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Finance Flashcards

Finance Finale

A firm has a cost of equity of 10 percent, a cost of preferred of 9 percent, and an aftertax cost of debt of 5 percent. Given this, which one of the following will decrease the firm’s weighted average cost of capital? Issuing new debt
The cost of preferred sock is equal to the stock’s dividend yield.
All else constant, an increase in a firm’s cost of debt will result in an increase in the firm’s cost of capital
The cost of capital for a project depends primarily on the Use of the funds.
The weighted average cost of capital is defined as the weight average of a firm’s cost of equity and its aftertax cost of debt.
Woven Goods is considering adding a new line of baskets to its product line-up. Which of the following are relevant cash flows for this project?I. increased revenue from existing goods if these baskets are added to the lineupII. revenue from the new line of basketsIII. money spent to date investigating the availability of woven basketsIV. cost of expanding the showroom to make space for the new baskets I, II, and IV only
Payback ignores the time value of money
A net present value of zero implies that an investment is earning a return that exactly matches the requirement
The IRR decision rule states that a project should be accepted if its IRR: exceeds the required rate.
An indicator that a project has a rate of return that exceeds its required return is: a positive NPV
The most valuable alternative that is forfeited if a particular investment is undertaken is called: an opportunity cost
The payback period is the period of time it takes an investment to generate sufficient cash flows to: recover the investment’s initial cost
A proposed project will increase a firm’s accounts payable. This increase: is a cash inflow at time zero a cash outflow at the end of the project.
The change in a firm’s future cash flows that results from adding a new project are referred to as _____ cash flows. incremental
The NPV rule states that you should accept an investment if the NPV: is positive
The discount rate that causes the net present value of a project to equal zero is called the: internal rate of return.
A sunk cost is: a cost that has already been incurred and cannot be recouped.
The hypothesis that stock market,s such as the NYSE, are efficient is called the: efficient markets hypothesis
The lower the standard deviation of a security, the ______ the expected rate of return and the ______ the risk. lower; lower
What is used as the risk-free rate of return? U.S. Treasury bills
If the financial markets are efficient then: stock prices should only respond to unexpected news and events.
The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield, are based on: the stocks of the 500 companies included in the S&P 500 index.
Weak form market efficiency state that the value of a security is based on: historical price information only.
Standard deviation measure the _____ of a security’s returns over time. volatility
A bell-shaped frequency distribution that is defined by its average and standard deviation is called a: normal distribution
Over the period of 1926-2006: long-term government bonds underperformed long-term corporate bonds.
Which of the following statement are correct?I. The risk-free rate of return has a zero risk premiumII. The reward for bearing risk is called the standard deviationIII. Based on historical returns, there are rewards for bearing risk.IV. In general, the higher the risk, the higher the expected return. I, III, and IV only
The distribution of returns for which stocks of the period of 1926-2006 produces the widest bell curve (or distribution)? small-company stocks
Systematic risk is a risk that affects a large number of assets
What must total to 100 percent? portfolio weights and probabilities of occurrence for the various economic states
The concept of investing in a variety of diverse assets to reduce risk is referred to as: the principle of diversification
An example of systematic risk? Inflation exceeding market expectations
Diversifying a portfolio across various sectors and industries will tend to: reduce the firm-specific risk
The goal of diversification is to eliminate: unsystematic risk
An example of unsystematic risk? an unexpected increase in the sales of a firm
A U.S. Treasur bill has a beta of ___ while the overall market has a beta of ____. 0; 1
The difference between beta and standard deviation is best described as: Beta measures the risk investors are compensated for, while standard deviation measures both systematic and unsystematic risk.
The amount of systematic risk present in a particular risk asset relative to that in an average risk asset (or the market in general) is called the: beta coefficient
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Finance Flashcards

Managerial Finance Exam #1

Financial management deals with the maintenance and creation of economic value or wealth True
The fundamental goal of a business is to maximize the retained earnings available to the corporations shareholders False
Shareholder wealth maximization means maximizing the price of the existing common stock True
Corporate managers should accept investment projects that maximize profits in the short run because of the time value of money False
One problem with maximizing shareholder wealth as a goal is that it ignores risk taken by the firms financial decisions False
The goal of profit maximization ignores the risk of financial decisions True
Shareholders react to poor investment or dividend decisions by causing the total value of the firms stock to fall, and they react to good decisions by bidding the price of the stock up True
The primary goal of a publicly owned corporation is to? maximize shareholder wealth
Maximization of shareholder wealth provides benefits to society as scarce resources are directed to their most productive use
A financial manager is considering two projects, A and B. A is expected to add $2 million in profits this year, while B is expected to add $1 million to profits this year. Which of the following statements is most correct The manager should select the project that causes stock price to increase the most, which could be A or B
When making financial decisions, managers should always look at marginal, or incremental cash flows True
Profits represent money that can be spent, and as such form the basis for determining the value of financial decisions False
If the stock market is efficient, then investors do not need to read the Wall Street Journal or research companies before they select which stocks to but because market prices already reflect all publicly available information False
managers should not be concerned with business ethics because ethical behavior is inconsistent with the primary goal of maximizing shareholder value False
The risk-return tradeoff is seen in many areas of finance True
The sole proprietorship has no legal business structure separate from its owner True
An efficient market is one where the prices of the assets traded in that market fully reflect all available information at any instant in time. True
The five basic principles of finance include all of the following except: Incremental profits determine value(included in basic principles: risk requires a reward, cash flow is what matters, money has a time value)
To measure vale, the concept of time value of money is used To bring the future benefits and cost of a project, measure by its cash flows, back to the present
All of the following contributed to recent financial crises except: relying on the efficiency of financial markets
Executive compensation in the U.S is dominated by performance-based compensation designed to reduce agency problems
The recent financial crises was exacerbated by managers who underestimated the real risks of their decisions and borrowed excessively
Ethical behavior is essential in business because unethical behavior destroys trust and business relationships
Investors generally don’t like risk, Therefore, a typical investor will only take an additional risk if he expects to be compensated in the form of additional returen
A corporate treasurer is typically responsible for cash management, credit management, and raising capital True
Determining how a firm should raise money to fund its long-term investments is referred to as capital structure decisions True
The Chief Financial Officer (CFO) is responsible for overseeing financial planning, corporate strategic planning, and controlling the firms cash flow True
The financial manager most directly responsible for producing the company’s financial statements and directing its cost accounting functions is the: controller
The three basic types of issues addressed by the study of finances are capital budgeting, capital structure decisions, and working capital management
Working capital management is concerned with how a firm can best manage its cash flows as they arise in its day-to-day operations
Capital budgeting is concerned with what long-term investments a firm should undertake
Determining the best way to raise money to fund a firms long-term investment is called the capital structure decisions
The best form of business entity to attract new capital is the sole proprietorship because investors only need to deal with one owner False
S-type corporations and limited liability companies are taxed like partnerships, but have the advantage of limited liability for their owners True
A limited liability company (LLC) is taxed like a partnership but provides limited liability for its owners similar to a corporation True
Owners of a corporation enjoy limited liabaility True
Limited partnership provides limited liability to: only to limited partners who do not participate in the management of the business
All of the following business organizations provide limited liability to their owners except: general partnership
Which of the following statements about the corporate form of business organizations is true? The corporate form has the disadvantage of double taxation relative to a sole proprietorship
Limited partnerships are not prevalent as corporations because it is easier to transfer ownership by selling common stock than it is to sell partnership
Which of the following is an advantage of the sole proprietorship? no significant legal requirements for starting the business
The true owners of the corporation are the… common stockholders
Which of the following forms of business organization has the greatest ability to attract new capital? corporation
Which of the following is NOT considered to be a disadvantage of the sole proprietorship form of business organization? fewer regulations and reporting requirements
Capital markets are all financial institutions that help a business raise long-term capital True
Organized stock exchanges provide the benefits of a continuous market, fair security pricing, and helping businesses raise new capital True
On the basis of number of shares traded, more stocks are traded over the counter than an organized exchanges True
One advantage of being listed on the NYSE is that all trades are made in an auction setting with face-to-face trading between individuals on the floor of the stock exchnage False
One advantage of organized stock exchanges is increased stock price volatility resulting from the efficient exchange of information False
Three ways that savings can be transferred through financial markets to those in need of funds include direct transfers, indirect transfers using the investment banker, and indirect transfers using the financial intermediary Truue
Each purchase occurring in the secondary markets increases the total stock of financial assets that exist in the economy False
The money market includes transactions in short-term financial instruments True
Over-the-counter markets include all security markets, with the exception of organized exchanges True
For a firm to have its securities listed on an exchange, it must meet certain requirements. These usually include measures of profitability, size, market value, and a public ownership True
A seasoned equity offering is the sale of additional shares by a company whose shares are already publicly traded True
Financial intermediaries issue their own indirect securities and use the proceeds to purchase the direct securities of other economic units True
general Electric (GE) has been a public company for many years with its common stock traded on the NYSE. If GE decides to sell 500,000 shares of new common stock, the transaction will be described as: a seasoned equity offering because GE has sold common stock before
A wealthy private investor providing a direct transfer of funds is called? an angel investor
common examples of financial intermediaries include all of the following except Venture Capital Firms
John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation common stock. This transaction occurs in the secondary market
General Motors raises money by selling a new issue of common stock. This transaction occur in the capital market
All of the following securities are sold in money markets EXCEPT: common stock(Are sold in money markets: commercial paper, 6 month certificates of deposit, 3 month U.S Treasury bills)
Which of the fol.lowing is an advantage of organized stock exchanges? providing a continuous market
The telecommunications system that provides a national information linkup among brokers and dealers operating in the over-the-counter market is called: NASDAQ
In August 2004, Google first sold its common stock to the public at $85 per share and raised $1.76 billion. This is an example of primary market transaction
The Securities and Exchange Commission (SEC) regulates both primary and secondary markets
The investment banker performs three basic functions: (1) underwriting (2) distributing (3) advising
The negotiated purchased is the most prevalent method of securities distribution in the private sector True
Investment banking firms are prohibited from selling securities due to conflicts of interest False
It is common practice among the largest corporations to sell their securities directly to investors False
The competitive bid purchase is largely confined to railroad, public utility, and municipal bond issues True
Because they occur in private, stricter regulations are placed on the private placements of securities False
Investment firms, such as Goldman Sachs, assist the transfer of capital by facilitating indirect transfers from savers (investing public) to borrowers (corporations needing capital)
The investment banker does NOT underwrite the securities to be issued in which of the following? best efforts
A “Dutch auction” was used by Google to raise money in 2004. A Dutch auction involves Allowing investors to submit bids saying how many shares they’d like to buy and at what price
In private placement, the securities are offered and sold to a limited number of investors True
Over time, there has been a high correlation between actual rates of return on securities and the securities’ standard deviations of return True
Investors expect to receive the highest returns from government-issued securities because the government will not default on securities that it has issued False
The real rate of return is the return earned above the Inflation risk premium
Which of the following represents the correct ordering of returns over the period 1926 to 2008 (from lowest to highest return)? Treasury bills, Long-term corporate bonds, Common stocks, Small firm common stocks
In response to the banking crisis and economic collapse of 2007 and 2008, the U.S government moved to increase interest rates in order to attract foreign capital seeking high returns in U.S banks Flase
The time value of money is the opportunity cost of passing up the earning potential of a dollar today True
A rational investor would receive $1,200 today rather than $100 per month for 12 months True
When using a financial calculator, cash outflows generally have to be entered as negative numbers, because a financial calculator sees money “leaving your hands.” True
John has to pay $1,000 per month for his mortgage for another 5 years, but he is considering paying the mortgage off in one lump sum. John cannot calculate the present value of the payments using the annuity formulas because his payments are monthly and not once per year False
To evaluate or compare investment proposals, we must adjust the value of cash flows to a common date True
An example of an annuity is the interest received from binds True
Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65, when he retires. The amount Bill has in his IRA at age 65 can be characterized as the future value of annuity True
When repaying an amortized loan, the interest payments increase over time due to compounding process False
The future value of annuity due is greater than the future value of an otherwise identical ordinary annuity True
A return of 12% compounded annually is the same as a return of 1% per month False
If we invest money for 10 years at 8% interest, compounded semi-annually, we are really investing money for 20 six-month periods, and receiving 4% interest each period True
For a given stated interest rate, an investor would receive a greater future value with daily compounding as opposed monthly compunding True
It is never appropriate to compare nominal rates unless they include the same number of compounding periods per year True
A share of preferred stock that pays the same annual dividend forever is an example of perpetuity True
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Finance Flashcards

