Finance Chapters 1-6

A business created as a distinct legal entity and treated as a legal “person” is called a: corporation.
A stakeholder is: any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.
Which of the following questions are addressed by financial managers?I. How should a product be marketed?II. Should customers be given 30 or 45 days to pay for their credit purchases?III. Should the firm borrow more money?IV. Should the firm acquire new equipment? II, III, and IV only
Which one of the following functions should be the responsibility of the controller rather than the treasurer? income tax returns
Which one of the following is a capital budgeting decision? deciding whether or not to purchase a new machine for the production line
Which one of the following is a capital structure decision? determining how much debt should be assumed to fund a project
The decision to issue additional shares of stock is an example of which one of the following? capital structure decision
Which of the following accounts are included in working capital management?I. accounts payableII. accounts receivableIII. fixed assetsIV. inventory I, II, and IV only
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
Which one of the following statements concerning a sole proprietorship is correct? The owner of a sole proprietorship is personally responsible for all of the company’s debts.
Which one of the following statements concerning a sole proprietorship is correct? It is easy to create a sole proprietorship.
Which one of the following best describes the primary advantage of being a limited partner instead of a general partner? maximum loss limited to the capital invested
Which one of the following statements is correct? Corporations can raise large amounts of capital generally easier than partnerships can.
Which one of the following business types is best suited to raising large amounts of capital? corporation
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
Decisions made by financial managers should primarily focus on increasing which one of the following? market value per share of outstanding stock
The Sarbanes-Oxley Act of 2002 is a governmental response to: management greed and abuses.
Which one of the following is an unintended result of the Sarbanes-Oxley Act? corporations delisting from major exchanges
Which one of the following actions by a financial manager is most apt to create an agency problem? increasing current profits when doing so lowers the value of the firm’s equity
Which form of business structure is most associated with agency problems? corporation
Activities of a firm which require the spending of cash are known as: uses of cash.
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as percentage of: sales.
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time? common-base year statement
Relationships determined from a firm’s financial information and used for comparison purposes are known as: financial ratios.
The formula which breaks down the return on equity into three component parts is referred to as which one of the following? Du Pont identity
Which one of the following is a source of cash? decrease in inventory
Shareholders probably have the most interest in which one of the following sets of ratios? return on equity and price-earnings
It is easier to evaluate a firm using financial statements when the firm: uses the same accounting procedures as other firms in the industry.
Tracy invested $1,000 five years ago and earns 4 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following? compounding
The process of determining the present value of future cash flows in order to know their worth today is called which one of the following? discounted cash flow valuation
Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following statements is correct assuming that neither Sue nor Neal has withdrawn any money from their accounts? Sue will have more money than Neal as long as they retire at the same time.
Which one of the following will produce the highest present value interest factor? 6 percent interest for five years
What is the relationship between present value and future value interest factors? The factors are reciprocals of each other.
Which one of the following statements correctly states a relationship? Time and present value are inversely related, all else held constant.
Which one of the following compounding periods will yield the smallest present value given a stated future value and annual percentage rate? continuous
The entire repayment of which one of the following loans is computed simply by computing a single future value? pure discount loan
What is the interest rate charged per period multiplied by the number of periods per year called? annual percentage rate

Leave a Reply

Your email address will not be published. Required fields are marked *