Sport Finance Final Exam

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What is an aging report?

A report that shows how long it takes to collect account receivables.

_________ represent an equity ownership in a company and require the payment of dividends to certain shareholders first.

Preferred stocks

Which is more accurate, short- or long-term plans? Explain why.

Short-term planning is more accurate as the data is more reliable and when you look at long-term planning, there are many more variables.

A budget helps indicate what resources are required and when.

True

A budget is often formed with some rough assumptions.

True

Accounts payable represent amounts owed to vendors and suppliers for services or products.

True

Financial managers continually struggle with the trade-off between dividend payments and retained earnings.

True

In a merger, one business blends its business with the acquired business.

True

Many business owners plan for succession to allow their heirs to continue owning the business rather than being forced to sell the business.

True

One of the primary concerns associated with bonds is determining the appropriate interest rate to attach to the bonds and determining how many bonds should be issued.

True

The goal of capital budgeting is to select investment opportunities that are worth more than they cost.

True

The two primary budgets are operational budgets and capital and financial budgets.

True

Define variable costs.

Variable costs are those costs that change in direct relation to the number of items or products that might be consumed or the number of fans in attendance.

Define variance analysis.

Variance analysis examines the initial budget and resulting measurements to see how accurate the budget was and then to make any necessary changes.

In February 2001, an NFL player securitized the remaining $5 million that he was owed by his team. He had last played in the NFL in 1996. But as part of his playing contract, he was still owed $200,000 per year over the next 25 years. Who was that player?

William Andrews

Budgets are often developed by examining

all of the above

Financial planning can help provide appropriate solutions for which of the following problems a business might face?

all of the above

Shareholders have the right to

all of the above

The disadvantages of bond financing include

all of the above

Which of the following is not a financial planning activity?

all of the above

One step to start developing a budget is to

determine financial objectives of the business

Payments and depreciation represent

expenses

In which of the following business situations would it be a mistake to assume that the rapid expansion will continue forever?

fast growth

_________ is a key to financial planning that involves looking to the future and making certain assumptions.

forecasting

Current assets minus current liabilities equals

net working capital

Suppliers allowing 30 days to pay are essentially providing businesses with

short-term loans

When starting a business, it is recommended that the owner first set aside at least _________ worth of living expenses.

two years'

A company's trademark is an example of an intangible asset.

True

A typical extensive pro forma budget might incorporate a

all of the above

An obligation that needs to be repaid with interest, similar to a loan from a bank, is called

bond

Real or personal property pledged as security for repaying a loan is called

collateral

Which of the following is not one of the five Cs of credit?

compassion

With preferred stock, voting power

is available in limited situations

In this budget, every item is listed on a line with a corresponding amount associated with it.

line-item budget

Bonds and loans are examples of

long-term debt obligations

Information used for forecasting can come from

quantitative data and qualitative data

The most traditional form of long-term funding is

stocks and bonds

Which of the following is not considered internal data?

the Wall Street Journal

Vertical analysis is often called

common-size analysis

Which budget type outlines how an organization spends and receives money across the entire organization?

financial budget

What are the primary benefits of an LLC?

An LLC has the best elements of a small business with minimal paperwork and simple pass-through taxes and the major benefit of limited liability.

Which professional sports league has utilized a G-4 loan program to finance its stadiums?

NFL

Define flotation costs.

The expenses related to issuing new stock are known as flotation costs.

A $100 million 20-year bond issued with 10% interest would require semiannual interest payments of _________ for 20 years.

$5 million

Only _________ of new businesses survive.

20%

Define an operational budget.

An operational budget reflects the day-to-day operations of the organization and lists sales and expenditures for normal operations.

A budget is critical only for senior executives to plan.

False

Using ZBB (zero-based budgeting), all expenses must be justified for each budgeting cycle or period and starts at zero.

False

Vertical analysis examines trends over a period of time such as comparing sales from 2016, 2017, and 2018.

False

Why is benchmarking important?

It allows an organization to compare itself with others to access how well it is doing.

What are some issues that can affect future revenue streams? Name at least four different issues.

The economy, price, customer demand, competing entertainment option, etc.

What is collections management?

The process of trying to get customers to pay for what they have purchased as soon as possible.

All budgets must have a revenue element.