Personal Finance- Chapter 13- Investment Fundamentals

Investing Putting saved money to work so that it makes you even more money
Securities Assets suitable for investment, including stocks, bonds, and mutual funds
Stocks Shares of ownership in cooperation
Bond A debt instrument issued by organization that promises repayment at a specific time and the right to received regular interest payments during the life of the bond
Portfolio Collection of investments assembled to meet your investment goals
Total return Income an investment generates from current income and capital gains
Current Income Money received while you own an investment; usually received regularly as interest, rent, or dividends
Interest Charge for borrowing money; investors in bonds earn interest
Capital gain Increase in the value of an initial investment (less costs) realized upon the sale of the investment
Capital loss Decrease in paper value of an initial investment; only realized if sold
Rate of return/yield Total return on an investment expressed as a percentage of its price
Speculative risk Involves the potential for either gain or loss; equity investments might do either
Investment risk The possibility that the yield on an investment will deviate from its expected return
Risk premium (or equity risk premium) The difference between a riskier investment’s expected return and the totally safe return on the T-bill
Risk tolerance An investor’s willingness to weather changes in the value of your investments, that is, to weather investment risk
Investment philosophy Investor’s general approach to tolerance for risk in investments, whether it is conservative, moderate, or aggressive, given the investor’s financial goals
Conservative investment philosophy (risk aversion) Investors with this philosophy accept very little risk and are generally rewarded with relatively low rates of return for seeking the twin goals of a moderate amount of current income and preservation of capital
Risk averse In investments, one who tends to dislike risk and is unable to put money into investments that seem risky
Moderate investment philosophy (risk indifference) Investors with this philosophy accept some risk as they seek capital gains through slow and steady growth in investment value along with current income
Aggressive investment philosophy (risk seeker) Investors with this philosophy primarily seek capital gains, often with a short time horizon
Debts Lending investments that typically offer both a fixed maturity and a fixed income
Fixed maturity Specific date on which a borrower agrees to repay the principal to the investor
Fixed income Specific rate of return that a borrower agrees to pay the investor for use of the principal (initial investment)
Equities Ownership equities such as common or preferred stocks, equity mutual funds, real estate, and so on that focus on capital gains more than on income
Real rate of return Return on a investment after subtracting the effects of inflation and income taxes
Random/unsystematic risk Risk associated with owning only one investment of a particular type (such as stock in one company) that, by chance, may do very poorly in the future due to uncontrollable or random factors that do not affect the rest of the market
Diversification Process of reducing risk by spreading investment money among several different investment opportunities
Market risk/systematic risk/undiversifiable risk The possibility for an investor to experience losses due to unknown factors that affect the overall performance of the financial markets
Financial risk Possibility that an investment will fail to pay a return to the investor
Business-cycle risk The fact that economic growth usually does not occur in a smooth and steady manner, and this impacts profits as well as investments returns
Market-volatility risk The fact that all investments are subject to occasional sharp changes in price such as result of events, affecting a particular company of the overall market for similar investments
Liquidity The speed and ease with which an asset can be converted to cash
Liquidity risk The risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit)
Commissions Fees or percentages of the selling price paid to salespeople, agents, and companies for their services in buying or selling an investment
Leverage Using borrowed funds to invest with the goal of earning a rate of return in excess of the after-tax costs of borrowing
Securities markets Places where stocks and bonds are traded (or in the case of electronic trading, the way in which securities are traded)
Bull market Market in which securities prices have risen 20 percent or more over time
Bear market Market in which securities prices have declined in value by 20 percent or more from previous highs, often over the course of several weeks or months
Market correction A short term price decline in the stock markets of at least 10 percent in a stock, bond, commodity or index to adjust for a recent price rises
Market volatility The likelihood of large price swings in securities due to a company’s success (or lack of it) and various market conditions
Market timers Investors who attempt to predict the short-term movements of various markets (or market segments) and, based on those predictions, move capital from one segment to another in order to capture market gains and avoid market losses
Market efficiency The speed at which new information is reflected in investment prices suggesting that security prices are reflective of their true value at all times because publicly available information has driven market prices to the correct level
Herd behavior When emotion, not logic, rules investing decisions and investors decide to copy the observed decisions of other investors or movements in the markets rather than follow their own beliefs and information
Buy and hold/buy to hold Investment strategy in which investors buy a widely diversified mix of stocks and/or mutual funds, reinvest the dividends by buying more stocks and mutual funds, and hold onto those investments almost indefinitely
Dollar-cost averaging/cost averaging Systematic program of investing equal sums of money at regular intervals, regardless of the price of the investment
Below-average costs Average costs of an investment if more shares are purchased when the price is down and fewer shares are purchased when the price is high
Average share price Calculated by dividing the share price total by the number of investment periods
Average share cost Actual cost basis of the investment used for income tax purposes, calculated by dividing the total amount investment by the total shares purchased
Portfolio diversification Practice of selecting a collection of different asset classes of investments (such as stocks, bonds, mutual funds, real estate, and cash) that are chosen not only for their potential returns but also for their dissimilar risk-return characterisitics
Asset allocation Form of diversification in which the investor decides on the proportions of an investment portfolio that will be devoted to various categories of assets
Limited managed account An account an investment firm whereby, for a fee, they sell and buy your mutual fund assets, usually quarterly, on your behalf to automatically rebalance your portfolio back to your specific standards
Monte Carlo analysis Technique that performs a large number of trial runs of a particular portfolio mix of investments, called simulations, to find an optimal allocation for a particular investor’s goals and risk tolerance
Investment plan An explanation of your investment philosophy and your logic on investing to reach specific goals
A stock or mutual fund with a__ beta means the security goes up when the market as a whole goes up average when the market is rising; a__ beta indicates the opposite. positive; negative
The firms that serve as intermediaries in selling newly issued securities are called__ firms. investment banking
Stocks with low price/earnings ratios tend to have a slower earnings growth rate
Common stock owners typically expect to make money on stocks by receiving dividends and capital gains
Companies that consistently pay out higher than average cash dividends are classified as__ stocks. income
Common stockholders elect the corporation’s board of directors.
A__ stock is one that has little or no track record but has a potential for substantial earnings at some time in the future. speculative
Most stock investors invest in public corporations
Capital gains on the sale of municipal bonds are taxable and will occur when bonds are purchased at a discount then sold at a higher price at full value at maturity
The approximate compound yield (ACY) formula provides a measure of the annualized compound growth of any long-term investment
Employees can benefit from the appreciation in the stock in their company even if they put no money down if their employer offers employee stock options
When a bond is purchased at a discount from its face value, yield to maturity will be__ the coupon rate printed on the certificate. more than
The limited liability of common stockholders refers to their losses being limited to their original amount that they invested
The average corporation pays out__ percent of its after-tax earnings in cash dividends to stockholders. 40 to 60
Which of the following statements accurately describes preferred stock investments? preferred stock is a fixed-income investment
Which of the following serve as the intermediaries between companies and investors when new issues of stocks or bonds are offered? investment banking firms
Which of the following statements regarding cash dividends is true? growth and speculative companies typically pay little or no cash dividends
The inverse of the P/E ratio is the earnings yield
You can purchase__ directly from the issuer and avoid the transaction fees. treasury securities
The type of business ownership that has the potential to raise large amounts of capital through the sale of stock is called a corporation
The after-tax earnings of a corporation that are not paid out to stockholders are called retained earnings
__would be classified as cyclical industries airlines
Owners of a corporation who want to raise more capital by issuing new securities but who also want to retain control of their company could issue either preferred stock or bonds.
__would be classified as a countercyclical industry. tobacco
A stock that tends to trade a low price relative to its company fundamentals is labeled a value stock
Tammy and Richard have $100 a month automatically transferred from their checking account to their mutual fund account. This is an example of dollar-cost averaging
Investors want to earn a__ for their willingness to make investments for which there is no absolute guarantee of future success. risk premium
A conservative investor would be least likely to invest in growth mutual funds
A bond represents a debt owed by a business or organization
Diversification__risk, and leverage__ risk. decreases; increases
Research suggests that you can eliminate random risk by holding__ or more stocks and bonds. 15
Bert has invested all of his savings in a choice piece of downtown Midland real estate. Recently he has had a personal emergency and needs money. Bert can’t sell the property because of the state of Midland’s economy. His problem is an example of__ risk. marketability
A__ in the market is a person who expects securities prices to go up; a__ expects the general market to decline. bull; bear
The real rate of return on a taxable investment yielding 8 percent annually would be__ percent if the investor were in the 15 percent marginal tax bracket and inflation were 2 percent. 4.80 percent
XZY Corporation has suffered a major downturn in business and will not be able to pay interest on its bonds. This is an example of__ risk. financial
Investing goes beyond saving in that it involves increased risk
Which of the following arises when investors decide to copy the observed decisions of other investors or movements in the markets rather than follow their own beliefs and information. herd-behavior
You put your money into a 0.05 percent savings account. After two years you take your money out of the account, only to find that your purchasing power has decreased. This is an example of__ risk. inflation
With a(n)__ investment, the borrower agrees to pay the investor a specific rate of return for use of the principal. fixed income
__is an example of a lending investment. mortgage-backed bonds
The investment strategy that requires the percentage of dollars invested in stocks, bonds, and cash to remain fixed over a long period of time is called asset allocation
Tyler is going to invest $2,000 in money market mutual fund. He has narrowed his choices to a tax-free fund currently earning 2.8 percent and a taxable fund earning 4.1 percent. If Tyler is in the 28 percent marginal tax bracket, which of these funds would give him the highest after-tax yield? the taxable fund
Securities are made up of all of these (stocks, bonds, mutual funds)
__income is NOT an example of current income from an investment. capital gains
If you time horizon is six to ten years and your asset allocation consists of 10 percent cash, 30 percent bonds, and 60 percent stocks, you would be considered to have a(n)__ investment philosophy. moderate
Portfolio diversification__ volatility while__ return. reduces; averaging out
Ownership investments generally produce capital gains
Since 1927 the worst 20-year performance for stocks was a__of__ percent. gain; 3
In an average year, the price of a typical stock fluctuates up and down by about__ percent. 50
Shares in the ownership of a corporation are called stocks
The__ strategy avoids the risks and responsibilities of investment timing because the stock purchases are made regularly regardless of the price. dollar-cost averaging
__is (are) the portion of a company’s profits that the firm pays out to its shareholders. dividends
__would be a reasonable investment for funds that could be invested less than two years. money market mutual funds
Typically the highest commissions are charged on investments in collectibles
An investment that can be sold quickly but only by making price concessions suffers from__ risk. marketability
Financial risk relates to the possibility that the investment will fail to pay a return to the investor
Which of the following would NOT be considered as securities? real estate
Joelle purchased 100 shares of PAC stock for $20 per share and sold this same stock one year later for $25 per share. She paid commissions of $60 when she purchased the stock and $70 when she sold the stock. Dividends of $2 per share were paid during the year. The total rate of return on this investment was 28.50 percent
Your collection of multiple investments in different assets chosen to meet your financial goals is your portfolio
Commissions are generally based on the value of the transaction
An explanation of your investment philosophy and your logic on investing to reach specific goals is a(n) investment plan
If you have a(n)__ investment philosophy, you accept very little risk and are generally rewarded with relatively low rates of return conservative
With a(n)__investment, the borrower agrees to pay the investor a specific rate of return for use of the principal. fixed income
The likelihood that an investment market will fluctuate up and down in its market volatility
A stock represents a share of ownership in a corporation
Market risk is also known as systematic risk
__risk represents the uncertainty that the yield on an investment will deviate from what is expected. investment
Investing goes beyond saying in that it involves increased risk
When choosing among investment alternatives you want to focus on their yields
Selling shares of stock for more than you originally paid is called capital gain
The income received in return for someone’s use of your property is called rent
Attempting to invest based on predictions of short-term fluctuations in an investment market is called market timing
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Finance Flashcards

