Finance Exam 1 Review

Given an anticipated inflation premium of 1.25% and a nominal rate of interest of 5.05%, what is the real interest rate? Round your answer to 4 decimal places. 3.75%
Given an anticipated inflation premium of 1.40% and a real rate of interest of 4.14%, what is the nominal interest rate? Round your answer to 4 decimal places. 5.60%
Which of the following best describes the goal of the firm? Maximizing the value of the firm’s equity.
Dividends paid by the firm ________. are paid out of net income.
Capital losses may be _______. carried back 3 years or carried forward up to 5 years
What is the tax liability for a corporation with $10,200,000 in taxable income? $3,470,000
What is the tax liability for a corporation with $13,100,000 in taxable income? $4,485,000
The yield curve is typically _______. upward sloping
The New York Stock Exchange is an example of _________. a secondary market.
If you sell 100 shares of General Electric common stock, this transaction takes place in: the secondary capital market.
What is underwriting? Underwriting is the process of purchasing and selling of a new security issue by an investment banker.
What business type is a business owned by individual, therefore subject to a limited life and unlimited liability? Sole proprietorship
What distinguishes the money market from the capital market? The money market deals with short-term instruments, whereas the capital market deals with long-term instruments.
The legal form of business that allows a firm to function separate and apart from its owners is the _________. corporation
Cash available from operations after the firm pays for investments (in operating working capital and fixed assets) is called: free cash flow
Capital market instruments include _________. corporate bonds
If a new security issue is marketed to a definite and select group of investors (such as current stockholders, employees or customers) the issue is called: a privileged subscription
Suppose your firm had the following taxable income amounts:2012 ($2 million) operating loss2013 ($2 million) operating loss2014 ($2 million) operating loss2015 $10 million After you “carry forward” the operating losses, what is the effective taxable income for 2015? 4 million
Last year, your company had sales of $3.6 million, cost of goods sold of $2.3 million and operating expenses amounting to $840,000. The firm had $114,000 in depreciation expense. In addition, the firm paid 8% interest on $625,000 in bonds, received $30,000 in dividend income, and sold property for a $10,000 capital loss. What was the firm’s tax payment? $102,200
Given an anticipated inflation premium of 1.35% and a nominal rate of interest of 5.40%, what is the real interest rate? Round your answer to 4 decimal places. 4.00%
Given an anticipated inflation premium of 1.40% and a real rate of interest of 4.14%, what is the nominal interest rate? Round your answer to 4 decimal places. 5.60%
According to our text, which of the following statements is true? Maximizing shareholder wealth should be the goal of the firm
Last year, California Sushi and Such (CSS) had sales of $65 million. The firm’s operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $8 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm’s tax liability? $7,270,900
Which of the following are tax deductible expenses for a corporation? interest paid on debt
Dividends paid by the firm ________. are paid out of net income.
What is the tax liability for a corporation with $12,500,000 in taxable income? $4,275,000
What is the tax liability for a corporation with $17.5 million of taxable income? $6,100,000
Which of the term structure theories claims that investors are limited to certain maturity ranges due to legal restrictions and personal preferences? The market segmentation theory.
Suppose your firm selects an investment banking firm to assist with your firm’s $10 million stock issue. The investment banker will act as a broker and will attempt to sell each new share of stock for a commission for each share sold. This distribution method is referred to as ________. a best efforts offer
Since there is a virtual certainty that the U.S. government will pay interest on Treasury securities and will redeem them at face value when they mature, Treasury securities are free of any _________ risk. default
If a new security issue is marketed to a definite and select group of investors (such as current stockholders, employees or customers) the issue is called: a privileged subscription
Of the legal forms of organizations discussed in chapter 1, which form of organization has the advantage of limited liability for all owners? corporation.
If Electro Corporation sells a $20 million stock issue to an investment banking firm such as Merrill Lynch, this transaction takes place in: the primary capital market.
The true owners of a corporation are the _______. stockholders
To raise $5 million, Southeastern Corporation decides to issue bonds. If Southeastern does not register the bonds with the SEC and then sells the entire bond issue to Metropolitan Life Insurance Company, this issue is called a(n): private placement
Suppose your firm had the following taxable income amounts:2012 ($2 million) operating loss2013 ($2 million) operating loss2014 ($2 million) operating loss2015 $5 million After you “carry forward” the operating losses, how much operating loss can you carry forward to 2016? 1 million
If an issuing firm sells securities to the investing public without involving an investment banker, the issue is called: a direct sale
Given an anticipated inflation premium of 1.45% and a real rate of interest of 4.34%, what is the nominal interest rate? Round your answer to 4 decimal places. 5.85%
Last year, California Sushi and Such (CSS) had sales of $65 million. The firm’s operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $6 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm’s tax liability? $7,970,900
Dividends received by the firm: are usually 70% excluded from taxation
Since there is a virtual certainty that the U.S. government will pay interest on Treasury securities and will redeem them at face value when they mature, Treasury securities are free of any _________ risk. default
If an issuing firm sells securities to the investing public without involving an investment banker, the issue is called: direct sale
The least liquid current asset is _______. inventory

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