Finance Exam 1 Flash Cards

Front 1

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

Back 1

investments

Front 2

which of the following is the firms highest-level financial manager?

Back 2

chief financial officer

Front 3

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

Back 3

= d) all of these would use finance

Front 4

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

Back 4

d) the physical location of the business

Front 5

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

Back 5

sole proprietorship

Front 6

This type of business organization is legally independent entirely from its owners

Back 6

public corporation

Front 7

The practice generally known as double taxation is due to

Back 7

corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends

Front 8

For corporations, maximizing the value of owner's equity can also be stated as

Back 8

maximizing the stock price

Front 9

The definition of agency problem is

Back 9

the difficulties that arise when a principle hires an agent and cannot fully monitor the agent's actions.

Front 10

which of the following is an example of aligning managers' personal interests with those of the owners?

Back 10

offer the managers an equity stake in the firm

Front 11

This is the group who elected by stockholders to oversee management in a corporation

Back 11

board of directors

Front 12

between corporate managers and stockholders, this can create ethical dilemmas

Back 12

agency relationship

Front 13

This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control

Back 13

corporate governance

Front 14

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

Back 14

d) all of these are basic approaches to minimzing the agency problem

Front 15

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

Back 15

false

Front 16

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

Back 16

false

Front 17

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

Back 17

a partnership has more owners than a proprietorship

Front 18

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 __________.

Back 18

proprietorship, corporation

Front 19

which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?

Back 19

statement of cash flows

Front 20

on which of the four major financial statements would you find net plant and equipment

Back 20

balance sheet

Front 21

for which of the following would one expect the book value of the asset to differ widely from its market value?

Back 21

fixed assests

Front 22

common stockholders equity divided by number of shares of common stock outstanding is the formula for calculating

Back 22

Book Value per share (BVPS)

Front 23

an equity-financed firm will

Back 23

pay more in income taxes than a debt-financed firm

Front 24

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

Back 24

d) all of these

Front 25

which of the following activities result in an increase in a firm's cash?

Back 25

decrease fixed assets

Front 26

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

Back 26

d) any of these scenarios are possible

Front 27

these ratios measure the relationship between a firm's liquid (or current) assets and its current liablities.

Back 27

liquidity

Front 28

this ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales

Back 28

quick or acid test

Front 29

this measures the number of days accounts receivable are held before the firm collects from the sale

Back 29

average collection period

Front 30

this measures the number of dollars of sales produced per dollar of fixed assets

Back 30

fixed asset turnover ratio

Front 31

which of these statements is true?

Back 31

the age of a firm's fixed assets will affect the fixed asset turnover ratio level.

Front 32

these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm.

Back 32

profitability

Front 33

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

Back 33

= 2.10526, 1.05263

quick acid test ratio = current assets - inventory/ current liabilities

Front 34

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?

Back 34

$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

Front 35

The information contained in the annual report is used by investors to form expectations about future earnings and dividends

true or false

Back 35

true

Front 36

the balance sheet presents a summary of the firm's revenues and expenses over an accounting period

true or false

Back 36

false

Front 37

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

Back 37

depreciation

Front 38

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

Back 38

b) statement of changes in long-term financing

Front 39

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

Back 39

statement of retained earnings

Front 40

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

Back 40

times-interest-earned ratio

Front 41

These provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds

Back 41

primary markets

Front 42

In the U.S., these financial instituitions arrange most primary market transations for businesses

Back 42

investment banks

Front 43

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

Back 43

initial public offering

Front 44

once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these

Back 44

secondary markets

Front 45

these feature debt securities or instruments with maturities of one year or less

Back 45

money markets

Front 46

which of the following is NOT a money market instrument
a) treasury bills
b) commercial paper
c) corporate bonds
d) banker's acceptions

Back 46

corporate bonds

Front 47

These money market instruments are short-term funds transferred between fincanial institutions, usually for no more than one day.

Back 47

federal funds

Front 48

these capital market instruments are long term loans to individuals or businesses to purchase homes, pieces of land, or other real property

Back 48

mortgages

Front 49

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

Back 49

U.S. treasury bills

Front 50

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

Back 50

derivative security

Front 51

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

Back 51

derivative security

Front 52

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

Back 52

true

Front 53

A corporate stock that was issued last year would now trade in the ______ market

Back 53

secondary

Front 54

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

Back 54

e) all of the above are advantages of going public

Front 55

How are present values affected by changes in the interest rates?

Back 55

the lower the interset rate the larger the present value will be

Front 56

we call the process of earning interest on both the orginal deposit and on the earlier interest payments

Back 56

compounding

Front 57

The rule of 72 is a simple mathematical approximation for:

Back 57

the number of years required to double an investment

Front 58

earning just one percent more in interest rate every year results in much higher future values over time, and

Back 58

time has the same effect on future values over time

Front 59

a dollar paid (or received) in the future

Back 59

not worth as much as dollar paid (or received) today

Front 60

when calculating the number of years needed to grow an investment to a specific amount of money

Back 60

the higher the interest rate, the shorter the time period needed to achieve the growth

Front 61

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.

Back 61

$140.71

Front 62

RULE OF 72 approximately how many years does it take to double a $300 investment when interest rates are 8% per year?

Back 62

9 years

Front 63

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?

Back 63

445

Front 64

level of frequent, consistent cash flows are called

Back 64

annuities

Front 65

the present value of an annuity payments made far into the future are

Back 65

worth very little today

Front 66

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

Back 66

annuities due

Front 67

when computing the future of an annuity, the higher the compound frequency.

Back 67

the higher the future will be

Front 68

Loan amortization schedules show

Back 68

both the principal balance and interest paid per period

Front 69

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

Back 69

$2,145.99