True

A business plan summary includes which of the following?

all of the above

Sport businesses can use several traditional forms of capital to fund growth including

all of the above

What is one question to ask when borrowing from others?

all of the above

What other budget(s) may make up the operational budget?

all of the above

When determining the financial return for possibly investing in a stock, an investor will examine all the following except

all of the above

Which budget type examines the inflows and outflows of cash on a day-to-day basis?

cash-flow budget

Of the five Cs of credit, the applicant's credit history and truthfulness falls under

character

Because bonds can normally be issued only by large organizations such as Nike, Apple, IBM, and Amazon, they are also known as

corporate bonds

Which of the following is not a traditional budget?

crafted budget

Assets that can be converted to cash in one year or less are known as

current assets

The cost of equipment and property that are used up by the organization in the process of producing and distributing goods and services is known as

depreciation

When borrowing from friends or relatives, it is recommended to

develop a repayment schedule and keep accurate records of repayment

If a manager is interested in keeping stockholders happy, then she should focus more on ________________________ than on total corporate profits.

earnings per share

Liabilities that will not be paid down completely for more than a year are called

long-term liabilities

Which budget type is a comprehensive projection of how management expects to operate all aspects of the business over the designated budgetary period?

master budget

Which of the following is not an option for selling a business?

none of the above

Which of the following is not considered a source of capital?

none of the above

To qualify for a small business loan, one must have up to _________ of the required capital to put into the business.

one-third

What is a future budget based on past financial results and expected future financial results called?

pro forma budget

Which budget type shows expenditures which remain unchanged regardless of sales levels?

static budget

List three external stakeholders of a company who would be extremely interested in reviewing the financial statements of a public company.

Answers will vary but could include stockholders, analysts, customers, suppliers, and creditors.

If a sport organization is having cash trouble, what can they sell?

Assets, inventory, and accounts receivable are examples of correct answers.

A major advantage of short-term borrowing is the relative difficulty of completing such transactions.

False

All mergers are welcome as a way to grow.

False

All proposed projects with a positive net present value should be undertaken.

False

An LLC has the best elements of a small business with minimal paperwork and simple pass-through taxes, but has unlimited liability.

False

An income is an unsecured bond, meaning that no assets secure the bond (i.e., guarantee repayment) if the bond issuer defaults.

False

Annual reports have been a requirement of the Securities and Exchange Commission (SEC) since 1975.

False

Chapter 11 is the most common form of bankruptcy protection.

False

Company acquisition for the sole purpose of diversification is normally a wise financial strategy.

False

Composition is the process of getting an extension to repay a loan.

False

Financial advisors suggest that a person have at least 5 years of living expenses money saved when starting a new business venture.

False

Financial statements are intended to deliver information about a business in a consistent manner as a result of efforts by accountants to follow generally accepted accounting practices (GAAP).

False

In asset-based approaches to valuation only tangible assets are analyzed because you can put a verifiable value on them.

False

In the income-based approaches, the value of a business is estimated based on the future value of all earnings and cash flow that the company provides to the owners.

False

Once you undertake the hard job of developing a budget your budgeting job is done.

False

Recent mergers along with technological advancements have resulted in fewer impersonal banking experiences for individuals and businesses.

False

Several agencies, such as Moody's Investors Service and Standard & Poor's, issue bonds for both private and public entities.

False

Stock dividends are always paid in cash.

False

The best cost-reduction strategy is to make major large-scale slashes in costs.

False

The goal of the IRR method is to find the rate of return for which NPV equals one.

False

When examining an individual project, it is important to explore all cash flows.

False

When planning, a manager should always look primarily at profits.

False

Provide three examples of internal data.

Financial statements, sales forecasts, regular bills, corporate goals

What can happen if a customer does not pay their bill on time?

They can pay over a long period of time, tying up cash, or they might default.

A capital and financial budget is oriented more to the long term and often focuses on future expenditures such as spending for a new building.

True

A performance budget explores what a goal might be for the organization, what the anticipated outcomes are, and how much it will cost to achieve these outcomes.

True

An angel is a major investor who can give a small amount or several million.

True

Capacity refers to anything of value that can be pledged to guarantee final repayment of the loan, while collateral can include a home, property, equipment, collectibles, a legal judgment, or even a lottery payoff.

True

Company acquisition for the sole purpose of diversification is normally not a wise financial strategy.

True

Crowdfunding describes using the Internet to gather investors into a company.

True

Financial forecasting explores what financial needs will be required in the future to meet short- and long-term needs.