Personal finance chapter 1

Financial plan A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)
Used to estimate how fast prices will double using a given annual inflation rate The rule of 72 is
Borrowers who is less likely to be harmed by inflation?
lower interest rates Increase consumer saving and investing is likely to be accompanied by
higher uncertainty about getting his/her money back An investor should expect to receive a risk premium for
obtaining Attempts to increase income through employment are part of the component of financial planning
Maintaining control over credit-buying habits The “borrowing” component in a financial plan relates to
A regular savings plan for emergencies The saving component of financial planning focuses on long-term security and includes:
Purchase a house within the next 5 years with a mortgage no greater than $150,000 Which of the following intermediate goals is stated most clearly using the SMART approach?
long-term The goal of investing $50 per month for the next 12 years for your nephews college fund is a ____ goal
poor planning and weak money management habits Many Americans have money problems because of
food and clothing are consumable-product goals which of the following is correct?
Durable- product ____ goals relate to infrequently purchased, expensive tangible items
Identify specific, realistic goals that are measurable along with a time frame and action plan to develop financial goals, one should
What you give up by making a choice opportunity cost refers to
personal opportunity cost relating to time Robert Brown is interested in attending a concert next weekend. Unfortunately he is scheduled to work. If he finds a substitute for his shifts so he can attend the concert, what kind of cost is he incurring?
forgiving wages to attend school Which of the following is an example of a financial opportunity cost?
Time comparing several brands of personal computers An examples of a personal opportunity cost would be
increases in an amount of money as a result of Interest earned which of the following dest describes the concept of the time value of money?
more if I can invest a dollar today and earn interest on it, then it should be worth _____ in the future.
type of investing to calculate the time value of money, we need to consider all of the following except
compounding Future value computations are often referred to as
determine your current financial situation The first step of the financial planning process is to
taking Making financial decisions related to income involves all of the following except
evaluating risk every decision involves uncertainty, which is referred to as
interest-rate changes in the cost of money is referred to as ____ risk
inflation the rising or falling of prices that changes in buying power is referred to as ____ risk.
income the loss of a job or encountering an illness results in ____ risk.
personal the tangible of intangible factors that create a less desirable situation is referred to as _____ risk.
Review and revise your financial plan more frequently Changes in personal, social, and economic factors may require you to
Review and revise the financial plan The step in the personal financial planning process that follows immediately after the step: “Create and implement your financial actions plan” is
evaluate your alternatives Using the services of financial institutions or financial specialists to seek relevant information is done in which step in the financial planning process?
9 years if inflation is expected to be 8 percent, how long will it take for prices to double?
112.50 if Melinda Miller estimates that her 100 weekly grocery bill will increase at an annual inflation rate of 4% that should her weekly grocery bill be in 3 years?
15.00 if you deposit 500 into a certificate of deposit earning 3% what would be earnings after 12 months?
17,460 Randy Hill wants to retire in 20 years with 1,000,000. if he earn 10% per year on his investments, how much does he need to deposit each year to reach his goal?
889 If you want 1,000 three years from now and you earn 4% on your savings, how much do you need to depose now?
increased control of financial affairs an advantage of effective personal financial planning is
adult life cycle The stages in the family situation and financial needs of an adult is called the
the average change in prices of a fixed basket of goods and services of urban consumers the consumer price index measures
poor credit rating Which of the following would increase the interest rate for a loan?
borrowing the problem of bankruptcy is associated with overuse and misuse of credit in the ____ component of financial planning
discounting present value computations are also referred to as
liquidity the difficulty of converting savings and investments to cash is referred to as ____ risk.
if a 10,000 investment earns interest of 500 in one year, what is its rate of return? 5 %
if a 10,000 investment earns a 4% annual return, what should its value be after one year? 10,400
15,010 if a 10,000 investment earns a 7% annual return, what should its value be after 6 years
22,054 if you begin saving 2,000 a year at 5% what will these funds grow to in this time period?
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Finance Flashcards

