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Finance Flashcards

Finance test 1 chapter 2

net working capital is defined as current assets minus current liabilities
the accounting statement which measures the revenues, expenses and net income of a firm over a period of time is called the income statement
the financial statement that summarizes a firms accounting value as a particular date is called the balance sheet
which one of the following decreases net income but does not affect the operating cash flow of a firm which owes no taxes for the current year noncash item
which one of the following terms is defined as the total tax paid divided by the total taxable income average tax rate
which of the following is the tax rate that applies to the next dollar of taxable income that a firm earns marginal tax rate
cash flow assets is defined as operating cash flow minus the change in net working capital minus net capital spending
operating cash flow is defined as the cash that a firm generates from its normal business activities
which one of the following has nearly the same meaning as free cash flow cash flow from assets
cash flow to creditors is defined as interest paid minus net new borrowing
cash flow to stockholders is defined as dividends paid minus net new equity raised
which one of the following is an intangible fixed asset copyright
delivery trucks are classified as tangible fixed assets
which one of the following is included in net working capital accounts payable
over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm’s net working capital: had to decrease
which one of the following is included in net working capital invoice from a supplier for inventory purchased
shareholders equity is equal to net fixed assets minus long-term debt plus net working capital
which one of the following is an equity account paid in surplus
which one of the following statements is correct shareholders equity is the residual value of a firm
all else equal, an increase in which one of the following will decrease owners equity increase in accounts payable
which one of the following will decrease the net working capital of a firm making a payment on a long-term debt
which one of the following will decrease the liquidity level of a firm cash purchase of inventory
highly liquid assets can be sold quickly at close to full value
financial leverage increases the potential return to the shareholders
which one of the following statements concerning market and book values is correct the market value tends to provide a better guide to the actual worth of an asset than does the book value
which one of the following is included in the market value of a firm but not in the book value reputation of the firm
the market value of a firms fixed assets: is equal to the estimated current cash value of those assets
which one of the following statements is correct concerning a firms fixed assets? the market value is the expected selling price in today’s economy
which one of the following statements concerning the balance sheet is correct assets are listed in descending order of liquidity
an income statement prepared according to GAAP records expenses based on the matching principle
an increase in which one of the following will increase net income revenue
which two of the following determine when revenue is recorded on the financial statements based on the recognition principle the earnings process is virtually complete the value of a sale can be reliably determined
depreciation does which one of the following for a profitable firm lowers taxes
the recognition principle states that sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined
the matching principle states that the costs of producing an item should be recorded when the sale of that item is recorded as revenue
which one of the following statements related to the income statement is correct net income is distributed either to dividends or retained earnings
firms that compile financial statements according to GAAP can still manipulate their earnings to some degree
the concept of marginal taxation is best exemplified by which one of the following Mitchells grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes
The corporate tax structure in the U.S. is based on a modified flat-rate tax
which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant an increase in depreciation
a negative cash flow to stockholders indicates a firm received more from selling stock than it paid out to shareholders
if a firm has a negative cash flow from assets every year for several years, the firm may be continually increasing in size
an increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm depreciation
tressler industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued positive cash flow to stockholders
net capital spending is equal to ending net fixed assets minus beginning net fixed assets plus depreciation
which one of the following relates to a negative change in net working capital increase in current liabilities with no change in current assets for the period
which one of the following will increase cash flow from assets but not affect the operating cash flow sale of a fixed asset
cash flow to creditors is equal to beginning long-term debt minus ending long-term debt plus interest paid
which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period positive cash flow from assets
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Finance Flashcards

Principles of Finance ch. 4 questions

Allocation of the historic costs of fixed assets against the annual revenue they generate is called ________. depreciation
A corporation ________. can use different depreciation methods for tax and financial reporting purposes
Given a financial manager’s preference for faster receipt of cash flows, ________. a shorter depreciable life is preferred to a longer one
In general, ________. a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows
A firm’s operating cash flow (OCF) is defined as ________. EBIT times one minus the tax rate plus depreciation
Which of the following is an example of noncash charges? depreciation
Which of the following is a source of cash flows? increase in accounts payable
) ________ is a noncash charge Depreciation
