Finance Midterm Quiz Questions

what should be the primary goal of financial management? maximizing shareholder wealth
Proper risk return management means? the firm must determine appropriate trade off between risk and return
what is one of the major disadvantages of a sole proprietorship? there is unlimited liability to the owner
what is a corporation? owned by stockholders, easily divisible between owners, and a separate legal entity
the agency theory examines the relationship between? owners of the firm and managers of the firm
why was the Sarbanes-Oxley Act passed? to control corrupt corporate financial behavior
what is insider trading? when someone has information not available to the public and use it to profit from trading in stocks
Money markets include which of the following securities? treasury bills and commercial paper
what is the major difference between money markets and capital markets? the timing of how long the security will be held onto
Capital markets do not include which of the following? commercial paper
what securities are included in capital markets? common stock, preferred stock, and government bonds
which of the following is not subtracted at operating income? interest expense
Reinvested funds into retained earnings theoretically belong to? common stockholders
which of the following would not be classified as a current asset? plant and property equipment
The statement of cash flows includes what? Operating activities, investing activities, and financing activities
which of the following is an outflow of cash? the payment of cash dividends
which of the following is an inflow of cash? the sale of the firm’s bonds
what is the key initial element in developing all pro forma statements? a sales forecast
the need for an increase or decrease in short term borrowing can be predicted by? a cash budget
the difference between total receipts and total payments is referred to as? net cash flow
in order to estimate production requirements what needs to be calculated? add projected sales in units to desired EI and subtract BI
The cost of operating leverage involves the use of what costs to magnify returns at high levels of operation? fixed costs
which of the following is concerned in operating profit as a result of a change in unit volume? Operating leverage
financial leverage deals with? the relationship of debt and equity in the capital structure
combined leverage is concerned with the relationship between? changes in volume and changes in EPS

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