Chapter nine sample test

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n) selling expense.
A 30-day note dated June 13 has a maturity date of July 13
The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the percentage of receivables basis
The best managed companies will have some accounts that will prove to be uncollectible
A promissory note may be used to settle an accounts receivable
Using the following information: 12/31/15Accounts receivable$525,000Allowance(40,000)Cash realizable value$485,000During 2016, sales on account were $145,000 and collections on account were $100,000. Also during 2016, the company wrote off $5,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $45,000. The change in the cash realizable value from the balance at 12/31/15 to 12/31/16 was a $35,000 increase
Notes receivable are recognized in the accounts at face value
On October 1, 2016, Beane Company sells (factors) $600,000 of receivables to Milago Factors, Inc. Milago assesses a service charge of 4% of the amount of receivables sold. The journal entry to record the sale by Beane will include a debit of $24,000 to Service Charge Expense
When an account is written off using the allowance method, accounts receivable decreases and the allowance account decreases
Retailers generally consider sales from the use of national credit card sales as a cash sale
An aging of a company’s accounts receivable indicates that $6,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record bad debts for the period will require a debit to Bad Debt Expense for $5,200$6,000 – $800 = $5,200
An aging of a company’s accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $700 debit balance, the adjustment to record bad debts for the period will require a debit to Bad Debt Expense for $4,700$4,000 + $700 = $4,700
Which of the following practices by a credit card company results in lower interest charges to the cardholder? The card company allows a grace period before interest is accrued.
If a department store fails to make the entry to accrue the finance charges due from customers, interest revenue will be understated.
Major advantages of credit cards to the retailer include all of the following except the retailer receives more cash from the credit card issuer.
The basic issues in accounting for notes receivable include each of the following except analyzing notes receivable.
On February 1, Carson Company received a $9,000, 4%, four-month note receivable. The cash to be received by Carson Company when the note becomes due is $9,120.$9,000 + ($9,000 × .04 × 4/12) = $9,120
Bozemen Co., makes a credit card sale to a customer for $800. The credit card sale has a grace period of 30 days and then an interest charge of 1.8% per month is added to the balance. If the unpaid balance on the above sale is $650 at the end of the grace period, the interest charge is $11.70$650 × .018 = $11.70
The face value of a note refers to the amount that is identified on the formal instrument of credit.
Which use the term impairment to indicate that a receivable may not be collected? Both IFRS and GAAP
Homeplate sells softball equipment. On November 14, they shipped $4,000 worth of softball uniforms to Bonita Middle School, terms 2/10, n/30. On November 21, they received an order from Vista High School for $1,500 worth of custom printed bats to be produced in December. On November 30, Bonita Middle School returned $200 of defective merchandise. Homeplate has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30? $3,800$4,000 – $200 = $3,800
Which of the following are also called trade receivables? Accounts receivable
Using the percentage-of-receivables method for recording bad debts expense, estimated uncollectible accounts are $23,000. If the balance of the Allowance for Doubtful Accounts is $2,000 debit before adjustment, what is the amount of bad debt expense for that period? $25,000$23,000 + $2,000 = $25,000
Which board(s) has(have) faced bitter opposition when working to implement fair value measurement for financial instruments? both FASB and IASB
The two key parties to a promissory note are the maker and the payee
Maine Corporation’s unadjusted trial balance includes the following balances (assume normal balances):Accounts Receivable$850,000Allowance for Doubtful Accounts18,000Bad debts are estimated to be 5% of outstanding receivables. What amount of bad debt expense will the company record? $24,500($850,000 × .05) – $18,000 = $24,500
Short-term notes receivables use the same estimations and computations as accounts receivable to determine cash realizable value.
The maturity value of a $6,000, 5%, 60-day note receivable dated February 10th is $6,050$6,000 + ($6,000 × .05 × 60/360) = $6,050
Interest is usually associated with notes receivable
An analysis and aging of the accounts receivable of Downs Company at December 31 revealed the following data: Accounts Receivable$80,000Allowance for Doubtful Accounts per books before adjustment (Cr.)50,000Amounts expected to become uncollectible53000The cash realizable value of the accounts receivable at December 31, after adjustment, is: $747,000$800,000 – $53,000 = $747,000
Able Company accepted a national credit card for a $5,000 purchase. The cost of the goods sold is $3,000. The credit card company charges a 2% fee. What is the impact of this transaction on net operating income? Increase by $1,900($5,000 – $3,000) – ($5,000 × .02) = $1,900
Two bases for estimating uncollectible accounts are: percentage of receivables and percentage of sales
The allowance method of accounting for uncollectible accounts is required if bad debts are significant in amount
Claims for which formal instruments of credit are issued as proof of the debt are notes receivable
If a company fails to record estimated bad debts expense, expenses are understated
The average collection period is computed by dividing 365 days by the accounts receivable turnover.
When a note receivable is honored, Cash is debited for the note’s maturity value.
The interest on a $9,000, 6%, 1-year note receivable is $540$9,000 × .06 = $540
The financial statements of Daye Manufacturing Company report net sales of $720,000 and accounts receivable of $70,000 and $90,000 at the beginning and end of the year, respectively. What is the accounts receivable turnover for Daye? 9 times$720,000 ÷ [($70,000 + $90,000) ÷ 2] = 9
Leek Company receives a $12,000, 3-month, 5% promissory note from Rey Company in settlement of an open accounts receivable. What entry will Leek Company make upon receiving the note? Notes Receivable12,000 Accounts Receivable—Rey Company12,000
Which receivables accounting and reporting issue is not essentially the same for IFRS and GAAP? All of these are essentially the same for IFRS and GAAP.
Sandle Company lends Roseenn Company $9,000 on April 1, accepting a four-month, 4% interest note. Sandle Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? Interest Receivable30 Interest Revenue30 $9,000 × .04 × 1/12 = $30
A customer charges a treadmill at Sports Equipment Shop. The price is $4,000 and the financing charge is 8% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer’s account. The accounts affected by the journal entry made by Sports Equipment Shop to record the finance charge are Accounts Receivable Interest Revenue
Woulk Company has a debit balance of $8,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Woulk estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: $68,000. $60,000 + $8,000 = $68,000
The direct write-off method shows only actual losses from uncollectible accounts receivable
When an account is written off using the allowance method, the cash realizable value of total accounts receivable will stay the same
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $12,000. If the balance of the Allowance for Doubtful Accounts is $2,500 credit before adjustment, what is the amount of bad debt expense for that period? $9,500$12,000 – $2,500 = $9,500
Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited when an account is determined to be uncollectible.
The financial statements of Daye Manufacturing Company report net sales of $720,000 and accounts receivable of $70,000 and $90,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days? 40.6$720,000 ÷ $80,000 = 9; 365 ÷ 9 = 40.6
Which of the following would be considered as an unlikely occurrence? Retailer offers a cash discount to a customer.
In 2016, Warehouse 13 had net credit sales of $850,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2016, $27,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $160,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2016? $25,000($160,000 × .10) + ($27,000 – $18,000) = $25,000
Which of the following would require a compound journal entry? To record collection of accounts receivable when a cash discount is taken
When customers make purchases with a national credit card, the retailer is not involved in the collection process
A company has net credit sales of $750,000 for the year and it estimates that uncollectible accounts will be 3% of sales. If Allowance for Doubtful Accounts has a credit balance of $3,000 prior to adjustment, its balance after adjustment will be a credit of $25,500($750,000 × .03) + $3,000 = $25,500
Kerr Company’s account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $2,100,000 and $20,000 (Cr.), respectively. An aging of accounts receivable indicated that $170,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is $150,000$170,000 – $20,000 = $150,000
Three accounting issues associated with accounts receivable are recognizing, valuing, and disposing
Jere Retailers accepted $57,000 of Maxibank Visa credit card charges for merchandise sold on July 1. Maxibank charges 3% for its credit card use. The entry to record this transaction by Jere Retailers will include a credit to Sales Revenue of $57,000 and a debit(s) to $55,290 and Service Charge Expense $1,710. $57,000 – ($57,000 × .03) = $55,290
In 2016, Winslow Company had net credit sales of $1,250,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $25,000. During 2016, $32,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $360,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2016? $43,000 ($360,000 × .10) + ($32,000 – $25,000) = $43,000
The net amount expected to be received in cash from receivables is termed the cash realizable value
Which one of the following is not a primary problem associated with accounts receivable? Depreciating accounts receivable
The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles does not affect income in the period it is collected
A 90-day note dated May 18 has a maturity date of August 16.90 – (31 – 18) – 30 – 31 = 16
Under the allowance method of accounting for uncollectible accounts, the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.
On March 1, 2016, Mike Dials purchased a suit at Lenny’s Fine Apparel Store. The suit cost $800 and Mike used his Lenny’s credit card. Lenny’s charges 3% per month interest if payment on credit charges is not made within 30 days. On April 30, 2016, Mike had not yet made his payment. What entry should Lenny’s make on April 30th? Accounts Receivable24 Interest Revenue24$800 × .03 = $24
The interest rate specified on any note is for a year
Notes or accounts receivables that result from sales transactions are often called trade receivables
Which of the following statements concerning receivables is incorrect? Notes receivable are often listed last under receivables
An alternative name for Bad Debt Expense is Uncollectible Accounts Expense
Jill Company provides for bad debt expense at the rate of 3% of credit sales. The following data are available for 2016: Allowance for doubtful accounts, 1/1/16 (Cr.)$ 15,000Accounts written off as uncollectible during 20169,000Credit sales in 20161,000,000The Allowance for Doubtful Accounts balance at December 31, 2016, should be $36,000($1,000,000 × .03) + ($15,000 – $9,000) = $36,000
Writing off an uncollectible account under the allowance method requires a debit to Allowance for Doubtful Accounts
When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded in the same year as the credit sale
On November 1, Tacoma Company received a $4,000, 5%, three-month note receivable. The cash to be received by Tacoma Company when the note becomes due is: $4,050$4,000 + ($4,000 × .05 × 3/12) = $4,050
The percentage of receivables basis for estimating uncollectible accounts emphasizes cash realizable value
Valli Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $700,000 and credit sales are $2,500,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Valli Company make to record the bad debts expense? . Bad Debts Expense25,000 Allowance for Doubtful Accounts25,000
On January 15, 2016, Jaymes Company received a two-month, 4%, $7,000 note from Peter Long for the settlement of his open account. The entry by Jaymes Company on January 15, 2016 would include a: debit of $7,000 to Notes Receivable
The percentage of sales basis of estimating expected uncollectibles emphasizes the matching of expenses with revenues.
When a note is accepted to settle an open account, Notes Receivable is debited for the note’s face value
On January 15, 2016, Jaymes Company received a two-month, 4%, $7,000 note from Peter Long for the settlement of his open account. The entry by Jaymes Company on March 15, 2016 if Long dishonors the note and collection is expected is: . Accounts Receivable—P. Long7,047 Notes Receivable 7,000 Interest Revenue 47
Which receivables accounting and reporting issue is essentially the same for IFRS and GAAP? All of these are essentially the same for IFRS and GAAP.
The financial statements of Georgi Manufacturing Company report net sales of $595,000 and accounts receivable of $80,000 and $60,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days? 42.9 days$595,000 ÷ $70,000 = 8.5; 365 ÷ 8.5 = 42.9
A cash discount is usually granted to all of the following except retail customers
A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables? Selling expenses will increase each time accounts are sold
The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to Accounts Receivable
Short-term notes receivable are reported at cash (net) realizable value.
Bad Debt Expense is reported on the income statement as an operating expense.
The receivable that is usually evidenced by a formal instrument of credit is a(n) note receivable
On February 1, 2016, Fresno Company sells merchandise on account to Aiken Company for $7,800. The entry to record this transaction by Fresno Company is Accounts Receivable7,800 Sales Revenue 7,800
The retailer considers Visa and MasterCard sales as cash sales
IFRS and GAAP accounting are the same for each of the following except for the recording of a factoring transaction
In reviewing the accounts receivable, the cash realizable value is $14,000 before the write-off of a $1,800 account. What is the cash realizable value after the write-off? $14,000
Which of the following is not true regarding a promissory note? Promissory notes may not be transferred to another party by endorsement
IFRS implies that receivables with different characteristics should be reported separately
Under the allowance method, writing off an uncollectible account affects only balance sheet accounts
Under the direct write-off method of accounting for uncollectible accounts a specific account receivable is decreased for the actual amount of bad debt at the time of write-off
When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when management estimates the amount of uncollectibles
The direct write-off method of accounting for bad debts does not require estimates of bad debt losses.
The average collection period for accounts receivable is computed by dividing 365 days by accounts receivable turnover.
During 2016, Belfour Inc. had sales on account of $189,000, cash sales of $78,000, and collections on account of $162,000. In addition, they collected $1,275 which had been written off as uncollectible in 2015. As a result of these transactions, the change in the accounts receivable balance indicates a $27,000 increase.
If an account is collected after having been previously written off, there will be both a debit and a credit to accounts receivable.
In recording the sale of accounts receivable, the commission charged by a factor is recorded as Service Charge Expense.
Which of the following receivables would not be classified as an “other receivable”? Notes receivable
Receivables might be sold to generate cash quickly.
A note receivable is a negotiable instrument which can be transferred to another party by endorsement.
In 2016, Yale Company had credit sales of $1,050,000 and granted sales discounts of $25,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $26,400. During 2016, $43,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2016? $14,150$26,400 – $43,000 + [($1,050,000 – $25,000) × .03] = $14,150
A debit balance in the Allowance for Doubtful Accounts indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
Which board(s) has(have) worked to implement fair value measurement for financial instruments? both FASB and IASB.
When an account becomes uncollectible and must be written off, Accounts Receivable should be credited.
The interest on a $8,000, 5%, 90-day note receivable is $100.$8,000 × .05 × 90/360 = $100
The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts is relevant when using the percentage of receivables basis.
Allowance for Doubtful Accounts on the balance sheet is offset against accounts receivable.
Categories
Finance Flashcards

