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49 Cards in this Set
- Front
- Back
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Which of the following actions would be most likely to reduce potential conflicts of interest between shareholders and managers? |
Award managers options on the firms stock or allow them to purchase shares through employee stock option plans |
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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 |
Total stockholder equity |
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The primary goal for managers of publicly owned companies should be to |
Make decisions that maximize shareholder wealth |
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This is a general term for securities like stocks bonds and other assets that represent ownership in a cash flow |
Financial asset |
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This is the percentage of each dollar of taxable income that the firm pays in taxes |
Average tax rate |
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Why are shareholders concerned with free cash flow |
Free cash flow is when cash is actually available for distribution to shareholders |
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If you recently bought shares of stock of a publicly traded company from an investment banker this would be an example of |
A primary market transaction |
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Suppose you walk into the bank and see that a one year treasury security carries a 2% rate of return ended two year treasury security carries a 3% rate of return. What rate of return it would you expect to earn on a oneyear treasury security one year from now, assuming the Pure expectations theory is valid |
4% |
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Keys corporations 10 year bonds yield 7% and 10 year T bonds yield 4%. The real interest rate equals 2%, the default risk premium for keys bonds is DRP equals 1.5%, the liquidity premium on keys bonds is LP equals 1.5%, and the inflation premium is 1%. What is the maturity risk premium on a 10 year bond? |
7=2+1+1.5+1.5+MRP 7=3+3+MRP 7=6+MRP -6 7-6=MRP
1=MRP |
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If two-year T bonds have a yield of 2.5%, two-year corporate bonds yield 4.5%, the maturity risk premium on all two year bonds is .8%, and a corporate bonds have a 1.5% default risk premium, what is the liquidity premium on the corporate bond? |
.5% |
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Assume that interest rates on a 20 year treasury and publicly traded corporate bond are as follows: T-bond equals 2.25%, A equals 3.75%, AAA equals 3.25%, BBB equals 5.5%
The differences in rates among these issues were caused primarily by |
Default risk differences |
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Which of the following is corporations net working capital using the following items from their balance sheet: cash = $400,000, accounts receivable = $1 million, inventory = $700,000, accrued expenses= $500,000, accounts payable equals $900,000, notes payable = 0 dollars |
$1,000,000+700,000+400,000= 2,100,000
2,100,000-900,000-500,000= 700,000
$700,000 |
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Which financial statement would you find the following: accruals |
Balance sheet |
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Which financial statement would you find the following: cost of goods sold |
Income statement |
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Which financial statement would you find the following: Net cash flow from financing activities |
Statement of cash flows |
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Which financial statement would you find the following: Decrease in accounts receivable |
Statement of Cash flows |
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Which financial statement would you find the following: Notes payable |
Balance sheet |
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Which financial statement would you find the following: Additional paid in capital |
Statement of retained earnings |
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Which financial statement would you find the following: Earnings before taxes |
Income statement |
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Which financial statement would you find the following: Net plant and equipment |
Balance sheet |
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Which financial statement would you find the following: Increased fixed assets |
Statement of Cash flows |
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Which financial statement would you find the following: Gross profits |
Income statement |
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Which financial statement would you find the following: Balance of retained earnings |
Statement of retained earnings |
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Which financial statement would you find the following: Common stock and paid in surplus |
Balance sheet |
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Which financial statement would you find the following: Net cash flow from investing |
Statement of Cash flows |
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Which financial statement would you find the following: Accrued wages and taxes |
Balance sheet |
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Which financial statement would you find the following: Increase in inventory |
Statement of Cash flows |
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Which two financial statements would you find the following: Depreciation expense |
Statement of Cash flows and income statement |
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Which two financial statements would you find the following: Total stockholders equity |
Statement of Cash flows and balance sheet |
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What are the four major financial statements? |
Balance sheet Income statement Statement of Cash flows Statement of retained earnings's |
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Book value |
Assets are listed on the balance sheet at the amount the firm paid for them |
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Market value |
Assets are listed on at the amount the firm would get if they sold them |
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From a manager's point of view which looks better book value or market value |
Market value |
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Progressive tax structure |
The larger the income, the higher the taxes assessed |
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Average tax rate |
The percentage of each dollar of taxable income that the firm pays in taxes |
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Marginal tax rate |
The amount of additional taxes a firm must pay out for every additional dollar to taxable income it earns |
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How does Payment of interest on debt affects dollars of taxes paid |
Interest is a tax deductible expense. Thus, it saves the firm taxes |
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Cash flows from operations |
Are those cash inflows and outflows that result directly from producing and selling the firms products and/or services |
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Cash flows from investing |
Are cash flows associated with buying and selling a fixed or other long term assets |
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Cash flows from financing |
Are cash flows that result from debt and equity financing transactions |
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Free cash flows |
Is the cash that is actually available for distribution to the investors and the firm after the investments that are necessary to sustain the firms ongoing operations are made |
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Negative free cash flow |
1)The firm is experiencing negative operating cash flows that generally indicate the firm is experiencing operating a managerial problems 2)The firm invests/invested heavily in operating capital to support growth which should ultimately result in growing future profits |
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Why do you financial managers and investors find cash flows to be more important than accounting profit |
Accounting profit is not cash.
More importantly the investors and financial managers need to know where the cash flows are coming from/being used for: operating, investing, financing |
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Does the following activity result in an increase or decrease in a firm's cash: Decrease fixed assets |
If you do to sale of FA, increase cash. If due to booking of depreciation, no effect |
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Does the following activity result in an increase or decrease in a firm's cash: Decrease accounts payable |
Decrease |
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Does the following activity result in an increase or decrease in a firm's cash: Pay dividends |
Decrease |
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Does the following activity result in an increase or decrease in a firm's cash: Sell common stock |
If primary market, increase.
If secondary market, no effect. |
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Does the following activity result in an increase or decrease in a firm's cash: Decrease accounts receivable |
Increase |
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Does the following activity result in an increase or decrease in a firm's cash: Increase notes payable |
Increase |
