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69 Cards in this Set
- Front
- Back
This sub-area of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firm's securities to buy, and how to be paid back in the form that the investor wishes
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investments
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which of the following is the firms highest-level financial manager?
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chief financial officer
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which of the following would not use finance?
a) operational managers b) marketing managers c) human resource managers d) all of these would use finance |
= d) all of these would use finance
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when determining a form of business organization, all of the following are considered EXCEPT:
a) who owns the firm b) what are the owners risks c) what are the tax ramifications d) the physical location of the business |
d) the physical location of the business
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This type of business organization is relatively easy to start, and they're subject to much lighter regulatory and paperwork burden than other business forms
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sole proprietorship
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This type of business organization is legally independent entirely from its owners
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public corporation
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The practice generally known as double taxation is due to
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corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends
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For corporations, maximizing the value of owner's equity can also be stated as
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maximizing the stock price
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The definition of agency problem is
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the difficulties that arise when a principle hires an agent and cannot fully monitor the agent's actions.
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which of the following is an example of aligning managers' personal interests with those of the owners?
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offer the managers an equity stake in the firm
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This is the group who elected by stockholders to oversee management in a corporation
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board of directors
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between corporate managers and stockholders, this can create ethical dilemmas
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agency relationship
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This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control
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corporate governance
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which of these are NOT basic approaches to minimizing the agency problem?
a) just ignore the conflict of interest b) monitor managers' actions c) align managers' personal interest with those of the owners by making the managers owners d) all of these are basic approaches to minimizing the agency problem |
d) all of these are basic approaches to minimzing the agency problem
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in a competitive marketplace "good ethics" is a wonderful idea but an impractical standard. There are simply too few benefits to be gained from maintaining high business ethics
true or false |
false
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A proprietorship is an unincorporated business owned by one individual and the owner benefits from the limited liability for business which limits his losses to what he has invested in the company
true or false |
false
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Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between the proprietorship and partnership business forms is that
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a partnership has more owners than a proprietorship
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In the United States, the most common form of business is the ________ , and the form of business that generates most of the sales and profits is the __________.
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proprietorship, corporation
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which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?
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statement of cash flows
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on which of the four major financial statements would you find net plant and equipment
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balance sheet
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for which of the following would one expect the book value of the asset to differ widely from its market value?
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fixed assests
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common stockholders equity divided by number of shares of common stock outstanding is the formula for calculating
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Book Value per share (BVPS)
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an equity-financed firm will
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pay more in income taxes than a debt-financed firm
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which of the following transactions may differ in timing of cash flow versus when income/expenses are recorded on the income statement?
a) sales b) operating expenses c) fixed asset d) all of these e) only A and B |
d) all of these
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which of the following activities result in an increase in a firm's cash?
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decrease fixed assets
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if a company reports a large amount of net income on its income statement during a year, the firm will have
a) positive cash flow b) negative cash flow c) zero cash flow d) any of these secenarios are possible |
d) any of these scenarios are possible
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these ratios measure the relationship between a firm's liquid (or current) assets and its current liablities.
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liquidity
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this ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales
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quick or acid test
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this measures the number of days accounts receivable are held before the firm collects from the sale
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average collection period
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this measures the number of dollars of sales produced per dollar of fixed assets
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fixed asset turnover ratio
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which of these statements is true?
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the age of a firm's fixed assets will affect the fixed asset turnover ratio level.
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these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm.
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profitability
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LIQUIDITY RATIOS you are evaluating the balance sheet for blue jays corporation. From the balance sheet you find the following balances: cash and marketable securities = $200,000, Accounts receivable = $800,000, Inventory = 1,000,000, accrued wages and taxes = $250,000, accounts payable = $400,000, and notes payable = $300,000. What are Blue Jay's Current ratio and quick rati
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= 2.10526, 1.05263
quick acid test ratio = current assets - inventory/ current liabilities |
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MARKET VALUE RATIOS Bree's Tennis Supply's market-to-book ratios is currently 9.4 times and PE ratio is 20 times. If Bree's Tennis Supply's common stock is currently selling at $20.50 per share, what is the book value per share and earnings per share?
