Cf

Front 1

capital budgeting decision

Back 1

-decision to invest in tangible or intangible assets

-also called, investment decision and the capital expenditure (CAPEX) decision

Front 2

EX of tangible assets

Back 2

southwest airlines purchase new planes

Front 3

intangible assets

Back 3

GlaxoSmithKline R&D expenditures

Front 4

Financing decision

Back 4

decision on the sources and amounts of financing

Front 5

Capital structure

Back 5

the mix of log term debt and equity

Front 6

real assets

Back 6

assets used to produce goods and services

Front 7

financial assets

Back 7

financial claims to the income generated by the firms real assets

Front 8

corporation

Back 8

a business organized as a separate legal entity owned by stockholders

-types of corporations

-public companies

-private corporations

-limited liability corporations (LLC)

Front 9

types of business organizations

Back 9

-sole proprietorship

-partnerships

-corporations

-limited liability options

Front 10

limited liability options

Back 10

-LLP

-LLC-professional corporations

Front 11

limited liability

Back 11

the owners of a corporations are not personally liable for its obligations

Front 12

sole proprietorship

Back 12

- who owns the business?

the manager

-are managers and owners separate?

no

-what is the owners liability?

unlimited

-are the owner and business taxed separately

no

Front 13

partnership

Back 13

-who owns the business?

partners

-are managers and owners separate?

no

-what is the owners liability?

unlimited

-are the owner and business taxed separately?

no

Front 14

corporation

Back 14

-who owns the business?

stockholders

-are managers and owners separate?

usually

-what is the owners liability?

limited

-are the owners and business taxed separately?

yes

Front 15

sole proprietorships and partnerships

Back 15

limited liability

-corporate tax on profits + personal tax on dividends

Front 16

corporations

Back 16

unlimited liability

personal tax on profits

Front 17

who is the financial manager

Back 17

CFO

-treasurer

-controller

Front 18

chief financial officer (CFO)

Back 18

supervises all financial functions and sets overall financial strategy

Front 19

treasurer

Back 19

responsible for financing, cash management, and relationships with banks and other financial institutions

Front 20

controller

Back 20

responsible for budgeting, accounting, and taxes

Front 21

goals of the corporation

Back 21

-shareholders desire wealth maximization

-profit maximization

---maximize profits? which years profits?

----earning manipulation

Front 22

Goals of the corporations

opportunity cost of capital

Back 22

the minimum acceptable rate of return on capital investment is set by the investment opportunities available to shareholders in financial markets

Front 23

Agency problem

Back 23

-do managers maximize shareholder wealth or manager wealth?

-managers have manu constituencies 'stakeholders'

Front 24

stakeholder

Back 24

anyone with a financial interest in the corporation

Front 25

Agency problem

Back 25

managers are agents for stockholders and are tempted to act in their own interest rather than maximizing value

Front 26

agency cost

Back 26

value lost from agency problems or from the cost of mitigating agency problems

Front 27

ownership vs management

difference in information

Back 27

-stock prices vs returns

-dilution of ownership

-dividend policy

-financing decisions

Front 28

O V M

different objectives

Back 28

-managers v stockholder

-top managers v lower managers

-stockholders v banks and lenders

Front 29

corporate governance

Back 29

the laws, regulations, institutions, and corporate practices that protect shareholders and other investors

Front 30

Elements of good corporate governance

Back 30

-legal requirements

-board of directors

-activist shareholders

-takeovers

-information for shareholders

Front 31

does value maximization justify unethical behavior

Back 31

charles ponzi

bernard madoff

tyco

Front 32

is it ethical?

Back 32

short selling

corporate raiders

tax avoidance

Front 33

financial markets

Back 33

-businesses have to go to finical markets and institutions for the financing they need to grow

Front 34

financing decision

Back 34

-source of funds ( capital)

-capita structure

Front 35

the flow of savings to corp

financial market

Back 35

market where securities are issued and traded

Front 36

primary market

Back 36

market for the sale of new securities by corporations

Front 37

secondary market

Back 37

market in which previously issued securities are traded among investors

Front 38

fixed income market

Back 38

market for debt securities

Front 39

capital market

Back 39

market for long term financing

Front 40

money market

Back 40

market for short term financing ( less than one year)

Front 41

financial intermediary

Back 41

an organization that raises money from investors and provides financing for individuals, corporations, or other organizations

Front 42

financial institution

Back 42

a bank, insurance company, or similar financial intermediary

Front 43

mutual fund

Back 43

an investment company that pools the savings of many investors and invests in a portfolio of securities

Front 44

Hedge fund

Back 44

a private investment pool, open to wealthy or institutional investors, that is only lightly regulated and therefore can pursue more speculative policies than mutual funds