In the statement of cash flows, retained earnings are handled through the adjustment of ________. Net Profits After Taxes” and “Dividends Paid” accounts
The cash flows from operating activities section of the statement of cash flows includes ________. cost of raw materials
The cash flows from operating activities section of the statement of cash flows includes ________. labor expense
The cash flows from financing activities section of the statement of cash flows includes ________. dividends paid
The three categories of a firm’s statement of cash flows are ________. cash flow from operating activities, cash flow from investment activities, and cash flow fromfinancing activities
Which of the following is a cash inflow? a decrease in accounts receivable
Which of the following is a cash outflow? an increase in accounts receivable
Which of the following line items of the statement of cash flows must be obtained from the income statement? interest expenses
Cash flows directly related to production and sale of a firm’s products and services are called ________. cash flow from operating activities
Cash flows associated with the purchase and sale of fixed assets and business interests are called cash flow from ________. investment activities
Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflows from the sale of stock, and cash outflows to pay cash dividends or repurchase stock are called cash flow from ________. financing activities
A corporation sold a fixed asset for $100,000. This is ________. an investment cash flow and a source of funds
A corporation raises $500,000 in long-term debt to acquire additional plant capacity. This is considered as ________. a financing cash flow and investment cash flow, respectively
Which of the following is a cash flow from financing activities? repurchasing stock
Which of the following represents a cash flow from operating activities? increase or decrease in current liabilities
For the year ended December 31, 2014, a corporation had cash flow from operating activities of -$10,000, cash flow from investment activities of $4,000, and cash flow from financing activities of $9,000. The statement of cash flows would show a ________. ) net increase of $3,000 in cash and marketable securities
For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________. net decrease of $5,000 in cash and marketable securities
For the year ended December 31, 2014, a corporation had cash flow from operating activities of $12,000, cash flow from investment activities of – $10,000, and cash flow from financing activities of $4,000. The statement of cash flows would show a ________. net increase of $6,000 in cash and marketable securities
A firm has just ended the calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. One possible problem this firm may face is ________. insolvency
Calculate net operating profit after taxes (NOPAT) if a firm has sales of $1,000,000, operating profit (EBIT) of $100,000, interest expense of $50,000, and a tax rate of 30%. $70,000
Calculate a firm’s free cash flow if it has net operating profit after taxes of $60,000, depreciation expense of $10,000, net fixed asset investment requirement of $40,000, a net current asset requirement of $30,000 and a tax rate of 30%. $0
NICO Corporation had net fixed assets of $2,000,000 at the end of 2015 and $1,800,000 at the end of 2014. In addition, the firm had a depreciation expense of $200,000 during 2015 and $180,000 during 2014. Using this information, NICO’s net fixed asset investment for 2015 was ________. $400,000
NICO Corporation had net current assets of $2,000,000 at the end of 2015 and $1,800,000 at the end of 2014. In addition, NICO had net spontaneous current liabilities of $1,000,000 in 2015 and $1,500,000 in 2014. Using this information, NICO’s net current asset investment for 2014 was ________. -$300,000
During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO’s free cash flow is ________. -$30,000
The financial planning process begins with ________ financial plans that in turn guide the formation of ________ plans and budgets. long-term; short-term
Short-term financial plans and long-term financial plans generally cover periods ranging from ________ years and ________ years, respectively. one to two; two to ten
The key aspects of a financial planning process are ________. cash planning and profit planning
Pro forma financial statements are used for ________. profit planning
Which of the following would be the least likely to utilize a cash budget? public investors
________ consider proposed fixed-asset outlays, research and development activities, marketing and product development actions, capital structure, and major sources of financing. Long-term financial plans
________ generally reflect(s) the anticipated financial impact of planned long-term actions. Strategic financial plans
In general, firms that are subject to a high degree of ________, relatively short production cycles, or both, tend to use shorter planning horizons operating uncertainty
The key outputs of the short-term financial planning process are the ________. cash budget, pro forma income statement, and pro forma balance sheet
Key inputs to short-term financial planning are ________. sales forecasts, and operating and financial data
Once sales are forecasted, ________ must be generated to estimate required raw materials. a production plan
The ________ is a financial projection of a firm’s short-term cash surpluses or shortages. cash budget
The primary purpose in preparing a cash budget is ________. to estimate a firm’s short-term cash requirements
An external sales forecast is based on ________. the relationships between a firm’s sales and certain key economic indicators such as GDP and consumer confidence
An internal forecast is based on ________. a buildup, or consensus, of sales forecasts through a firm’s own sales channels, adjusted for additional factors such as production capabilities
A firm’s final sales forecast is usually a function of ________. internal and external factors in combination
The key input to the short-term financial planning process is ________. the sales forecast
A firm has projected sales in May, June, and July of $100, $200, and $300, respectively. The firm makes 20 percent of sales for cash and collects the balance one month following the sale. The firm’s total cash receipts in July is ________. $220