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$2.1809, $1.025
Earnings per share (EPS) = net income available to common stock holders/ number of common shares outstanding book value per share = common equity/ number of common shares outstanding |
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The information contained in the annual report is used by investors to form expectations about future earnings and dividends
true or false |
true
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the balance sheet presents a summary of the firm's revenues and expenses over an accounting period
true or false |
false
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all of the following represent cash outflows to the firm except
a) taxes b) interest payments c) dividends d) purchase of plant and equipment e) depreciation |
depreciation
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the annual report contains all of the following financial statement except
a)income statement b) statement of changes in long-term financing c)statement of cash flows d) balance sheet e) statement of retained earnings |
b) statement of changes in long-term financing
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which of the following statement shows the portion of the firm's earnings that has been saved rather than paid out as dividends
a) balance sheet b) income statement c) statement of retained earnings d) statement of cash flows e) proxy statement |
statement of retained earnings
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which of the following ratios measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs
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times-interest-earned ratio
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These provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds
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primary markets
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In the U.S., these financial instituitions arrange most primary market transations for businesses
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investment banks
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primary market financial instruments include stock issues from firms allowing their equity shares to be publicly traded on stock market for the first time. We usually refer to these first time issues as which of the following
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initial public offering
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once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these
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secondary markets
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these feature debt securities or instruments with maturities of one year or less
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money markets
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which of the following is NOT a money market instrument
a) treasury bills b) commercial paper c) corporate bonds d) banker's acceptions |
corporate bonds
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These money market instruments are short-term funds transferred between fincanial institutions, usually for no more than one day.
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federal funds
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these capital market instruments are long term loans to individuals or businesses to purchase homes, pieces of land, or other real property
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mortgages
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which of the following is NOT a capital market instrument
a) u.s. treasury notes and bonds b) u.s. treasury bills c) u.s. government agency bonds d) corporate stocks and bonds |
U.S. treasury bills
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this is a security formalizing an agreement between two parities to exchange a standard quantity of an asset at a predetermined price on a specified date in the future
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derivative security
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this is a security formalzing an agreement between two parties to exchange a standard quantity of an asset at a predetermined price on a specified date in the future
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derivative security
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the existence of financial intermediaries greatly increase the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a much costlier process
true or false |
true
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A corporate stock that was issued last year would now trade in the ______ market
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secondary
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which of the following is not an advantage of going public
a) it allows a firm founders to diversify their holdings b) it increases the liquididty of the stock c) it establishes a value for the firm d) it makes it easier to raise new equity capital in the future e) all of the above are advantages of going public |
e) all of the above are advantages of going public
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How are present values affected by changes in the interest rates?
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the lower the interset rate the larger the present value will be
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we call the process of earning interest on both the orginal deposit and on the earlier interest payments
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compounding
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The rule of 72 is a simple mathematical approximation for:
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the number of years required to double an investment
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earning just one percent more in interest rate every year results in much higher future values over time, and
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time has the same effect on future values over time
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a dollar paid (or received) in the future
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not worth as much as dollar paid (or received) today
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when calculating the number of years needed to grow an investment to a specific amount of money
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the higher the interest rate, the shorter the time period needed to achieve the growth
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MULTI-YEAR FUTURE VALUE how much would be in your savings account in 7 years after depositing 100 today if the bank pays 5% interest per year.
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$140.71
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RULE OF 72 approximately how many years does it take to double a $300 investment when interest rates are 8% per year?
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9 years
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MOVING CASH FLOWS what is the value in year 3 of a $500 cash flow made in year 5 when interest rates are 6 percent?
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445
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level of frequent, consistent cash flows are called
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annuities
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the present value of an annuity payments made far into the future are
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worth very little today
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many people who want to start investing for their future want to start today which implies an annuity stream that is paid at the beginning of the period. beginning-of-peroid cash flows are referred to as
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annuities due
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when computing the future of an annuity, the higher the compound frequency.
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the higher the future will be
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Loan amortization schedules show
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both the principal balance and interest paid per period
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FUTURE VALUE OF AN ANNUITY what is the future value of a 300 annuity payment over 6 years if the interest rates are 7 percent
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$2,145.99
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