Corporate Finance Homework Solutions Chapter 2

P2-4During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from the interest on bonds it held in Zig Manufacturing and received $20,000 in income from dividends on its 5% common stock holding in Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend exclusion on its Tank Industries stock. A. Calculate the firm’s tax on it operating earnings only.B. Find the tax and the after-tax amount attributable to the interest income from Zig Manufacturing bonds.C. Find the tax and the after- tax amount attributable to the dividend income from tank industries inc, common stock.D. Compare, contrast and discuss the after tax amt resulting from the interest income and dividend income calculated in parts A and B.E-What is the firm’s total liability for the year? A) 490,000* .40= 196000B) 20,000* .40= 8000 20,000-8,000= 12,000C) 20,000* (1-.7)= 6,000 6000 * .40= 2,400 20,000-2,400= 17,600D) The tax amount after taxes for interest received is lower than the tax amount after taxes for the dividends received because of the tax exclusion on the dividend. This leaves you with more after tax profit for the dividends rather than the after tax profit for the interest. E) Total tax liability= 196,000+ 8000+2400)= 206,400
P2-5Michaels Corporation expects earnings before interest and taxes to be $50,000 for the current period. Assuming an ordinary tax rate of 35%, computer the firm’s earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions:a) The firm pays $12,000 in interest.b) The firm pays $12,000 in preferred stock dividends. EBIT= 50000T= 35%a) 12000 in interest b) 12000 in dividendsEBIT= 50000 50000- iexp (12000) (0)=EBT 38000 50000-T (13300) (17500)=NI 24,700 32500-PD 0 (12000)=ETC 24700 20,500
Categories
Finance Flashcards

