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69 Cards in this Set

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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
investments
which of the following is the firms highest-level financial manager?
chief financial officer
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
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
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
sole proprietorship
This type of business organization is legally independent entirely from its owners
public corporation
The practice generally known as double taxation is due to
corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends
For corporations, maximizing the value of owner's equity can also be stated as
maximizing the stock price
The definition of agency problem is
the difficulties that arise when a principle hires an agent and cannot fully monitor the agent's actions.
which of the following is an example of aligning managers' personal interests with those of the owners?
offer the managers an equity stake in the firm
This is the group who elected by stockholders to oversee management in a corporation
board of directors
between corporate managers and stockholders, this can create ethical dilemmas
agency relationship
This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control
corporate governance
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
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
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
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
a partnership has more owners than a proprietorship
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 __________.
proprietorship, corporation
which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?
statement of cash flows
on which of the four major financial statements would you find net plant and equipment
balance sheet
for which of the following would one expect the book value of the asset to differ widely from its market value?
fixed assests
common stockholders equity divided by number of shares of common stock outstanding is the formula for calculating
Book Value per share (BVPS)
an equity-financed firm will
pay more in income taxes than a debt-financed firm
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
which of the following activities result in an increase in a firm's cash?
decrease fixed assets
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
these ratios measure the relationship between a firm's liquid (or current) assets and its current liablities.
liquidity
this ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales
quick or acid test
this measures the number of days accounts receivable are held before the firm collects from the sale
average collection period
this measures the number of dollars of sales produced per dollar of fixed assets
fixed asset turnover ratio
which of these statements is true?
the age of a firm's fixed assets will affect the fixed asset turnover ratio level.
these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm.
profitability
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
= 2.10526, 1.05263

quick acid test ratio = current assets - inventory/ current liabilities
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?
$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
The information contained in the annual report is used by investors to form expectations about future earnings and dividends

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

true or false
false
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
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
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
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
times-interest-earned ratio
These provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds
primary markets
In the U.S., these financial instituitions arrange most primary market transations for businesses
investment banks
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
initial public offering
once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these
secondary markets
these feature debt securities or instruments with maturities of one year or less
money markets
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
These money market instruments are short-term funds transferred between fincanial institutions, usually for no more than one day.
federal funds
these capital market instruments are long term loans to individuals or businesses to purchase homes, pieces of land, or other real property
mortgages
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
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
derivative security
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
derivative security
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
A corporate stock that was issued last year would now trade in the ______ market
secondary
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
How are present values affected by changes in the interest rates?
the lower the interset rate the larger the present value will be
we call the process of earning interest on both the orginal deposit and on the earlier interest payments
compounding
The rule of 72 is a simple mathematical approximation for:
the number of years required to double an investment
earning just one percent more in interest rate every year results in much higher future values over time, and
time has the same effect on future values over time
a dollar paid (or received) in the future
not worth as much as dollar paid (or received) today
when calculating the number of years needed to grow an investment to a specific amount of money
the higher the interest rate, the shorter the time period needed to achieve the growth
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.
$140.71
RULE OF 72 approximately how many years does it take to double a $300 investment when interest rates are 8% per year?
9 years
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?
445
level of frequent, consistent cash flows are called
annuities
the present value of an annuity payments made far into the future are
worth very little today
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
annuities due
when computing the future of an annuity, the higher the compound frequency.
the higher the future will be
Loan amortization schedules show
both the principal balance and interest paid per period
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
$2,145.99