In preparing a cash budget, the ________ seasonal and uncertain a firm’s cash flows, the ________ the number of budgeting intervals it should use. more; greater
The key input to any cash budget is ________. the sales forecast
Of the following components of a cash budget, generally the easiest to estimate would be the ________. cash disbursements
Cash disbursements include ________. rent payments
A projected excess cash balance for a month may be ________. invested in marketable securities
If a firm expects short-term cash surpluses, it can plan ________. short-term investments
A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm’s total cash receipts in November is ________. $100
Which of the following represents a way of coping with uncertainty in a cash budget? using scenario analysis, or “what if” approach, to analyze cash flows under a variety of circumstances
One way a firm can reduce the amount of cash it needs in any month is to ________. delay the payment of wages
________ are projected financial statements Pro forma statements
The key inputs for preparing pro forma income statements using the simplified approaches are the ________. sales forecast for the coming year and financial statements for the preceding year
In the next planning period, a firm plans to change its policy of all cash sales and initiate a credit policy requiring payment within 30 days. The statements that will be directly affected immediately are the ________. pro forma balance sheet and cash budget
A firm plans to retire outstanding bonds in the next planning period. Which of the following gets affected? pro forma income statement and pro forma balance sheet
A firm plans to depreciate a five year asset in the next planning period. The statements that will be directly affected are the ________. pro forma income statement and pro forma balance sheet
In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________. overstate costs and understate profits
The percentage-of-sales method of preparing pro forma income statements assumes that ________. all costs are variable
The percent-of-sales method of developing a pro forma income statement forecasts sales and other line items as a ________. percentage of projected sales
The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is ________. to break the firm’s historical costs into fixed and variable components
The percent-of-sales method to prepare a pro forma income statement assumes a firm has no fixed costs. Therefore, the use of the past cost and expense ratios generally tends to ________ understate
For firms with high fixed costs, the percent-of-sales approach for preparing a pro forma income statement tends to ________. underestimate profits when sales are increasing
In a period of rising sales utilizing past cost and expense ratios (percent-of-sales method), when preparing pro forma financial statements and planning financing, will tend to ________. understate retained earnings and overstate the financing needed
Under the judgmental approach for developing a pro forma balance sheet, the “plug” figure required to bring the statement into balance may be called the ________. external financing required
The ________ method of developing a pro forma balance sheet estimates values of certain balance sheet accounts while external financing is used as a balancing, or plug, figure. judgmental
A firm has prepared the coming year’s pro forma balance sheet resulting in a plug figure in a preliminary statement—called the external financing required—of $230,000. The firm should prepare to ________. ) arrange for a loan of $230,000
A weakness of the percent-of-sales method of preparing a pro forma income statement is ________. the assumption that the firm’s past financial condition is an accurate predictor of its future
Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________. understate profits when sales are increasing
Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________. understate profits when sales are increasing and overstate profits when sales are decreasing
The weakness of the judgmental approach to preparing a pro forma balance sheet is ________. the assumption that the values of certain accounts can be forced to take on desired levels
If transportation costs were a huge portion of a firm’s expenses and the firm expected gas prices to increase greatly in the next year, then in preparing its pro forma income statement the firm should ________. increase the percentage of transportation costs from the percentage of last year’s sales
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Finance Flashcards

Finance Chapter 5

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms?PerpetuityAnnuityConsolLump sumFactor Annuity
Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?Ordinary annuityAnnuity dueConsolOrdinary perpetuityPerpetuity due Annuity Due
The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms?Ordinary annuityAnnuity dueAmortized paymentPerpetuityContinuation Perpetuity
The stated interest rate is the interest rate expressed:as if it were compounded one time per year.as the quoted rate compounded by 12 periods per year.in terms of the rate charged per day.in terms of the interest payment made each period.in terms of an effective rate. in terms of the interest payment made each period.
Anna pays 1.5 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded only annually, the rate would be referred to as the:annual percentage rate.compounded rate.quoted rate.stated rate.effective annual rate. effective annual rate
Which one of the following has the highest effective annual rate?6 percent compounded annually6 percent compounded semiannually6 percent compounded quarterly6 percent compounded monthlyAll the other answers have the same effective annual rate. 6 percent compounded monthly
Which one of the following statements is correct?The APR is equal to the EAR for a loan that charges interest monthly.The EAR is always greater than the APR.The APR on a monthly loan is equal to (1 + monthly interest rate)12 – 1.The APR is the best measure of the actual rate you are paying on a loan.The EAR, rather than the APR, should be used to compare both investment and loan options. The EAR, rather than the APR, should be used to compare both investment and loan options.