True

General obligation bonds are among the instruments most commonly used to fund facilities. These bonds are often called full faith and credit obligations because the city, county, municipality, state, or other government unit pledges to repay the obligation with existing tax revenues or by levying new taxes.

True

IRR relies on the opportunity cost of capital and the time value of money.

True

In an acquisition, the acquiring company maintains control of the acquired company and serves in a dominant position over the acquired company.

True

The focus of the balanced scorecard is on combining financial and nonfinancial information to get the true perspective of a company.

True

The goal of the IRR method is to find the rate of return for which NPV equals zero.

True

The key document for understanding cash on hand is the cash-flow statement.

True

The market for trading and issuing bonds is strong and established.

True

The market-based approach gives the value of the sport business based on a multiple of operating results, such as profits or revenues.

True

Vertical analysis occurs when every element on the financial statement is reflected as a percentage of a base amount (e.g., 40% of total sales).

True

Give an example of a fixed cost.

Using the concession example, the fixed costs would include the refrigeration and cooking equipment that incur an expense regardless of how many food items are sold.

Define incremental budgeting.

When using incremental budgeting, a budget is increased or decreased by a certain percentage amount (such as plus or minus ten percent).

A document displaying the financial condition of a business at a single point in time is called

a balance sheet

Any legal or financial obligation (e.g., debt, retained earnings, shareholders' equity, taxes owed) is known as

a liability

A bond that is backed by a specific item, or collateral (which can be sold if the bond is not repaid), is referred to as

a secured bond

A document providing information about how the cash position of a business has changed over a given period of time is called

a statement of cash flows

Which of the following documents is used to secure funding?

all of the above

Which of the following element(s) are included in the balanced scorecard approach?

all of the above

Which of the following influences bond ratings?

all of the above

Which of the following is considered a source of external data?

all of the above

Which of the following is not a factor influencing capital-structuring decisions for a sport business?

all of the above

A document describing how much profit or loss was earned by a business over a given length of time is called

an income statement

Which chapter of the bankruptcy code in the US focuses on renegotiating debt?

chapter 11

Which chapter of the bankruptcy code in the US focuses on a fresh start?

chapter 7

Which section of the business plan describes the mission statement, objectives, goals, and strategies of the business?

company section

Bonds that can be redeemed when the bondholder switches the bonds to stocks are called

convertible bonds

Interest and principal on long-term debt are considered

current liabilities

If a firm's net working capital is -$110,109, the firm

expects the cash paid out over the year to be more than the cash that will become available

Assets on the balance sheet with the least liquidity (e.g., real estate, equipment) are known as

fixed assets

The comparison of the financial information of a company with historical information of the same company over a number of reporting periods is known as

horizontal analysis

The advantages of bond financing include all of the following except

interest on bonds is not tax deductible

Information that is often referred to as primary data and is generated by the business itself is called

internal data

What are the three elements examined in the triple bottom line?

intersection of people, planet, and profit

The ease and quickness with which assets can be converted to cash is known as

liquidity

Give three examples of external data.

newspaper articles, online articles, government reports, financial statements from other companies

What is the most common type of business structure?

sole proprietorship

The funding mix required for capital expenditures is referred to as

the capital structure

A bond that has no assets to secure it (i.e., to guarantee repayment) is called

an unsecured bond and a debenture

The owner of a bond is known as a ______________.

bondholder

The key document for understanding cash on hand is the balance sheet.

False

The payback rule recognizes the time value of money.

False

How would you go about creating a budget?

Find data and forecast expected future revenue and expenses.

Define fixed costs.

Fixed costs remain constant and are independent of the level of organizational activity.

Which of the following groups helps minority start-up business owners?

National Minority Supplier Development Council (NMSDC)

In asset-based approaches to valuation, the value of a business is determined based on the value of tangible and intangible assets minus liabilities.

True

It normally makes a lot of financial sense for a college to go to a post-season bowl game.

True

Magic Johnson is part-owner of the Los Angeles Dodgers.

True

Profit is not the only criterion for financial success.

True

Projecting future cash flow is the most difficult facet of capital budgeting.

True

Sales forecasts are based on the anticipated advertising campaign and the anticipated resulting sales.

True

Target capital structure may vary greatly across businesses and industries.

True

The annual report should be shared with both internal and external stakeholders of an organization.

True

The discounted payback rule discounts the future cash flows based on the opportunity cost of capital.

True

The first step in projecting cash flow is to measure the relevant cash flow for a capital project.

True

There is a cost for raising or finding funds.