Chapter 9 Finance

Blue Cross/Blue Shield plans prepaid hospital and medical expense plans under which health care services are provided to plan participants by member hospitals and physicians
community rating approach to health insurance premium pricing policyholders in a community (area) pay the same premium without regard to their personal health, age, gender or other factors
comprehensive major medical insurance A health insurance plan that combines into a single policy the coverage for basic hospitalization, surgical, and physician expense along with major medical protection
coordination of benefits provision a provision often included in health insurance policies to prevent the insured from collecting more than 100 percent of covered charges; it requires that benefit payments be coordinated if the insured is eligible for benefits under more than one policy
deductible the initial amount not covered by an insurance policy and thus the insured’s responsibility; it’s usually determined on a calendar-year basis or on a per-illness or per-accident basis
disability income insurance insurance that provides families with weekly or monthly payments to replace income when the insured is unable to work, because of a covered illness, injury or disease
exclusive provider organization (EPO) a managed care plan that is similar to a PPO but reimburses members only when affiliated providers are used
group health insurance Health insurance consisting of contracts written between a group, (employer, union, etc. ) and the health care provider
group HMO an HMO that provides health care services from a central facility; most prevalent in larger cities
guaranteed renewability policy provision ensuring continued insurance coverage for the insured’s lifetime as long as the premiums continue to be paid
Health Insurance Portability and Accountability Act (HIPAA) Federal law that protects people’s ability to obtain continued health insurance after they leave a job or retire, even if they have a serious health problem
health maintenance organization (HMO) an organization of hospitals physicians, and other health care providers who have joined to provide comprehensive health care services to its members, who pay a monthly fee
health reimbursement account (HRA) an account into which employers place contributions that employees can use to pay for medical expenses. Usually combined with a high-deductible health insurance policy
health savings account (HSA) a tax-free savings account-funded by employees, employer, or both- to spend on routine medical costs. Usually combined with a high deductible policy to pay for catastrophic care.
indemnity (fee-for-service) plan Health insurance plan in which the health care provider is separate from the insurer, who pays the provider or reimburses you for a specified percentage of expenses after a deductible amount as been met
individual practice association (IPA) a form of HMO in which subscribers receive services from physicians practicing from their own offices and from community hospitals affiliated with the IPA
internal limits a feature commonly found in health insurance policies that limits the amounts that will be paid for certain specified expenses, even if the claim does not exceed overall policy limits
long-term care the delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty
major medical plan an insurance plan designed to supplement the basic coverage of hospitalization, surgical, and physicians expenses; used to finance more catastrophic medical costs
managed care plan a health care plan in which subscribers/users contract with the provider organization, which uses a designated group of providers meeting specific selection standards to furnish health care services for a monthly fee
medicaid a state-run public assistance program that provides health insurance benefits to those who are unable to pay for health care
medicare a health insurance plan administered by the federal government to help persons age 65 and over, and others receiving monthly social security disability benefits, to meet their health care costs
Medicare Advantage plans commonly called Plan C, these plans provide Medicare benefits to eligible people, but they differ in that they are administer by private providers rather than by the government. Common supplemental benefits include vision, hearing, dental, general checkups, and health and wellness programs
optional renewability contractual clause allowing the insured to continue insurance only at the insurer’s option
participation (co-insurance) clause a provision in many health insurance policies stipulating that the insurer will pay some portion- say 80 or 90 percent- of the amount of the covered loss in excess of the deductible.
point-of-service (POS) plan a hybrid form of HMO that allows members to go outside the HMO network for care and reimburses them at a specified percentage of the cost
preexisting condition clause a provision in most individual health insurance policies permitting permanent or temporary exclusion of coverage for any physical or mental problems the insured had at the time the policy was purchased. The Patient Protection and Affordable Care act of 2010 outlawed such expulsions. face
preferred provider organization (PPO) a health provider that combines the characteristics of the IPA form of HMO with an indemnity plan to provide comprehensive health care services to its subscribers within a network of physicians and hospitals
prescription drug coverage a voluntary program under Medicare (commonly called part D), insurance that covers both brand-name and generic prescription drugs at participating pharmacies. participants pay a monthly fee and a yearly deductible and must also pay part of the cost of prescriptions, including a co-payment or co-insurance
supplementary medical insurance (SMI) a voluntary program under Medicare (commonly called Part B) that provides payments for services not covered under basically hospital insurance (Part A)
waiting period (elimination period) the period, after an insured meets the policy’s eligibility requirements, during which he or she must pay expenses out-of-pocket; when the waiting period expires, the insured begins to receive benefits
workers’ compensation insurance Health insurance required by state and federal governments and paid nearly in full by employers in most states; it compensates workers for job-related illness or injury
medical costs number one reason for bankruptcy
pay routine and major medical costs health insurance helps
protect against economic loss in the event of serious accidents or illnesses importance of health insurance
62 In 2012, __ of US personal bankruptcies were attributable to medical costs
true individual health insurance is not offered through employer
health insurance marketplace individual health insurance has higher premiums than group insurance, directly from private insurance companies or on ____
created by ACA as means of assisting qualified individuals and families purchase individual health insurance Health insurance market place
age, smoking, status of community they live in premiums for individual health insurance
preexisting conditions all plans must cover essential health benefits ____, and preventative care
preventative care employees don’t pay anything out of pocket for
ACA ___ gives a penalty to employers wit more than 50 employees and do not offer affordable health care for full time
30 full time is __ hours a week
comprehensive medical expense coverage, including prescription drugs to employees and dependents group insurance is a contract between a group (UCA) and a provider (UNITED Health Care) provides
attract and retain employees primary reason employers offer group health insurance
true employers are NOT required nor mandated to offer health insurance to employees
group health insurance plans through various employers private health insurance plans are available to individuals or family as
large employers __ employers are more likely to offer health insurance to their employees. have more cash flow cost of providing care to each employee and dependent is lower
exployer subsidy, portion paid by employer is not taxable to employee majority of employers pay part of premium for employee and dependent. why?
fee-for-service plans traditional indemnity plans also called
pays annual deductible in tradition indemnity plans, health insurance will begin paying its share after insured
higher lower deductible ___ insurance premium
unlimited choice of doctors and hospitals traditional indemnity places offer
eligible costs traditional indemnity plans pay deductible plus
UCR charges reimbursements for traditional indemnity places are based on
usual, customary and reasonable UCR charges
insured if doctor chargers more than UCR charges (as determined by insurance provider) may make ___ responsible for the excess
insurer pays provider directly or reimburses insured when they submit claims for medical treatment in traditional indemnity places the health care services are separate from insurer
UCR charges many indemnity plans provide providers who agree to accept insurance and charge ___ set by insurance company
fee negotiated before insured seeks benefits. most insurance companies (managed care) network of select providers that agree to accept a prearranged reimbursement fee for service
health care providers in managed care plans monthly payments are made directly to
designated doctors and hospitals in managed care plans they have ____ that provide services
prevention Managed care plans hold down costs by controlling amount of care provided and emphasizing __
copayments Managed care plans charge monthly plans plus ___
low out of pocket expenses (only cost is copayment for office visits and prescriptions) advantages of HMO
members limited to network of health care provideres disadvantages of HMO
Health Maintenance Organizations (HMOs) organization of hospitals, physicians, and other healthcare providers that provides comprehensive health care services to its members
group basis HMOS are only offered on a
Preferred Provider Organizations (PPOs) provide broader network of “approved” physicians and allow out-of-network providers at higher cost
higher deductible and coinsurance provisions and out of pocket expenses out of network PPO financial incentive to stay in network is
Exclusive Provider Organizations (EPOs) members use affiliated providers or bear entire cost out of pocket
employees must use providers in specified network of physicians to receive coverage. no coverage outside network. PPOs
Point-of-service Plans ((POS) reimburse members similar to indemnity plan when providers are outside of network
HMO and PPO POS plans are a combination of
Blue Cross/ Blue Shield now organized as for-profit independent corportaions
Blue Cross ___ acts as intermediary between groups that want healthcare and physicians who contract to provide their services
specified payments Blue cross contracts with hospitals that agree to give specified hospital services to members in exchange for
HMOs and PPOs Blue Cross/ Blue Shield offers
Medicare administer by centers for Medicare and Medicare services (CMS)
to qualified people 65 and older and to those receiving SS disability benefits Medicare is availabl to
payroll taxes paid by employers employees and the self-employed how is medicare payed for
FICA 1.45% of earnings (employers add 1.45% too) are paid to ___ to pay for medicare
basically hospital insurance Part A of medicare
hospital room and board, other impatient and outpatient care Part A of medicare covers
while workgin premium for medicare is paid while
supplementary medical insurance Part B of medicare is
optional coverage available for a premium if eligible for part A Part B supplementary medical insurance is (medicare)
Part B Medicare covers doctors, surgeons, lab tests, x-rays, and other services, including some home health care. (outpatient )
prescription drug coverage. monthly premium Part D of medicare is
true if you add Part D of medicare after eligibility you may have to pay a penalty
Medicaid nations primary health care for low income, high need americans
federal and state program that helps pay for those living with limited resources Medicaid is
medicaid largest payer for long-term care
57 government pays __% of cost of medicate
federal Medicaid is the largest source of ___ revenue
Medicaid state-run public assistance progream for those unable to pay for health care
58 over ___ covered by Medicaid
premiums paid by employers for workers injured on the job Workers’ Compensation insurance
TX, OK, NJ workers’ comp is requirement in all states except for
medical, rehabilitation, disability income, lump-sum payments for death and dismemberment coverage of workers’ comp include
employees right to sue for negligence workers’ comp insurance is given in exchange for
to provide more people to access to needed services at affordable rates the goal of ACA is to
individual mandate, coverage of young adults, elimination of preexisting coverage, insurance exchanges Key elements of the ACA of 2010
individuals must have insurance. there’s a penalty if do not have Key Elements of the ACA individual mandate
evaluate healthcare cost risk, determine available coverage and resources, choose a health insurance plan Health insurance decisions
group dental services mostly offered through __ insurance plans
dental Medicare doesn’t pay for ___ insurance
cover certain accidents Accident policies cover
coverage limited to specific disease or illness Sickness policies (dread disease policies) cover
a calendar-year or per-indicdent basis deductibles are determined on a
HMO with exception of ___ all have deductible and coinsurance
company pays a portion of medical expenses after a deductible Coinsurance
6,600 or 13,200 Established by ACA the maximum out of pocket cost limit is
deductibles, copay, and c0insurance ____ apply to maximum out of pocket expenses
prgnancy and abortion, mental illness, rehab coverage, COBRA terms of coverage
before was considered a preexisting condition ACA made easier for pregnant woment to get care they need
COBRA provides opportunities for employees and dependents to continue coverage under health insurance that provided by the employer if the employee voluntarily or involuntarily terminates employment for 18 months, while still pay gin premiums
requires insured to receive approval from insurance before entering hospital for scheduled stay preadmision certification
preadmission certification, continued stay review and second surgical options cost containment provisions for medical expense plans
continued stay review to receive reimbursement insured secure approval from insurance organization or any stage extending original stay limit
second surgical options many plans require second options on nonemergency procedures and may reduce benefits paid in absense
involves the delievery of medical and personal care, other than hospitalization, to persons with chronic medical conditions in nursing home, assisted living commnunity or patients home. long-term care
41 __% of long-term care provided to people under 65
to stay home and not be institutionalized number one reason for long-term insurance
nursing home and in home most financial planners recommend policies for long term
inabilities to do activities of daily living long term eligibility requirements
skilled, intermediate care, and custodial care and in home services covered in long-term care
waiting period in long term care you pay expenses during
but while you are healthy, but the right types, but not more than needed, understand what the policy covers and when it pays benefits how to buy long-term care insurance
provides families with weekly or monthly payments to replace income lost when insured is unable to work due to an illness, injury or disease disability income
nonaccidental means primary cause of disability income are due to
ability to work (earning income) most important asset
25 ___% of 20 year olds disabled before age 67.
1165 Average SS disability payments
2 years or until age 65 group disability plans are offered through employer. lowest tier doesn’t come close to covering paycheck (only about 67%) and you can set time frame
unable to perform duties of customary occupation disability “own occupation”
unabilty to engage into gainful employment at all disability “any occupation”
doesn’t give people incentive to fake disability benefit amount of disability insurance doesn’t give 100% of income. why
allows you to buy more insurance in future without providing evidence of insurability guaranteed insurability option
once a person claims on disability benefits monthly benefits adjust annually to keep up with inflation. applies only once individual goes on claim COLA – cost of living adjustment
65 and over, collecting disability under Social Security Socials security provides health care coverage to persons ___ and those who are ___.
workers suffering injury or illness on the job Workers’ compensation is a state program that probvides benefits for
true you would have a better change to choose your own doctor with a PPO rather than an HMO
part of the premium for workers and dependents The majority of employers pay
PPO Ben’s health coverage charges a low ($15) copayment each time he visits the doctor or hospital. Other than the low per-service copayment, there is very little cost sharing. However, Ben must go to in-netowkr providers listed by the provider of the health coverage. If he goes to a provider that is not on the list, there is very little coverage. Which of the following types of entity most likely provides Abe’s health coverage?
long term care the insurance designed to help with nursing home or in-home custodial care due to chronic illness is called
true tens of millions of americans are not covered by health insurance
true all americans are required to have or buy health insurance beginning in 2014 or pay a penalty
false the ACA require employers to offer health insurance benefits to all full-time employees.
true Insurers are required to cover people with pre-existing medical conditions without limiting or setting unrealistically high insurance rates
substitute for loss income Disability income provides benefits that are designed to
false The average American worker is more likely to die prematurely than to be disabled before age 65.
if the policy contains an “own occupation” definition of disability, the insurer will provide only if Janet would not be able to perform another type of job such as teaching or consulting Suppose Janet, a skilled neuro-surgeon, became unable to perform surgery because of severe arthritis. Which of the following is not true?
false disability income benefits under social security will be paid as long as you cannot perform the duties of the job you were holding when the disability began
false accidents are the primary cause of disability
medicaid Which of the following programs is a joint Federal and State public assistance program that provides health insurance benefits to those who are unable to pay for healthcare?
decreasing the benefit level from 50% to 66% of prior earnings. Which of the following change would tend to increase the premium on a disability policy:
Gender Starting in 2014, the affordable care act requires insurance companies to set premiums based on all the following except
Categories
Finance Flashcards