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Business Finance 3

Common-size financial statements present all balance sheet account values as a percentage of:a. the forecasted budget.b. sales.c. total equity.d. total assets.e. last year’s account value. d. total assets.
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?a.No new external financing of any kindb. No new debt but additional external equity equal to the increase in retained earningsc. New debt and external equity in equal proportionsd. New debt and external equity, provided the debt-equity ratio remains constante. No new external equity and a constant debt-equity ratio e. No new external equity and a constant debt-equity ratio
The equity multiplier is equal to:a. one plus the debt-equity ratio.b. one plus the total asset turnover.c. total debt divided by total equity.d.total equity divided by total assets.e. one divided by the total asset turnover. a. one plus the debt-equity ratio.
Which ratio was primarily designed to monitor firms with negative earnings?a. Price-sales ratiob. Market-to-book ratioc. Profit margind. ROEe. ROA a. Price-sales ratio
Sweet Candies reduced its fixed assets this year without affecting the shop’s operations, sales, or equity. This reduction will increase which of the following ratios? I. Capital intensity ratioII. Return on assetsIII. Total asset turnoverIV. Return on equity a. I and II onlyb. II and III onlyc. II, III, and IV onlyd. I, II, and IV onlye. I, II, III, and IV b. II and III only
The sustainable growth rate is based on the premise that:a. an additional dollar of debt will be acquired only if an additional dollar in equity shares is issued.b. no additional equity will be added to the firm.c. the debt-equity ratio will be held constant.d. the dividend payout ratio will be zero.e. the dividend payout ratio will increase at a steady rate. c. the debt-equity ratio will be held constant.
Financial statement analysis:a. is primarily used to identify account values that meet the normal standards.b. is limited to internal use by a firm’s managers.c. provides useful information that can serve as a basis for forecasting future performance.d. provides useful information to shareholders but not to debtholders.e. is enhanced by comparing results to those of a firm’s peers but not by comparing results to prior periods. c. provides useful information that can serve as a basis for forecasting future performance.
Which one of the following statements is correct?a. Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business.b. Peer group analysis is easier when seasonal firms have different fiscal years.c. Peer group analysis is simplified when firms use varying methods of depreciation.d. Comparing results across geographic locations is easier since all countries now use a common set of accounting standards.e. Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory. e. Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.
A firm has net working capital of $6,800 and current assets of $21,800. What is the current ratio?a. .69b. .60c. 1.45d. 1.67e. .92 c. 1.45Current ratio = $21,800 / ($21,800 – 6,800) = 1.45
Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860, accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio?a. .08b. .25c. .30d. .46e. .51 b. .25Cash ratio = $2,950/$11,900 = 0.25
The Gift Shoppe has total assets of $487,920 and an equity multiplier of 1.47. What is the debt-equity ratio?a. .68b. .33c. .52d. .47e. .67 d. .47Debt-equity ratio = 1.47 – 1 = .47
A firm has net income of $28,740, depreciation of 6,170, taxes of $13,420, and interest paid of $2,605. What is the cash coverage ratio?a. 8.78b. 20.10c. 14.14d. 16.32e. 19.55 e. 19.55Cash coverage ratio = ($28,740 + 13,420 + 2,605 + 6,170) / $2,605 = 19.55
UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315. What is the inventory turnover rate?a. 7.33 timesb. 6.90 timesc. 5.70 timesd. 7.14 timese. 8.47 times b. 6.90 timesInventory turnover = $512,900 / $74,315 = 6.90 times
Kessler Cleaners has accounts receivable of $28,943, total assets of $387,600, cost of goods sold of $317,400, and a capital intensity ratio of .97. What is the accounts receivable turnover rate?a. 12.63b. 13.81c. 12.42d. 14.61e. 10.97 b. 13.81
Leisure Products has sales of $738,800, cost of goods sold of $598,200, and accounts receivable of $86,700. How long on average does it take the firm’s customers to pay for their purchases? Assume a 365-day year.a. 8.65 daysb. 11.28 daysc. 25.01 daysd. 42.83 dayse. 45.33 days d. 42.83 daysDays’ sales in receivables = 365 / ($738,800 / $86,700) = 42.83 days
Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes is equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 34 percent?a. -2.43 percentb. 1.56 percentc. 3.33 percentd. -5.29 percente. -6.11 percent b. 1.56 percentProfit margin = {[(.058 × $137,000) – $4,700] × (1 – .34)} / $137,000 = .0156, or 1.56 percent
A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity ratio of .72. What is the return on equity?a. 11.67 percentb. 18.98 percentc. 14.45 percentd. 16.22 percente. 15.06 percent c. 14.45 percentReturn on equity = .084 ×(1 + .72) = .1445, or 14.45 percent
