Finance Chapter 1

Which of the following are cash flows from a corporation into the financial markets? 1.repayment of long-term debt2.payment of loan interest3.payment of quarterly dividend
Which of the following should a financial manager consider when analyzing a capital budgeting project? 1.project start up costs2.timing of all projected cash flows3.dependability of future cash flows4.dollar amount of each projected cash flow
Which of the following represent cash outflows from a corporation? 1.payment of dividends2.payment of government taxes
Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction was facilitated in the secondary market.
You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? future value
Which one of the following statements concerning a sole proprietorship? The owner of a sole proprietorship is personally responsible for all of the company’s debts.
Corporate bylaws determine how a corporation regulates itself.
Why should financial managers strive to maximize the current value per share of the existing stock? because they have been hired to represent the interests of the current shareholders
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing? capital structure
Which one of the following terms is defined as the management of a firm’s long-term investments? capital budgeting
A business created as a distinct legal entity and treated as a legal “person” is called a: corporation.
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: limited partner
Which form of business structure is most associated with agency problems? corporation
Which one of the following is a working capital management decision? determining whether to pay cash for a purchase or use the credit offered by the supplier
The decision to issue additional shares of stock is an example of which one of the following? capital structure decision
Which one of the following variables is the exponent in the present value formula? Time
What is the present value of $150,000 to be received 10 years from today if the discount rate is 11 percent? $52,827.67
What are the three questions with creating a business 1. what long term investment should you take on? what lines of business will you be in and what sorts of building, machinery, and equipment will you need?2. Where will you get the long-term financing to pay for your investment? Will you bring in others or will you burrow money?3. How will you manage your everyday financial activities such as collecting from customers and paying suppliers?
Who controls the financial management function? the top officer of the firm, such as a vice president of finance or CFO
What does the controller do? handles cost and financial accounting, tz payments, and management information systems
What does the treasurers office do? is responsible for managing the firm’s cash and credit. It is there finical planning and capital expenditures
Capital budgeting the process of planning and managing a firm’s long term investments. The financial manager tries to identify investment opportunities
Capital structure the mixture of debt and equity maintained by a firm.
What are the concerns with the capitial structure 1. how much should the firm borrow2. what are the least expensive sources of fundss for the firm
working capital a firm’s short term assets and liabilities. such as inventory and money owed to the supplier
what are the three corporate financial management? capital budgeting, capital structure, and working capital management
sole proprietorship a business owned by a single individual, responsible for all company’s debts, unlimited liability for business debts, there is no distinction between personal and business asst of payment
partnership a business formed by two or more individuals or entities. unlimited liability for all partnership debts.
Partnership agreement an informal oral agreement or written document
Cooperation a business created as a distinct legal entity composed of one or more individual or entitles.
What is the goal of financial management to make money or add value for the owners.
agency relationships a relationship between stockholders and management
agency problem the possibility of conflict of interest between the stockholders and management of a firm
what are the two reason to increase share value 1. managerial compensation is usually tied to financial performance2. relates to job prospects
stakeholders someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm
primary market refers to original sale of securities by government and corporations
secondary market those in which securities are bough and sold after the original sale

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