Principles of Finance ch. 13 questions

When common stock is repurchased and retired, the underlying motive is to ________.A) delay taxesB) boost the stock’s dividendsC) distribute the excess cash to the ownersD) reduce the retained earnings balance distribute the excess cash to the owners
Which of the following type of firms are most likely to payout cash dividends?A) rapidly growing firmsB) firms encouraging innovationC) large mature firmsD) firms expanding their operations large mature firms
At a firm’s quarterly dividend meeting held April 9, the directors declared a $0.50 per share cash dividend for the holders of record on Monday, May 1. The firm’s stock will sell ex dividends on ________.A) April 28B) May 5C) April 29D) April 27 April 27
Ex dividend is ________.A) a period beginning 2 business days prior to the date of record, during which a stock is sold without the right to receive the current dividendB) the date on which all investors whose names are recorded as stockholders receive a declared dividend at a specified future timeC) a period beginning 7 business days prior to the date of record, during which a stock is sold without the right to receive the current dividendD) the actual date on which a firm mails the dividend payment to the holders of record a period beginning 2 business days prior to the date of record, during which a stock is sold without the right to receive the current dividend
The payment of cash dividends to corporate stockholders is decided by the ________.A) creditorsB) stockholdersC) SECD) board of directors board of directors
In a(n) ________, a firm specifies a range of prices that it is willing to repurchase shares and the quantity of shares that it desires.A) Dutch auctionB) tender offerC) American optionD) self-tender offer Dutch auction
In a(n) ________, a firm announces the price it is willing to pay to buy back shares and the quantity of shares it wishes to repurchase.A) Dutch auctionB) tender offerC) American optionD) European auction tender offer
Tender offer repurchase is a repurchase program in which a firm ________.A) offers to repurchase a fixed number of shares, usually at a discount relative to the market valueB) offers to repurchase a fixed number of shares, usually at a premium relative to the market valueC) offers to repurchase a fixed number of shares, usually at par relative to the market valueD) has a right to repurchase a fixed number of shares at a premium relative to the market value offers to repurchase a fixed number of shares, usually at a premium relative to the market value
Which of the following is a reason for a firm for repurchasing its shares?A) to diminish the shareholder value by increasing the number of shares outstanding and thereby raising earnings per shareB) to help encourage a friendly takeover by increasing the number of publicly traded sharesC) to make shares available for stock option plansD) to make shares available for cash dividends to make shares available for stock option plans
The net effect of a stock repurchase is ________.A) similar to an interest paymentB) similar to a cash dividendC) similar to a stock splitD) similar to a reverse stock split similar to a cash dividend
Which of the following is true of a dividend payout?A) When a firm announces that it will increase its dividend, the share price usually decreases on that news.B) Dividend payments send a positive signal to investors in the marketplace that management believes that the stock is overvalued.C) When a firm pays out dividends the share price will fall.D) Dividend payouts have no impact on the share price of a stock in an efficient market. When a firm pays out dividends the share price will fall.
Which of the following methods can be utilized by a firm when it wants to purchase outstanding shares of common stock?A) a purchase of stock through private placementB) a tender offer at varying pricesC) a tender offer at a specified priceD) an European auction plan a tender offer at a specified price
Repurchase of stock ________ the earnings per share and ________ the market price of stock.A) increases; increasesB) decreases; decreasesC) increases; decreasesD) decreases; increases increases; increases
In a Dutch auction, ________.A) a firm offers to repurchase a fixed number of shares, at a discountB) a firm offers to repurchase a fixed number of shares, at a premiumC) a firm specifies a range of prices at which it is willing to repurchase shares and the quantity of shares that it desiresD) a firm enables stockholders to use dividends received on the firm’s stock to acquire additional shares a firm specifies a range of prices at which it is willing to repurchase shares and the quantity of shares that it desires
Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum rate of taxation on dividends received by shareholders was set at ________.A) 18%B) 20%C) 25%D) 15% ) 15%
A dividend reinvestment plan enables stockholders to ________.A) reinvest the dividends in money market instruments which are risk freeB) reinvest all dividends in the firm with no accompanying increase in equityC) acquire additional dividends through redemption of stockD) acquire shares at little or no transaction costs acquire shares at little or no transaction costs
At the quarterly meeting of Tangshan Mining Corporation, held on September 10th, the directors declared a $1.00 per share dividend for the firm’s 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to ________.A) decrease total assets by $100,000 and increase stockholders equity by $100,000B) decrease total assets by $100,000 and decrease stockholders equity by $100,000C) increase total assets by $100,000 and increase stockholders equity by $100,000D) increase total assets by $100,000 and decrease stockholders equity by $100,000 decrease total assets by $100,000 and decrease stockholders equity by $100,000
Dividend payment policy is a form of ________.A) capital budgeting policyB) financing policyC) working capital policyD) dividend reinvestment policy financing policy
The residual theory of dividends suggests that ________.A) different payout policies attract different types of investors but still do not change the value of a firmB) dividends are irrelevant in determining the value of a firmC) as long as a firm’s equity need exceeds the amount of retained earnings, no cash dividend is paidD) the payout policies of different firms have no impact on the taxes that investors have to pay as long as a firm’s equity need exceeds the amount of retained earnings, no cash dividend is paid
According to the residual theory of dividends, if a firm’s equity need is less than the amount of retained earnings, the firm would ________.A) borrow to pay the cash dividendB) declare a dividend equal to the remaining balanceC) pay no cash dividendsD) pay dividends higher than the remaining balance to gain credibility declare a dividend equal to the remaining balance
According to the residual theory of dividends, if a firm’s equity need exceeds the amount of retained earnings, the firm would ________.A) borrow to pay the cash dividendB) sell additional stock to pay the cash dividendC) pay no cash dividendsD) pay less dividends pay no cash dividends
The clientele effect refers to ________.A) the relevance of dividend policy on a firm’s share valueB) a firm’s ability to attract stockholders whose dividend preferences are similar to the firm’s dividend policyC) the informational content of dividends that helps in predicting the future earnings and growth of a firmD) the “bird-in-the-hand” argument a firm’s ability to attract stockholders whose dividend preferences are similar to the firm’s dividend policy
Modigliani and Miller argue that when a firm has no acceptable investment opportunities, it should ________.A) preserve the funds and not declare dividendsB) distribute the surplus funds to the ownersC) lower its cost of capitalD) retain the funds until an acceptable project arises distribute the surplus funds to the owners
Modigliani and Miller suggest that the value of a firm is not affected by the firm’s dividend policy, due to ________.A) the relevance of dividendsB) the clientele effectC) the informational contentD) the optimal capital structure the clientele effect
Gordon and Lintner, recognizing that dividends affect stock prices, suggest that positive effects of dividend increases are attributable ________.A) directly to the dividend policyB) directly to the optimal capital structureC) not to the informational content but to the consistency in the payment of dividendsD) to the informational content of the dividends with respect to future earnings to the informational content of the dividends with respect to future earnings
Gordon’s “bird-in-the-hand” argument suggests that ________.A) dividends are irrelevantB) firms should have a 100 percent payout policyC) shareholders are risk averse and attach less risk to current dividendsD) the market value of a firm is unaffected by dividend policy shareholders are risk averse and attach less risk to current dividends
The information content of dividends refers to ________.A) the nonpayment of dividends by corporationsB) dividend changes as indicators of a firm’s futureC) a stable and continuous dividendD) a study of firm’s history of dividend payments dividend changes as indicators of a firm’s future
Which of the following is true of arguments for dividend relevance?A) A firm’s value is determined solely by the earning power and risk of its assets.B) Investors are generally risk averse and attach less risk to current dividends than future dividends or capital gains.C) The value of a firm is unaffected as it functions in a perfect market.D) A clientele effect exists which causes a firm’s shareholders to receive the dividends that they expect. Investors are generally risk averse and attach less risk to current dividends than future dividends or capital gains
Firms are usually prohibited by state law from distributing ________.A) retained earnings as dividendsB) paid-in capital in excess of par as dividendsC) dividends in a year the firm has a net lossD) preferred dividends paid-in capital in excess of par as dividends
Tangshan Mining has common stock at par of $200,000, paid-in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm’s legal capital is defined as the par value of common stock, the firm could pay out ________ in cash dividends without impairing its capital.A) $200,000B) $680,000C) $600,000D) $880,000 $680,000
Tangshan Mining has common stock at par of $200,000, paid-in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm’s legal capital is defined as the total of par value and paid-in capital in excess of par, the firm could pay out ________ in cash dividends without impairing its capital.A) $280,000B) $400,000C) $480,000D) $600,000 $280,000
Legal capital refers to ________.A) a legal constraint imposed by lenders of a firm to maintain a certain level of debt to equity ratio and capitalB) capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors’ claimsC) the capital which is typically measured by the retained earningsD) the capital which is typically measured by net income capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors’ claims
A firm has the following stockholders’ equity balances: In states where the firm’s legal capital is defined as the par value of its common stock, the maximum cash dividend the firm could pay is ________.A) $3,600,000B) $400,000C) $3,200,000D) $1,600,000 $3,200,000
An excess earnings accumulation tax is levied when ________.A) shareholders receive dividends which exceed a firm’s earningsB) firms do not pay dividends in order to delay the owners’ tax liabilityC) firms do not pay dividends to reinvest in the firmD) earnings exceed accumulated dividends over the years firms do not pay dividends in order to delay the owners’ tax liability
The capital impairment restrictions are established to ________.A) reduce dividends equal to or below the current earnings levelB) constrain the firm to paying dividends which do not require additional borrowingC) provide sufficient safety to equity holdersD) provide a sufficient equity base to protect creditors’ claims provide a sufficient equity base to protect creditors’ claims
With regard to dividend payments, which of the following is included in the contractual constraints imposed by loan agreements?A) limiting the payment to suppliersB) limiting the percentage of earnings that can be paid out in dividendsC) sustaining a constant dividend payout ratioD) making fixed payment to equityholders limiting the percentage of earnings that can be paid out in dividends
Which of the following is considered in designing a dividend policy that is favorable to wealthy owners?A) the tax status of the firm’s ownersB) the political risk of the firmC) the liability of the firm’s ownersD) the reinvestment risk of the firm the tax status of the firm’s owners
A firm that has a large percentage of ________ investors may pay out a lower percentage of its earnings as dividends.A) wealthyB) domesticC) middle-incomeD) international wealthy
According to ________, investors’ demands for dividends fluctuate over time.A) the catering theoryB) Modigliani and Miller theoryC) the residual theory of dividendsD) CAPM theory the catering theory
According to the catering theory, firms cater to the preferences of ________.A) investorsB) creditorsC) managersD) government investors
The dividend policy must be formulated considering two basic objectives, namely ________.A) delaying the tax liability of the stockholder and information contentB) maximizing shareholder wealth and maintaining liquidityC) maximizing shareholder wealth and providing for sufficient financingD) maintaining liquidity and minimizing the weighted average cost of capital maximizing shareholder wealth and providing for sufficient financing
A firm has current after-tax earnings of $1,000,000 and has declared a cash dividend of $400,000. The firm’s dividend payout ratio is ________.A) 2.5 percentB) 2.0 percentC) 4.0 percentD) 40 percent 40 percent
A firm’s dividend payout ratio is calculated by ________.A) dividing cash dividend per share by its earnings per shareB) dividing earnings per share by its cash dividend per shareC) dividing cash dividend per share by its net incomeD) dividing net income by its cash dividend per share dividing cash dividend per share by its earnings per share
Which type of dividend payment policy has the disadvantage that if a firm’s earnings drop or if a loss occurs in a given period, dividends may be low or nonexistent? constant-payout-ratio policy
The problem with a constant-payout-ratio dividend policy from the shareholders’ perspective is that ________.A) it pays constant dividend irrespective of the earnings of a firm B) if the firm’s earnings drop, the dividends tend to be lowerC) even when earnings are low, the company must pay a fixed dividendD) there is no uniformity in this type of dividend policy if the firm’s earnings drop, the dividends tend to be lower
The problem with the regular dividend policy from a firm’s perspective is that ________.A) it regularly pays dividends which fluctuate with earningsB) if the firm’s earnings drop, the dividends may be lowC) even when earnings are low, the company must pay a fixed dividendD) it increases the shareholders’ uncertainty even when earnings are low, the company must pay a fixed dividend
When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called ________.A) a low-regular-and-extra dividend policyB) a regular dividend policyC) a target dividend-payout ratio policyD) a constant-payout-ratio dividend policy a target dividend-payout ratio policy
Which type of dividend payment policy has the advantage that if a firm’s earnings drop, dividends will still be maintained at a relatively constant level?A) constant-payout-ratio policyB) regular dividend policyC) low-regular-and-extra dividend policyD) target dividend policy regular dividend policy
At a firm’s quarterly dividend meeting held on December 5, the directors declared a $1.50 per share cash dividend to be paid to the holders of record on Monday, January 1. Before the dividend was declared, the firm’s accumulated retained earnings balance and cash balance were $1,280,000 and $30,000 respectively. The firm has 10,000 shares of common stock outstanding. On January 2, the cash, dividends payable, and retained earnings accounts had balances of ________.A) $15,000, $0, and $1,265,000, respectivelyB) $30,000, $15,000, and $1,280,000, respectivelyC) $30,000, $0, and $1,265,000, respectivelyD) $15,000, $0, and $1,280,000, respectively $15,000, $0, and $1,265,000, respectively
The advantage of using the extra dividend policy is that ________.A) a firm can avoid giving false hopes to shareholdersB) if a firm’s earnings drop, so does the dividend paymentC) the extra dividend may become a regular eventD) cyclical shifts in earnings may be avoided a firm can avoid giving false hopes to shareholders
An advantage of a ________ is that it avoids giving shareholders false hopes.A) constant-payout-ratio policyB) regular dividend policyC) low-regular-and-extra dividend policyD) target dividend policy low-regular-and-extra dividend policy
The shareholder receiving a stock dividend receives ________.A) a share of common stock of equal value to their existing shares of common stockB) cashC) additional shares of common stock and cashD) nothing of value nothing of value
Stock dividends are ________.A) taxable at a higher level than dividend taxesB) taxable at a lower level than dividend taxesC) non taxableD) are taxable only to the shareholders non taxable
Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is ________.A) $220,000B) $210,000C) $200,000D) $180,000 $200,000
Paying a stock dividend ________.A) decreases the retained earnings accountB) has no effect on the retained earnings accountC) increases the retained earnings accountD) reorganizes the income has no effect on the retained earnings account
Tangshan Mining has 100,000 shares outstanding and just declared a 20% stock dividend. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock dividend, the firm’s shares should trade at ________ per share.A) $42.00B) $41.67C) $46.33D) $50.00 $41.67
A ________ has an effect on a firm’s share price similar to that of a ________.A) stock repurchase; stock splitB) stock dividend; stock splitC) cash dividend; stock dividendD) cash dividend; stock split ) stock dividend; stock split
The purpose of a stock split is to ________.A) change a firm’s capital structureB) decrease the dividendC) enhance the trading activity of the stock by lowering the market priceD) increase the market price of a stock enhance the trading activity of the stock by lowering the market price
A stock split has ________.A) little effect on a firm’s capital structureB) no effect on a firm’s capital structureC) a measurable effect on a firm’s capital structureD) a detrimental effect on a firm’s capital structure no effect on a firm’s capital structure
The purpose of a reverse stock split is to ________.A) issue additional sharesB) increase the dividendC) increase the price of a stockD) decrease trading activity increase the price of a stock
The primary purpose of a stock split is to ________.A) issue additional sharesB) increase the dividendC) reduce the price of a stockD) reduce trading activity reduce the price of a stock
Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock split, the firm’s shares should trade at ________ per share.A) $100.00B) $25.00C) $50.00D) $75.00 $25.00
Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock split, the firm’s shares should trade at ________ per share.A) $33.33B) $66.67C) $75.00D) $100.00 $33.33
Categories
Finance Flashcards