The Blue Lagoon has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06. What is the profit margin?a. 15.06 percentb. 13.57 percentc. 15.84 percentd. 16.92 percente. 14.60 percent d. 16.92 percent
World Exports has total assets of $938,280, a total asset turnover rate of 1.18, a debt-equity ratio of .47, and a return on equity of 18.7 percent. What is the firm’s net income?a. $119,359.43b. $88,303.33c. $104,624.14d. $121,548.09e. $92,236.67 a. $119,359.43
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the return on assets?a. 5.56 percentb. 8.06 percentc. 13.67 percentd. 15.24 percente. 17.41 percent a. 5.56 percent
A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio?a. 5.11 percentb. 4.88 percentc. 6.62 percentd. 7.67 percente. 8.37 percent a. 5.11 percentInternal growth rate = [($32,600/$503,000) ×(1 -.25)]/{1 – [($32,600/$503,000) ×(1 -.25)]} = .0511, or 5.11 percent
Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales for the year just ended were $5,338,411. How long did it take on average for credit customers to pay off their accounts during the past year? Assume a 365-day year.a. 24.78 daysb. 26.78 daysc. 29.09 daysd. 31.15 dayse. 33.33 days b. 26.78 days
High Road Transport has a current stock price of $5.60. For the past year, the company had net income of $287,400, total equity of $992,300, sales of $1,511,000, and 750,000 shares outstanding. What is the market-to-book ratio?a. 3.54b. 3.81c. 3.99d. 4.47e. 4.23 e. 4.23Market-to-book = $5.60 /($992,300 / 750,000) = 4.23
A fire has destroyed a large percentage of the financial records of the Strongwell Co. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was .42, and total debt was $548,000. What is the return on assets?a. 6.92 percentb. 8.00 percentc. 8.45 percentd. 9.03 percente. 9.29 percent b. 8.00 percentDebt-equity ratio = .42/(1 -.42) = .72414 Return on assets = .138/(1 + .72414) = .0800, or 8.00 percent
Donegal’s Industrial Products wishes to maintain a growth rate of 6 percent a year, a debt-equity ratio of .45, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25. What profit margin must the firm achieve?a. 4.68 percentb. 5.29 percentc. 6.33 percentd. 6.97 percente. 8.19 percent d. 6.97 percentSustainable growth = 0.06 = {[(PM × (1/1.25) × (1 + 0.45)] × (1 – 0.30)}/{1 – {[(PM × (1/1.25) × (1 + 0.45)] × (1 – 0.30)}} = 6.97 percent
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Finance Flashcards

Finance 3000: Chapter 2

Which of the following is an example of a capital market instrument? Preferred stock(Capital markets are markets for stocks and for intermediate- or long-term debt.)
Which of the following is an example of securities traded in money markets? Short-term debt securities such as Treasury bills and commercial paper.(Money markets are the financial markets in which funds are borrowed or loaned for periods of less than one year.)
Three years ago you purchased 500 shares in the Kellogg Company, but yesterday you sold 200 of those shares through your broker. This is: A secondary market transaction(Secondary markets involve securities and other financial assets traded among investors after they have been issued by corporations
Hedge funds are similar to mutual funds except that they are less regulated, have more flexibility regarding what they can buy, and restrict their investors to wealthy, sophisticated individuals and institutions. True(Hedge funds are largely unregulated and are marketed primarily to institutions and individuals with high net worths.)
Which of the following statements about financial institutions and securities is CORRECT? The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market.(Commercial banks specialize in raising money, money market funds invest in short-term debt securities, and liquid securities are those that are easy to buy and sell. NASDAQ is a dealer market, which means it has all facilities needed to conduct security transactions without a physical location.)
Thinking about the financial markets, which of the following statements is CORRECT? Both NASDAQ dealers and specialists on the NYSE hold inventories of stocks.(Futures markets involve transactions set to close in the future, no matter how short or how long. Capital markets include long-term debt securities. A primary market transaction involves the issuance of new securities, and money markets may be denominated in any currency. Both dealers and specialists hold inventories of stock.)
Which of the following statements about IPOs is CORRECT? In a Dutch auction, investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay.(IPO stands for initial public offering, in which the prices are usually determined by the investment bankers based on indications of interest from investors. This is less efficient but more popular than a Dutch auction, in which investors commit to buying shares at a specific price. An IPO is considered to be undersubscribed if investors don’t want to buy the shares offered, and the company is not obligated to issue shares to satisfy demand.)
