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Finance Flashcards

Finance Final

This subarea of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms’ securities to buy, and how to be paid back in the form that the investor wishes investments
The benchmark for the profitability index (PI) is the zero or anything larger than zero
Which of the following is NOT included when calculating the depreciable basis for real property? Financing fees
which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets? Debt management ratios
As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims? Common stockholders
Which of these makes this a true statement? When determining the appropriate weights used in calculating a WACC, it should reflect: the relative sizes of the total market capitalizations for each kind of security that the firm issues.
Which of these statements is true? A high inventory turnover ratio or a low days’ sales in inventory is a sign of good inventory management.
Which of these can be used by interested parties to identify changes in corporate performance Common-size financial statements
Which of the following is the average of the possible returns weighted by the likelihood of those returns occurring Expected return
Which of the following is a use of cash? The firm decreases its accrued wages and taxes
This subarea of finance is important for adapting to the global economy International finance
Which of these is the set of probabilities for all possible occurrences? Probability distribution
In the United States, which of these financial institutions arrange most primary market transactions for businesses? Investment banks
Regarding a bond’s characteristics, which of the following is the principal loan amount that the borrower must repay? Par or face value
Which statement makes this a false statement? When a firm pays commissions to underwriting firms that float the issuance of new stock: the component cost will need to be integrated to figure project WACCs
When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time. future value
Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets? Debt management ratios
The Sarbanes-Oxley Act requires public companies to ensure which of the following individuals have considerable experience applying generally accepted accounting principles (GAAP) for financial statements. Corporate boards’ audit committees
Which of the following is legal duty between two parties where one party must act in the interest of the other party Fiduciary
These are cash inflows and outflows associated with buying and selling of fixed or other long-term assets Cash flows from investing activities
These individuals help firms access capital markets and advise managers about how to interact with those capital markets Investment bankers
Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm? Profitability
Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects? Net present value
The practice generally known as double taxation is due to corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends
For corporations, maximizing the value of owner’s equity can also be stated as maximizing the stock price.
Which of the following is a true statement regarding the appropriate tax rate to be used in the WACC? One would use the weighted average of the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction
Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows? Net present value
On which of the four major financial statements would you find the common stock and paid-in surplus? Balance sheet
Which of the following statements is incorrect Most sole proprietors raise money by borrowing from banks.
For publicly traded firms, which of these ratios measure what investors think of the company’s future performance and risk? Market value ratio
Many people who want to start investing for their future want to start today, which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as: annuities due
Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows Net present value
which of these statements answers why bonds are known as fixed income securities? Investors know how much they will receive in interest payments
which of these is the interest rate that is actually observed in financial markets Nominal interest rates
Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects? Net present value
The Rule of 72 is a simple mathematical approximation for he number of years required to double an investment.
Which of the following theories argues that individual investors and financial institutions have specific maturity preferences, and to encourage buyers to hold securities with maturities other than their most preferred requires a higher interest rate? Market segmaent theory
Which of the following is a true statement? Firms can quite possibly change their stocks’ risk level by substantially changing their business.
which statement makes this a false statement? When a firm pays commissions to underwriting firms that float the issuance of new stock he component cost will need to be integrated to figure project WACCs
Which of these is similar to the Capital Market Line, except that risk is characterized by beta instead of standard deviation Security market line
Section 179 allows a business, with certain restrictions, to do which of the following Expense the asset immediately in the year of purchase
These individuals examine the firm’s accounting systems and comment on whether financial statements fairly represent the firm’s financial position. Auditors
Which of these is NOT considered a coverage ratio? Current ratio
An objective approach to calculating divisional WACCs would be done by: . computing the average beta per division, using these figures for each division in the CAPM formula, and then constructing divisional WACCs

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