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Finance Flashcards

Finance Exam

Earnings per Share Which of the following is the best measure of profit maximization goal?a. Earnings per Shareb. Risk of the Investmentc. Timing of the Returnsd. Retained Earnings
Risk, Return, and the Impact on Share Price Financial Managers evaluating decision alternatives or potential actions must consider ______.a. either risk or returnb. only riskc. risk, return, and the impact on share priced. only return
Limited Liability Which of the following is a strength of a corporation?a. less government regulationb. low taxesc. low organization costsd. limited liability
Profit maximization does not consider risk Profit maximization as the goal of the firm is not ideal because _______.a. profit maximization does not consider riskb. profits are only accounting measuresc. cash flows are more representative of financial strengthd. profits today are less desirable than profits earned in future years
can enhance a corporation’s value An effective ethics program ______.a. has no effect on a corporation’s valueb. will result in high employee attrition ratec. can weaken corporate valued. can enhance a corporation’s value
the art and science of managing money Finance is ________.a. the art and science of managing moneyb. the art of merchandising products and servicesc. the science of the production, distribution, and consumption of goods and servicesd. the system of verifying, analyzing, and recording business transactions
by realizing gains through increases in share price and cash dividends Corporate owners receive return __________.a. by realizing gains through increases in share price and cash dividendsb. by realizing gains through increases in share price and interest earningsc. through capital appreciation and retained earningsd. through interest earnings and earnings per share
shareholder wealth maximization The primary goal of the financial manager is…a. shareholder wealth maximizationb. capital budgetingc. staffingd. none of these
Stock Price When a financial manager makes good or bad financial decisions the impact of these decisions will be reflected in the company’s…a. stock priceb. hiring practicesc. acquisition policyd. none of these
Increase Financial decisions that are deemed to be consistent with firm strategy and considered? good? decisions should _________ stock price.a. have no impact onb. lowerc. increased. none of these
minimize risk for a given level of return The goal of an efficient portfolio is to _____________.a. achieve a predetermined rate of return for a given level of riskb. minimize risk for a given level of returnc. minimize profit in order to minimize riskd. maximize risk in order to maximize profit
the same; a lower Combining negatively correlated assets having the same expected return results in a portfolio with ___________ level of expected return and _____________ level of risk.a. a higher; a lowerb. the same ; a lowerc. a lower; a higherd. the same; a higher
Diversification Combining two negatively correlated assets to reduce risk is known as ____________.a. valuationb. risk aversionc. diversificationd. securitization
Nondiversifiable Risk Risk that affects all firms is called _____________.a. nondiversifiable riskb. reinvestment riskc. unsystematic riskd. maturity risk
Cause an increase to the beta and would increase the required return An increase in nondiversifiable risk would…..a. have no effect on the beta and would, therefore, cause no change in the required returnb. cause a decrease in the beta and would, therefore, lower the required rate of returnc. cause an increase to the beta and would increase the required returnd. cause an increase in the beta and would lower the required return
nondiversifiable risk In the capital asset pricing model, the beta coefficient is a measure of ____________.a. business-specific riskb. unsystematic riskc. non-aggregate riskd. nondiversifiable risk
an increase in return, for a given increase in risk Risk aversion is the behavior exhibited by managers who require ___________.a. an increase in return, for a given decrease in riskb. no changes in return, for a given increase in riskc. an increase in return, for a given increase in riskd. decrease in return, for a given increase in risk
Common Stocks may or may not pay dividends Which of the following is typically a feature of common stock?a. most common stocks are cumulativeb. most common stocks are callablec. Common stocks have a maturity valued. common stocks may or may not pay dividends
Preferred Stockholders ______________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.a. Bondholdersb. Preferred Stockholdersc. Common Stockholdersd. Creditors
do not have preference over bondholders in the case of liquidation Preferred Stockholders _______________.a. have preference over creditors in the case of liquidationb. do not have preference over bondholders in the case of liquidationc. do not have preference over common stockholders in the case of liquidationd. have preference over bondholders in the case of liquidation
Bondholders have a senior claim on assets and income relative to stockholders Which of the following is a difference between common stock and bonds?a. Bondholders have a voice in management; common stockholders do notb. dividend paid to stockholders is tax – deductible but interest paid to bondholders are notc. stocks have a stated maturity but bonds do notd. bondholders have a senior claim on assets and income relative to stockholders
own the firm Holders of equity capital _____________.a. receive interest paymentsb. own the firmc. receive guaranteed incomed. have loaned money to the firm