To find the annual rate of return on any given stock, add the stock’s dividend for the year plus the change in the stock’s price during the year, then divide by its beginning-of-year price. True(The return on a stock is a function of its dividend and the change in price.)
A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. One example is a commercial bank, which takes in demand deposits and then uses that money to make long-term mortgage loans. True(A financial intermediary matches those who need money with those who supply it.)
You recently sold 100 shares of Facebook stock to your uncle. You had the certificates and gave them to him. In exchange, he wrote you a check. Which of the following best describes this transaction? This is an example of a direct transfer of capital.(If one person transfers an asset to another without the involvement of a financial intermediary, then a direct transfer of capital has occurred.)
Which of the following statements describes a primary market transaction? Facebook issues 2,000,000 shares of new stock and sells them to the public through an investment banker.(A primary market transaction is one that brings an asset to the public markets for the first time.)
Of the following statements, which is CORRECT? As they are generally defined, money market transactions involve debt securities with maturities of less than one year.(Money markets are the financial markets in which funds are borrowed or loaned for periods of less than one year.)
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Finance Flashcards

SHS Chapman Finance Questions (Modules 1-9)

1. Interest is: The amount owed for borrowing money
1. To earn as much interest as possible, you should open a savings account that earns _______ interest and has the ______ interest rate. compound; highest
1. John just opened a savings account and wants to maximize the amount of interest he earns. Which of the following actions would enable him to earn MORE interest? Selecting an account with a high interest rate and leaving his money in the account for long period of time
1. You are opening a savings account that earns compound interest. Which compounding frequency will earn you the MOST money? Compounding daily
1. Which of the following is a type of savings vehicle? Certificate of Deposit and Money Market Account
1. Which of the following is generally true about savings vehicles? People should evaluate different forms of savings vehicles based on their needs
1. Which of the following savings vehicles usually requires a high minimum balance? Certificate of Deposit (CD)
1. Which of the following accounts will give you the LEAST access to your money? Certificate of Deposit (CD)
1. The purpose of a budget is to: Help you plan how you will spend the money you earn or receive
1. When it comes to saving money, what is a good rule of thumb? Put aside money for savings each month
2. Which of the following is NOT one of the responsibilities of the Federal Reserve? Establishing the federal budget
2. Which type of account is typically the MOST liquid? Checking account
2. Savings accounts usually offer _________ interest rates than checking accounts. It is _________ to access your money in a savings account than in a checking account. higher; harder
2. The three parts of the Federal Reserve System are the Reserve Banks, the Federal Open Market Committee (FOMC), and the: Board of Governors
2. Which of the following is a unique feature of credit unions? Credit unions are typically owned and run by their members and credit unions limit membership to certain people or groups
2. What part of a check is the LEAST important? Memo line
2. Which of the following represent typical account fees? ATM fee, service fee, and minimum balance fee
2. What’s the best strategy for avoiding ATM fees? Only use ATMs in your bank’s network
2. What’s the purpose of balancing or monitoring your checking account? To help you calculate how much money you have in your account
2. The best way to ensure the accuracy and safety of your accounts is to: Monitor your online accounts regularly
3. Which of the following payment types require you to pay upfront? Money order, cashier’s check, and pre-paid card
3. Which of the following statements comparing debit cards to credit cards is TRUE? Debit cards allow you to draw funds directly from your checking account
3. Which payment method typically charges the highest interest rates? Payday loans
3. Which payment type can help you stick to a budget? Debit cards
3. If you are planning to carry a large balance on your credit card, which of the following credit card features should you look for? Low APR
3. The annual percentage rate on a credit card determines _______. the amount of interest you are charged on credit card purchases
3. Making a credit card minimum payment: Means you are paying a small portion of your total credit card debt
3. Which of the following can increase your credit card’s APR? Missing a credit card payment
3. What is a credit card balance? The amount of money you still owe to the credit card company
3. Which of the following is NOT a common credit card fee? Minimum payment fee
4. Which of the following statements about credit scores is TRUE? Credit scores reflect how likely individuals are to repay their debts, credit scores range from the low 300’s to the mid 800’s, and each person has three credit scores
4. Having a good credit score is important because: It can impact your ability to be approved for bank loans
4. All of the following make up the big three credit reporting agencies EXCEPT: Federal Reserve
4. Which of the following actions can NEGATIVELY impact your credit score? You forgot to pay the cable bill
4. Which of the following actions has NO impact on your credit score? You inquire about a credit card charge
4. Which of the following MOST influences your credit score? Payment History
4. Which of the following actions would improve your credit score? Paying off your credit card bill