Econ Chapter 16 & 17

proprietary income the income that governments receive from running government-owned enterprises such as hospitals, utilities, toll roads, and lotteries
public finance subdiscipline of economics that studies the various ways in which governments raise and expend money
government purchases exhaustive; the products purchased directly require the use of resources and are part of the domestic outputex)purchase of a missile absorbs the labor of physicists and engineers along with steel etc.
transfer payments nonexhaustive; products do not directly absorb resources or create outputex) Social Security benefits, welfare payments, veterans’ benefits, unemployment compensation
government revenues are from taxes, proprietary income, and funds that are borrowed by selling bonds to the public
deficit spending government spending that is financed by borrowing
federal expenditure (spending) pensions and income security, national defense, health, interest on the public debt
personal income tax progressive tax; the kingpin of the Federal tax system and merits special comment; levied the incomes of households and unincorporated businesses after certain exemptions
marginal tax rate the rate in which the tax is paid on each additional unit of taxable income
average tax rate the total tax paid / total taxable income
payroll taxes taxes based on wages and salaries; used to finance Social Security and Medicare for retired workers
corporate income tax levied on a corporation’s profit;total revenue – total expenses
sales and excise taxes taxes on commodities or on purchases
the primary source of State tax revenue sales and excise taxes
local revenue from property taxes
local expenditure education, welfare, health, hospitals, public safety
A majority of state and local workers are employed in education
A major federal employment is dominated by postal service and national defense
benefits-received principle households should purchase the goods and services of government in the same way they buy other commodities
ability-to-pay principle the tax burden should be apportioned according to taxpayers’ income and wealth
progressive tax its average rate increases as income increases
regressive tax its average rate declines as income increases
proportional tax its average rate remains the same regardless of the size of income
tax incidence the degree to which a tax falls on a particular person or group
efficiency loss of the tax society’s sacrifice of net benefit because the tax reduces production and consumption of the product below their levels of economic efficiency, where marginal benefits and marginal costs are equal
redistributive goals impose progressive taxes as a way to redistribute income
reducing negative externalities the efficiency loss of a tax assumes no negative externalities arising from either the production or consumption
The U.S. Federal tax system is progressive
The U.S. State and local tax structures are largely regressive
The overall U.S. tax system is progressive
asymmetric information unequal knowledge possessed by the parties to a market transaction
moral hazard problem the possibility that individuals or institutions will change their behavior as a result of a contract or agreement after the contract is signed
adverse-selection problem sellers have information that buyers don’t have at the time a contract is signed
public choice theory the economic analysis of government decision-making, politics, and elections
logrolling the trading of votes to secure desired outcome
paradox of voting a situation in which society may not be able to rank its preferences consistently through paired-choice majority voting
median-voter model the theory that under majority rule the middle voter will be in the dominant position to determine the outcome of an election
government failure economically inefficient outcomes caused by shortcomings in the public sector
principal-agent problems conflicts that arise when tasks are delegated by one group of people (principals) to another group (agents)
collective action problem larger groups are more difficult to organize and motivate than smaller groups
special-interest effect any outcome of government promotion of the goals or interests of a small group at the expense of a much larger group; small groups win over big groups
earmarks narrow, designated authorizations of expenditure
rent-seeking the appeal to government for special benefits at taxpayers’ or someone else’s expense
political corruption the unlawful misdirection of governmental resources or actions that occurs when government officials abuse their power for personal gain
Categories
Finance Flashcards

Finance midterm 3- Chapter 9, conceptual

The project’s cash inflows equal its cash outflows in current dollar terms. A project has a net present value of zero. Which one of the following best describes this project?
Increasing the project’s initial cost at time zero. Which one of the following will decrease the net present value of a project?
Net Present Value (NPV) Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm?
the project earns a return exactly equal to the discount rate If a project has a net present value equal to zero, then:
The cash flow in year two is valued just as highly as the cash flow in year one. A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project?
The project must have a profitability index that is equal to or greater than 1.0. A project has a discounted payback period that is equal to the required payback period. Given this, which of the following statements must be true?
The discounted payback period decreases as the discount rate decreases. Which one of these statements related to discounted payback is correct?Payback is a better method of analysis than discounted payback.Discounted payback is used more frequently in business than payback.Discounted payback does not require a cutoff point.Discounted payback is biased towards long-term projects.The discounted payback period decreases as the discount rate decreases.
Some positive net present value projects to be rejected. Applying the discounted payback decision rule to all projects may cause:
Condensing the firm’s cash inflows into fewer years without lowering the total amount of those inflows. Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project’s internal rate of return?
NPV The profitability index is most closely related to which one of the following?