greater returns from their investment in the firm’s stock Because equity holders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ______________.a. warrants to be attached to the stock issueb. greater returns from their investment in the firm’s stockc. all profits to be paid out to dividendsd. fixed dividend payments
residual owners Common stockholders are sometimes referred to as ______________.a. residual ownersb. non preemptive right holdersc. managersd. creditors
unsystematic risk The portion of an asset’s risk that is attributable to firm – specific, random causes is called _____________.a. market riskb. nondiversifiable riskc. political riskd. unsystematic risk
diversifiable ______________ risk represents the portion of an asset’s risk that can be eliminated by combining assets with less than perfect positive correlation.a. economicb. systematicc. marketd. diversifiable
diversifiable risk Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________________.a. market riskb. diversifiable riskc. economic riskd. systematic risk
nondiversifiable risk War, inflation, and the condition of the foreign markets are all examples of _______________.a. business specific riskb. internal riskc. unsystematic riskd. nondiversifiable risk
sell the asset, which will drive the price down and cause the expected return to reach the level of the required return If expected return is less than required return on an asset, rational investors will ______________.a. buy the asset, which will drive the price up and cause expected return to reach the level of the required returnb. sell the asset, which will drive the price down and cause the expected return to reach the level of the required returnc. sell the asset, which will drive the price up and cause the expected return to reach the level of the required returnd. buy the asset, since price is expected to increase
Perpetuity Preferred stock is valued as if it were a __________.a. common stockb. perpetuityc. bondd. fixed – income obligation
do not differ from their true values in an efficient market According to the efficient market hypothesis, prices of actively traded stocks ________________.a. do not differ from their true values in an efficient marketb. can only be under – valued in an efficient marketc. can only be over – valued in an efficient marketd. can be under – or over – valued in an efficient market
Real __________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds.a. Nominalb. Inflationaryc. Risk-freed. Real
Yield Curve A ___________ is a graphic depiction between the maturity and rate of return for bonds with similar risks.a. risk-return profileb. yield curvec. aggregate demand curved. supply function
inverted yield curve A downward – sloping yield curve that indicates generally cheaper long – term borrowing costs than short – term borrowing costs is called __________.a. normal yield curveb. linear yield curvec. flat yield curved. inverted yield curve
normal yield curve An upward – sloping yield curve that indicates cheaper short – term borrowing costs than long – term borrowing costs is called as _____________.a. normal yield curveb. lognormal yield curvec. flat yield curved. inverted yield curve
Liquidity Preference Theory The theory suggesting that for any given issuer, long – term interest rates tends to be higher than short – term rates is called ___________.a. market segmentation theoryb. liquidity preference theoryc. interest parity theoryd. expectation hypothesis
cash flow, cash flow timing, and risk The key inputs to the valuation process include ________.a. cash flow, cash flow timing, and riskb. returns and riskc. cash flows and discount rated. returns, discount rate, and risk
Maximizing Wealth The primary goal of a financial manager is _________.
Share value The wealth of the owners of a corporation is represented by __________.
the firm’s stockholders Wealth maximization as the goal of a firm implies enhancing the wealth of _____________.
a lower share price Cash flows and risk are the key determinants in share price. Increased risk, other things remaining the same, results in ____________.
profits do not necessarily result in cash flows available to the stockholders Which of the following is true of a cash flow?
added benefits exceed added costs Marginal analysis states that financial decisions should be made and actions should be taken only when _____________.
false disclosures in financial reporting The Sarbanes-Oxley Act of 2002 was passed in response to _____________.
tie management compensation to the performance of the company’s common stock price Which of the following is the best measure to ensure that management decisions are in the best interest of the stockholders?
Securitization The process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market is called ___________.
that homeowners may not be able to, or choose not to, repay their loans The primary risk of mortgage-based securities is ____________.
In a partnership, income is taxed at the corporate level; whereas, in a corporation, income is taxed twice Which of the following is true of a partnership and corporation?
the agency problem The conflicts between the goals of a firms owners and the goals of its non-owner managers is ____________.
marginal cost-benefit analysis The primary economic principal used in managerial finance is _________.
positive impact of a firms share price An ethics program is expected to have ________.
realizing gains through increases in share price and cash dividends Corporate owners receive return….
sole proprietorships, owners have unlimited liability. corporations, owners have limited liability Which of the following is true of sole proprietorships and corporations?

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