4. Which action is LEAST important to maintaining a healthy credit score? Know your exact credit score
4. How many free credit reports are you legally entitled to each year? One credit report from each credit bureau
4. Having a low credit score can make it more difficult to: Obtain a car loan, open a new credit card, and secure an apartment lease
5. The return on investment (ROI) from education is typically the highest for: Someone with a 4-year (Bachelor’s) degree
5. Your sister is starting 9th grade next year and is thinking about going to college. What step would you recommend she take first? Look for school clubs & organizations she’s interested in
5. Which of the following loans will typically offer the lowest interest rate? Federal Student Loan
5. When referring to student loans, what is a grace period? The period after graduating or leaving school before you must begin paying back student loans
5. Which loan type requires you to make loan payments while you’re attending school? None of the above
5. Which of the following statements about federal student loans is TRUE? The interest rate on your loan will be fixed over time
5. Using the FAFSA form, you can apply for: Federal student loans and the federal work-study program
5. The Federal Application for Student Aid (FAFSA) form: Can be submitted on online or by mail
5. After you send in your FAFSA form, what will you receive back? Your Student Aid Report
5. You are looking for ways to pay for your higher education costs. Which of the following options will require you to pay back any money you receive? Federal student loans
6. Renting provides _________ flexibility but can lead to _________ costs in the long-term. greater; higher
6. Which of the following statements about renting & owning is CORRECT? An owner has complete responsibility and control over the property
6. A _________ is generally considered an appreciating asset because it will _________ in value over time. house; increase
6. One reason to buy a home instead of rent a home is: Homes have the potential to appreciate in value over time
6. John would like to move from the suburbs into the city, but the rent in the city is very high. John has found an apartment he really likes, but he can only afford about 60% of the monthly rent. What is the best housing option for John? Rent the apartment with a roommate
6. What is a mortgage? A type of loan used to buy property
6. All of the following components are commonly found in rental housing agreements EXCEPT: What type of renter’s insurance the renter must buy
6. Someone may choose to own a car instead of leasing because: The car can be resold later to make some money back
6. Jim is in the market for a car, but he’ll probably only need it for a couple of years. After that, he plans on moving into the city and using public transportation. He has a short commute to work, so he won’t be putting many miles on his vehicle. What’s the best transportation option for Jim? Lease the car
6. Which of the following is NOT a cost typically associated with owning a car? Wear & Tear fees
7. Insurance can help you: Financially protect against unexpected accidents
7. Jan pays $70 each month for her auto insurance policy. This regular payment is called a: Premium
7. In which of the following scenarios will you be entitled to pay the least amount of money out-of-pocket for a medical expense? You have health insurance with a $500 deductible
7. Your auto insurance policy has a $200 monthly premium and $700 deductible. What is the maximum amount you will have to pay out-of-pocket for a car accident before your insurance covers your costs? $700
7. You have an insurance policy with a $300 premium and a $500 deductible. How much should you expect to pay the insurance company each month for coverage? $300
7. Which of the following typically have the highest auto insurance premiums? Young, inexperienced drivers
7. When you purchase an item in a store, you may be charged __________. sales tax
7. Which of the following statements about taxes is FALSE? Taxes at the local, state and federal level are all equal
7. Which of the following are NOT deducted on a typical paystub: Sales tax
7. When starting a new job, the form you complete to determine how much tax to withhold from your paycheck is called the _______. W-4
8. Which of the following is the BEST way to protect against identity theft? Change online account passwords frequently
8. Identity thieves can use your personal information to: Open a credit card, Sign up for electricity service, and Get a cell phone contract
8. What is the safest way to dispose of old bank account statements? Shred them in a paper shredder
8. The safest action to take if someone claiming to be from your bank calls you to ask for account information is to: Hang up and call back using the bank’s official phone number
8. The best way to investigate fraudulent transactions on your credit card is to: Review your recent credit card statements
8. Which document puts you at the LEAST risk of identity theft? Cash receipts
8. It is generally safe to provide your Social Security Number to: Verified trusted sources that need it
8. Which action will be least helpful if you’ve been the victim of identity theft? Withdraw your money from all accounts
8. What is the FIRST action you should take if you suspect there has been a fraudulent charge on your credit card? Contact the credit card company to report the fraudulent charge
8. Consumer protection laws are meant to: Prevent unfair or deceptive business practices
9. How can investors receive compounding returns? By investing their earnings back into their original investment
9. When you buy a ____ , you are loaning money to an organization. Bond
9. Which best describes the difference between stocks and bonds? Stocks allow investors to own a portion of the company; bonds are loans to the company
9. What is the primary reason to issue stock? To raise money to grow the company
