Corporate Finance

Which one of the following statements concerning a sole proprietorship is correct? The life of a sole proprietorship is limited.
An example of a capital budgeting decision is deciding: whether or not to purchase a new machine for the production line.
Capital structure decisions include determining: how much debt should be assumed to fund a project.
hich one of the following questions is a working capital management decision? How much inventory should be on hand for immediate sale?
Which one of the following terms is defined as the mixture of a firm’s debt and equity financing? capital structure
Which of the following individuals have unlimited liability for a firm’s debts based on their ownership interest? Both general partners and sole proprietors
One disadvantage of the corporate form of business ownership is the: double taxation of distributed profits.
Which one of the following statements is correct? Corporations can have an unlimited life.
Which business form is best suited to raising large amounts of capital? corporation
Which one of the following best states the primary goal of financial management? Maximize the current value per share
Agency problems are most associated with: corporations
Which one of the following parties has ultimate control of a corporation? shareholders
Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following? Secondary, auction market
deciding how much cash to have on hand working capital
3 questions financial planning wants to answer 1. WHAT long term investments should the firm take on?2. WHERE will we get the long term financing to pay for the investment ?3.HOW will we manage the everyday financial activities of the firm?
Lessons from capital market history – there is a reward for bearing risk- the greater potential reward, the greater risk- there is called the risk-return trade-off
capital gains yield (ending price – beginning price) / beginning price
Total Percentage Return dividend yield + capital gains yield
Total dollar return income from investment + capital gain (loss) due to change in price
what investment has the largest risk? small company stocks
what investment has the largest returns? small company stocks
Balance Sheet the balance sheet is a snapshot of the firms assets and liabilities at a given point in time
Assets are listed in order of decreasing _____ liquidity
Net Working Capital current assets – current liabilities*usually positive in a healthy firm
Liquidity – ability to convert cash quickly without significant loss in value – liquid firms are less likely to experience financial distress
which asset is the most liquid inventory
what is more important to financial decision makin? market values
what financial statement is at a period of time? Balance sheet
how is depreciation different from other expenses its a non cash expense
OCF (I/S)= EBIT + Depreciation – Taxes
NCS (B/S and I/S)= ending net fixed assets – beginning net fixed assets + depreciation
Changes in NWC (B/S)= ending NWC – beginning NWC
inventory turnover formula cost of goods sold/average inventory
Days’ Sales in Inventory 365 / Inventory Turnover
Current ratio= current assets/current liabilities
Return on Equity Net Income/Total Equity OR profit margin x total asset turnover times equity multiplier

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