Managerial Finance: Chapter 2

Primary and secondary markets are markets for short-term and long-term securities, respectively. False
Dividends received by a corporation on an investment in the common and preferred stock of another corporation, where ownership in the dividend paying corporation is less than 20%, is subject to 70 percent exclusion for tax purposes. True
Government can obtain funds ________. by selling debt securities
The sale of a new security directly to an investor or a group of investors is called ________. a private placement
The ________ is created by a financial relationship between suppliers and demanders of short-term funds. money market
When home prices are falling, we would expect a(n) ________. high mortgage default rates
The Gramm-Leach-Bliley Act ________. allows business combinations between commercial banks, investment banks, and insurance companies
Which of the following is true? Corporations may pay taxes on only 30 percent of the dividends received from other corporations, depending on their percentage of ownership.
The tax liability of a corporation with ordinary income of $105,000 is ________. Range of taxable income Marginal rate $0 to $50,000 15% 50,000 to 75,000 25 75,000 to 100,000 34 100,000 to 335,000 39 335,000 to 10,000,000 34 10,000,000 to 15,000,000 35 15,000,000 to 18,333,333 38 Over 18,333,333 35 $24,450
The average tax rate of a corporation with ordinary income of $105,000 and a tax liability of $24,200 is ________. 23 percent
Commercial banks advise firms on major transactions such as mergers or financial restructurings. False
The marginal tax rate paid on a firm’s ordinary income can be calculated by dividing its taxes by its net income. False
As a key participant in financial transactions, individuals are ________. net suppliers of funds because they save more money than they borrow
The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded primary; secondary
The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions. capital market
A crisis in the financial sector often spills over into other industries because when financial institutions ________ borrowing, activity in most other industries ________. contract; slows down
The marginal tax rate represents the rate at which the next dollar of income is taxed. True
Jennings, Inc. has a tax liability of $170,000 on pretax income of $500,000. What is the average tax rate for Jennings, Inc.? 34 percent
The Eurocurrency market is a market for short-term bank deposits denominated in U.S. dollars or other easily convertible currencies. True
Mortgage-backed securities are securities that represent claims on the cash flows generated by a pool of mortgages. True
Government is typically a ________. net demander of funds because it borrows more than it saves
Which of the following is a forum in which suppliers and demanders of funds can transact business directly? financial markets
A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n) ________. efficient market
The Glass-Steagall Act ________. separated the activities of commercial and investment banks
The tax liability of a corporation with ordinary income of $1,500,000 is ________. Range of taxable income Marginal rate $0 to $50,000 15% 50,000 to 75,000 25 75,000 to 100,000 34 100,000 to 335,000 39 335,000 to 10,000,000 34 10,000,000 to 15,000,000 35 15,000,000 to 18,333,333 38 Over 18,333,333 35 $510,000
Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on ________. $ 30,000 of ordinary income

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