Front 45

pension funds

Back 45

fund set up by an employer to provide for employees retirement

Front 46

function of financial markets

Back 46

-transporting cash across time

-risk transfer and diversification

-liquidity

-payment mechanism

-provide information

Front 47

information provided by financial markets

Back 47

-commodity prices

-interest rates

-company values

Front 48

the crisis of 2007-2009

Back 48

-easy money

-subprime mortgages

-bear sterns

-AIG

-IMF

-Greece

Front 49

the balance sheet definition

Back 49

financial statement that shows the value of the firms assets and liabilities at a particular time ( from an accounting perspective)

Front 50

current assets

Back 50

-cash and securities

-receivables

-inventories

Front 51

fixed assets

Back 51

-tangible assets

-intangible assets

Front 52

current liabilities

Back 52

-payables

-short term debt

Front 53

common size balance sheet

Back 53

all items in the balance sheet are expressed as a percentage of total assets

Front 54

book value

Back 54

value of assets or liabilities according to the balance sheet

Front 55

market values

Back 55

the value of assets or liabilities were they are to be resold in a market

Front 56

Generally accepted accounting principles GAAP

Back 56

procedures for preparing financial statements

Front 57

equity and asset

Back 57

market values are usually higher than their book values

Front 58

income statement definition

Back 58

financial statement that shows the revenues, expenses, and net income of a firm over a period of time ( form an accounting perspective)

Front 59

Earnings before income and taxes (EBIT)

Back 59

EBIT= total revenues - costs - depreciation

Front 60

profit vs cash flow

differences

Back 60

-profits subtract depreciation ( a non cash expense)

-profits ignore cash expenditures on a new capital ( the expense is capitalized)

-profits record income and expenses at the time of sales, not when the cash exchanges actually occur

-profits do not consider changes in working capital

Front 61

statement of cash flows definition

Back 61

financial statement that shows the firms cash receipts and cash payments over a period of time

Front 62

free cash flows

Back 62

cash available for distribution to investors after firm pays for new investments or additions to working capital

Front 63

FCF=

Back 63

Net income + interest + depreciation -additions to net working capital - capital expenditures

Front 64

accounting practice

Back 64

-revenue recognition

-cookie jar reserves

-legman brothers repurchase agreements

-off balance sheet assets and liabilities

Front 65

corporate tax rates

Back 65

0-50,000 15%

50,001-75,000 25%

75,001- 100,000 34%

100,001- 18,333,333 various between 34 -39%

over 18,333,333 35%

Front 66

taxes

Back 66

taxes have a major impact on financial decisions

Front 67

marginal tax rate

Back 67

is the tax rate that the individual pays on each extra dollar of income

Front 68

average tax rate

Back 68

is the Toal tax bill divided by total income

Front 69

*** questions***

Back 69

******

Front 70

which one of these is a disadvantage of the corporate form of business

Back 70

legal requirements

Front 71

which of the following is least likely to be discussed in the articles of incorporation

Back 71

how the firm is to be financed

the purpose of the business

the price range of the shares of stock

how the board of directors is to be structured

* the price range of the shares of stock

Front 72

when a corporation fails, the maximum that can be lost by an individual shareholder is

Back 72

the amount of their initial investment

Front 73

which of the following is a disadvantage to incorporating a business

Back 73

profits taxed at the corporate level and the shareholder level

Front 74

unlimited liability is faced by the owners of

Back 74

sole proprietorships and general partnerships

Front 75

in the case of a limited liability partnership, _____ has/have limited liability

Back 75

all of the partners

Front 76

a board of directors is elected as a representative of the cooperations

Back 76

shareholders

Front 77

the legal life of a corporation is

Back 77

permanent, regardless of current ownership

Front 78

when the management of a business is conducted by individuals other than the owners, the business is most likely to be a

Back 78

corporation

Front 79

double taxation refers to

Back 79

paying taxes on profits at the corporate level and dividends at the personal level

Front 80

a corporation is considered to be closely held when

Back 80

only a few shareholders exist

Front 81

corporations are referred to as public companies when their

Back 81

stock is publicly traded

Front 82

a common problem for closely held corporations is

Back 82

the lack of access to substantial amounts of capital

Front 83

corporate managers are expected to make corporate devisions that are in the best interest of

Back 83

the corporations shareholders

Front 84

which of the following stamens best distinguishes the difference between real and financial assets

Back 84

financial assets represent claims to income that is generated by real assets

Front 85

which of the following is a real asset

Back 85

a patent

Front 86

corporations that issue financial securities such as stock or debt obligations to the public do so primarily to

Back 86

increase their access to funds

Front 87

which one of the following would be considered a capital budgeting decision

Back 87

deciding to expand into a new line of products, at a cost of $5million

Front 88

which one of these is a capital budgeting decision

Back 88

deciding whether to buy a new machine or repair the old machine

Front 89

the best criterion for success in a capital budgeting decision would be to

Back 89

maximize the value added to the firm

Front 90

the best criterion for success in a capital budgeting decision would be to

Back 90

maximize the value added to the firm

Front 91

a firm decides to pay for a small investment project through $1 million increase in short term bank loans. This is best described as an example of a(n)