9. When it comes to investing, what is the typical relationship between risk and return? The greater the potential risk, the greater the potential return
9. Which of the following correctly orders the investments from LOWER risk to HIGHER risk? Treasury bond − Diversified mutual fund – Stock
9. If an investment is considered “volatile”, it means… The value of the investment may be hard to predict
9. Diversification is important in investing because… It helps you to balance your risk across different types of investments
9. Which of the following would be considered the highest risk portfolio? A portfolio made up of 60% stocks, 30% mutual funds, and 10% Treasury bonds
9. Which of the following is generally true about 401(k) and 403(b) retirement plans? They are plans offered through employers, they offer some tax benefits, and they restrict when you can withdraw your money
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Finance Flashcards

MGT 301 Chapter 1

Donna, vice president of finance, and Bob, vice president of human resources, are ____ managers. functional
In February, when Paula, the manager of a landscaping company, is looking at the upcoming need for more workers to handle the increased customers in spring and summer, she is involved with ____. organizing
As a store manager, Liandra has to play the role of negotiator, such as purchasing products at a fair price for her company. As she handles this responsibility, Liandra is playing the ____ role. decisional
The police chief is meeting with some citizens in his community, where he will discuss the police department’s positive service delivery. The success of his organization is measured by _____. its effectiveness, such as decreased crime
Donna, the office manager, spends a large part of her day working closely with those whom she supervises to successfully accomplish the many tasks she is responsible for. She also works well with other departments to get things done. Donna is exhibiting which type of managerial skill? human
Gregson Production is keenly aware of the need to daily strive to produce goods and services more effectively than its competitors. Therefore, to achieve this standard, Gregson’s management strives to ____. maintain quality and efficiency
The vice president of human resources for a national electronics retailer is meeting with employees of several stores to present information to workers that their stores are closing and how the company will help employees in the future. This task is part of a(n) _______ role. disseminator
The city fire department offers its services to any individual within its city limits, so even Paul, who is driving through the city on vacation, received assistance with a car fire. The fire department is an example of a ___ organization. commonweal
Becoming a manager offers ___. many rewards apart from money and status
Mark, vice president of human resources at Executive Corporation, is a(n) ____ level manager. upper
When Randy, a general manager of a national retailer, moved to a different store in his company that was having difficulty, he knew that sales were low and after talking to his employees, he found morale was also low. At first Randy thought attitudes were poor due to low sales, but after working closely with employees, he realized that the poor attitudes were actually the cause of poor sales. Randy was able to discover the cause of the problem by utilizing ______ skills. conceptual
Josh, a college student, has become very interested in helping his community, so he is volunteering in a neighborhood improvement organization. This type of organization is an example of a(n) ______ organization. mutual-benefit
Two of the primary challenges facing managers today are ____. managing for a competitive advantage and diversity
The rarest and most precious resource in business according to Fortune magazine is ___. skilled and effective managers
Elizabeth is a chef and the kitchen manager in an upscale restaurant. She is very knowledgeable in both the culinary and restaurant management fields. Because of these skills, Elizabeth can be considered a(n) ____ worker. knowledge
Greg, the marketing manager, is constantly seeking information about his competition while looking online or speaking to people; this is an example of the ___ role. monitor
The district manager of a national fast-food restaurant watches the sales reports for each restaurant daily to compare actual sales with projected sales goals, and then takes corrective action if needed. This function is ____. controlling
Being a manager can be one of the greatest avenues to a meaningful life, particularly if the manager ____. is working within a supportive or interesting organizational culture
One way to think of management is ___. the art of getting things done through people
Tom, a restaurant general manager, carefully watches his costs by reusing some items that in the past were immediately thrown away. Tom is an example of a(n) _____ manager. efficient
Raylene, the CEO of a Fortune 500 company, met with business leaders from the local community. Afterwards, she spent time informally answering their questions about the company as part of which managerial role? monitor
One of the reasons Ace Distributors, a local manufacturing company, is considered to be a good place to work is that the managers are expected to encourage and reward their employees for developing new products and ways of improving existing products and services. This policy is an example of managers carrying out the ______ role. entrepreneur
Deshawn started a new type of business that provides new and unique services that did not exist before his efforts. This is an example of a(n) ____. entrepreneur
An individual or individuals who work(s) within an existing organization, using personal resources to exploit an opportunity, defines a(n) ____. intrapreneur
Management scholar Henry Mintzberg found that in their workday, managers ____. have work that is characterized by fragmentation, brevity, and variety
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