True

Define sinking fund.

A team might set aside some money knowing they have a major expense in the future.

Explain what an income bond is and if it is used by either public sector organizations or for-profit organizations?

An income bond is a type of bonds that pays interest only if the corporation earns income. It is used by for-profit organizations.

What are three limitations of financial statements?

Answers will vary but could include the following: They do not communicate key firm information such as profitability, solvency, stability, or liquidity and financial statements virtually ignore qualitative information.

Give an example of a variable cost.

Concession food costs might fall into this category.

Which of the following is a characteristic of a preferred stock?

Dividends are cumulative if not paid in a given year and Preferred stock dividends are paid before common stock dividends

Corporate stocks are a form of equity. Briefly explain the term equity and explain how it is different from debt.

Equity gives one an ownership interest in the organization while debt means that the organization owes you your investment, usually with interest. A debtholder has no ownership interest. Equity owners may be eligible for dividends and a share of the organization's profits.

A capital and financial budget is short-term oriented.

False

A capital and financial budget often uses a line-item approach in which each revenue and expenditure amount is highlighted on a separate line.

False

What are four signs that a business might be in financial distress?

Having trouble paying bills as they become due, sales drop significantly, employees keep quitting, the number of competitors keeps dwindling, larger entities are taking over, or the business is in constant turmoil.

_________ is the process of analyzing trends over a period of time (e.g., a three-year period).

Horizontal analysis

Why is forecasting critical for a budget?

It can help identify future sales or expenses upon which a budget can be developed.

______________ is often less clear because the large number of variables reduces the accuracy of projections.

Long-term planning

Explain the primary difference between a company issuing stocks vs. bonds.

Stocks are a form of equity while bonds are debt. Stockholders have ownership in the organization while bondholders are repaid the principal invested plus interest in most cases of debt.

What are some common errors when evaluating projected cash flows?

Sunk costs, opportunity costs, failure to appreciate impact on the organization, failure to appreciate the effect of a decision on net working capital, and including interest payments in the cash flow projections are all common errors when evaluating projected cash flows.

Why might a company only acquire another company's assets rather buying the entire company?

The acquiring company might do so to save some money, have the seller sell some intellectual property, and avoid potential liability for future claims.

Do you think it was a good idea for Under Armour to buy fitness-related apps?

The answer should focus on the total expenditure and how it might improve or enhance the company's goals.

What is the first step in selling a business?

The first step is to gather relevant financial documents.

What are some strategies a company or organization can do to help correct financial difficulties?

The organization can reduce salaries, delay paying some bills, asks for additional funds from lenders, slow production, sell a business unit, sell some assets, or sell the business.

When should a company pay retained earnings rather than stock dividends?

The retained earnings should result in an increase in the value of a business that is greater than the amount that a shareholder can expect to earn if the money is paid out as dividends.

What are the three primary forms of mergers?

The three primary forms of mergers are horizontal, vertical, and conglomerate mergers.

An operational budget often uses a line-item approach.

True

AnnualCreditReport.com is the only government-authorized (Federal Trade Commission) source for a free annual credit report that is yours by law.

True

Another name for an informal reorganization is a workout.

True

Another name for informal liquidation is assignment.

True

Asset-based loans can be obtained on the basis of the existing inventory or accounts receivable.

True

Capital spending is the net spending on fixed assets.

True

What does the formula EBIT = revenues - variable costs - fixed costs of production = 0 calculate?

break-even analysis

A ________ is a road map that shows where the sport business intends to spend its money.

budget

A __________ is like a road map that shows where a business intends to spend its money.

budget

The short-term planning process requires close scrutiny of internal variables such as

cash flow and debt-related issues

Liabilities due in one year or less are known as

current liabilities

When company A joins with company B, and the new entity is called company C, this is an example of a ______.

merger

To qualify for a small business loan, one must have all of the following except

no bankruptcies in the past six years

The three primary sources of cash flow include all of the following except

none of the above

Which of the following is not a financial planning activity?

offering a ticketing package discount

Which section of the business plan describes how the product will be developed and produced or how the service will be delivered?

operation section

Which of the following business situations may require reexamination of product lines and markets to help with sales and to start to turn a profit?

ownership change

The process of obtaining funds from private parties such as investors, venture capital investors, or other companies interested in investing in a business is known as

private placement

A plan that dictates how a business should proceed within the next two years is called

short-term planning

Which of the following business situations makes sales forecasting difficult?

start-up


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