Back 91

financing decision

Front 92

corporate financing comes ultimately form

Back 92

savings by households and foreign investors

Front 93

a company can pay for its expansion in all the following ways except

Back 93

the financial markets and intermediaries

Front 94

financing for public corporations flows through

Back 94

the financial market, financial intermediaries, or both

Front 95

when corporations need to raise funds through stock issues, they rely on the

Back 95

primary market

Front 96

a primary market would be utilized when

Back 96

securities are initially issued

Front 97

which of the following are both a financial intermediary and a financial institution

Back 97

insurance companies

Front 98

a share of IBM stock is purchased by an individual investor for 75 and later sold to another investor for 125. who profits from this sale

Back 98

the first investor

Front 99

which of the following financial assets is least likely to have an active secondary market

Back 99

bank loans made to smaller firms

Front 100

when patricia sells her general motors commons stock at the same time that brain purchases the same amount of gm stock, gm receives

Back 100

nothing

Front 101

which one of these is a money market security

Back 101

commercial paper

Front 102

a mother in a developing country wants to borrow the equivalent of 20 to enable her to start a small restaurant run by her family. which type of financing is she looking to obtain

Back 102

micro loan

Front 103

corporate debt instruments are most commonly traded

Back 103

in the over the counter market

Front 104

a bond differs from a share of stock in that a bond

Back 104

has a maturity date

Front 105

short term financing decisions commonly occur in the

Back 105

money markets

Front 106

long term financing decisions commonly occur in the

Back 106

capital markets

Front 107

you can buy silver in the

Back 107

commodities markets

Front 108

commodity and derivative markets

Back 108

enable the financial manager to adjust a firms exposure to various business risk

Front 109

foreign currencies are traded

Back 109

over the counter

Front 110

which one of the following statements is not characteristic of mutual funds

Back 110

they are always considered to be financial institutions

Front 111

which one of these correctly applies to mutual funds

Back 111

you can generally buy additional shares in the fund at any time

Front 112

in general, what is changing as you read down the left handed size of a balance sheet

Back 112

the assets are becoming less liquid

Front 113

a balance sheet portrays the value of firms assets and liabilities

Back 113

at any stated point in time

Front 114

which of the following items should not be included in a listing of current assets

Back 114

accounts payable

Front 115

which of the following assets is likely to be considered the most liquid

Back 115

marketable securities

Front 116

if the value of a firms net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are

Back 116

one half depreciated

Front 117

if the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders equity, then the firm has

Back 117

long term debt

Front 118

which one of the following is an intangible asset

Back 118

goodwill

Front 119

suppose dees just acquired the assets of flow flowers. the book value of flo flowers assets was 68,000 but dees paid a total of 75,000. the additional 7,000 paid by dees will be recorded dees balance sheet as

Back 119

goodwill

Front 120

what happens to a firms net worth as it uses cash to repay accounts payable

Back 120

net worth remains constant

Front 121

if a payment of principal is due in 13 months on a long term liability, that payment will now appear on the balance sheet as

Back 121

long term debt

Front 122

net working capital is a measure of a companys

Back 122

estimated cash reservoir

Front 123

net working capital is calculated by taking the difference between

Back 123

current assets and current liabilities

Front 124

which of the following statements about net working capital (NWC) is correct

Back 124

decreases in NWC can increase the firms risk

Front 125

the existence of goodwill on a corporate balance sheet indicated that the corporation has

Back 125

intangible assets from past acquisitions

Front 126

a balnce sheet may be considered backward looking from the perspective that it

Back 126

records historic, not current values

Front 127

according to gaap, assets and liabilities are typically recorded on the balance sheet as

Back 127

historical cost less depreciation

Front 128

which of the following is correct for a fully depreciated asset

Back 128

the relationship between market and book values is indeterminable

Front 129

depreciation expense is used to

Back 129

allocate historical cost over the life of an asset

Front 130

when subtracting an assets accumulated depreciation from its historic cost, the resulting value is termed the

Back 130

book value of the asset

Front 131

ABC corp balance sheet shows its long term debt to be 20 million. the debt was issued with a 10% interest rate, and the current interest rate is 7%. based on this information alone, the market value of this debt is most likely

Back 131

more than 20 million

Front 132

which of the following statements about depreciation is correct

Back 132

depreciation reduces the book value of assets

Front 133

if market interest rates have increased since a company last borrowed long term funds, the market value of these long term funds will likely be

Back 133

less than their book value

Front 134

which of the following values would be most relevant for a shareholder

Back 134

market value of equity

Front 135

what happens to the market value of a firms equity as the book value of the firms equity increases?

Back 135

there is no set relationship to determine this outcome

Front 136

which of the following statements is true for a corporation with 1 million market value of equity, 2 million market value of assets, and 1,000 shares of outstanding stock

Back 136

market value of liabilities equals 1 million