____ structure is that there is double taxation of profits, and the cost of forming the business and operating the business is higher than other structures.
C corporations
When an organization borrows money that must be paid back over time, usually with interest, what kind of financing is being used?
Debt
Which ratio measures how an organization finances its operation with debt and equity?
Debt ratio
What is a measure of risk or uncertainty of time?
Discount rate
The __________ shows the organization's income over a specified period of time.
Income statement
Other than __________, sport leagues in the United States are subject to the Sherman Act.
Major League Baseball
An estimation of an organization's worth according to the stock market is __________.
Market value
Three interrelated sectors exist within finance. Which of the following includes securities markets, investment banking, insurance, and mutual fund management?
Money and capital markets
Under this sport franchise ownership model, __________ is the most common model of team ownership.
Multiple Owners/Private Investment Syndicate Model
In its policies regarding deferred salaries, which of the following leagues has stated that deferred payments must be placed by the team in a league fund for administration and future disbursement?
National Football League
Which of the following measures the return rate an organization's owners or shareholders are receiving on their investments?
Return on equity
Which of the following refers to the purchasing power of a dollar?
Real value
Which of the following is the rate of return required over and above the risk-free-rate?
Risk premium
When sport leagues do not expand into a market that can support a franchise, or when they create rules to limit the movement of existing franchises, which of the following economic concepts is being applied?
Scarcity
The vast majority of for-profit businesses in the United States operate as which of the following?
Sole proprietorships
The owners of which franchise agreed to a perpetuity when they negotiated to fold their team after the ABA and NBA merger.
St. Louis Spirits
Which financial statement tracks cash in and cash out of an organization over a specified period of time?
Statement of cash flows
Which of the following methods of depreciation attempts to take the non-linear loss of a fixed asset's value into account with depreciation occurring late after purchase. Using this method, the denominator for a fixed asset with a useful life of five years is 15.
Sum-of-years digits, accelerating depreciation
Which of the following methods of depreciation attempts to take the non-linear loss of a fixed asset's value into account, with depreciation occurring quickly after purchase. Using this method, the denominator for a fixed asset with a useful life of five years is 15.
Sum-of-years digits, decelerating deprecation
All state governments in the United States have established jock taxes that affect professional athletes.
false
Antitrust law applies to single-entity sport leagues.
false
Capital finance was not impacted with the collapse of financial markets in 2008.
false
Compound interest pays interest on principal.
false
According to Fitch Ratings, factors affecting risk as reflected in the firm's credit ratings include risk to cash flows.
true
Although deferred salary may be guaranteed, if a team declares bankruptcy the player becomes an unsecured creditor and may then never be paid in full.
true
An organization that relies extensively on borrowing money in order to operate is considered to be heavily leveraged and is more at risk of financial problems than one that is not so reliant on debt.
true
Any investment must account for inflation when determining its "real" potential rate of return.
true
As salary is deferred over time, risk increases proportionally to the amount of time the salary is deferred.
true
Based on recent credit ratings, MLB has slightly less risk than the NBA (A- to BBB+).
true
Before investing in an LLC or LLP, investors should understand the specific laws regarding these entities in the states in which they will conduct business.
true
Dallas Cowboys owner Jerry Jones had variable rate bonds refinanced at a fixed rate to eliminate the wide fluctuations in payments made in 2008.
true
Demand, scarcity, surplus, and price impact sport in a variety of ways, including the location of franchises and ticket pricing.
true
Distributed club ownership model leagues are sometimes structured as non-profit organizations.
true
Financial ratios provide information about the condition and performance of a company.
true
Fiscal policy involves government entities collecting and spending money.
true
If a municipality is funding construction, risk shifts to the city from the club.
true
Inflation is the gradual increase in prices for goods and services
true
Interest can be calculated and added to the principal annually.
true
Jock taxes are charged to athletes, coaches, and administrators who work in a municipality that is not their "home."
true
Leverage ratios show how a company finances its operation with debt and equity.
true
Liquidity is important, as cash may be needed to pay for projected or unforeseen liabilities.
true
Liquidity is the ability to turn assets into cash.
true
Long-term contracts expose the sport organization to risks from inflation and dramatic changes in the industry's overall revenue structure.
true
Market indexes are designed to provide investors with a "quick look" at how the overall stock market or a subsection of the stock market has performed.
true
Most financial managers will try to avoid exhausting all of their cash reserves because a financial "emergency" may require them to quickly convert assets to cash, often at a "discount."
true
Owners' equity is the estimated ownership value of the company, such as stock and capital.
true
Players may defer salary if they do not have a need for the money immediately.
true
Players should investigate deferring salary only if there is a high likelihood of the team remaining financially viable until the deferred payments are made.
true
Ratios are used to analyze the financial performance of an organization.
true
Risk affects the rate of interest, bond rates, estimates of cash flows, the cost of capital, and the capital structure of sport organizations.
true
Sport managers must understand its significance of liquidity before investing capital in a project.
true
Sport organizations must understand how risk impacts their organization, especially in times of economic turmoil.
true