Finance Exam #1

General partner and Sole proprietor Which of the following individuals have unlimited liability based on their ownership interest?
Corporations can raise large amounts of capital generally easier than partnerships can. Which one of the following statements is correct about Corporations?
Corporation Which one of the following business types is best suited to raising large amounts of capital?
Increase in the market value per share Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
Because they have been hired to represent the interests of the current shareholders. Why should financial managers strive to maximize the current value per share of the existing stock?
Management greed and abuses. The Sarbanes-Oxley Act of 2002 is a governmental response to:
Corporations delisting from major exchanges. Which one of the following is an unintended result of the Sarbanes-Oxley Act?
Hiring outside accountants to audit the company’s financial statements. Which one of the following is an agency cost?
Shareholders. Financial managers should primarily focus on the interests of:
Capital budgeting. Which one of the following terms is defined as the management of a firm’s long-term investments?
Capital structure. Which one of the following terms is defined as the mixture of a firm’s debt and equity financing?
Corporation A business created as a distinct legal entity and treated as a legal “person” is called a:
Agency problem. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
Limited liability for firm debt.Ability to raise capital.Unlimited firm life. Which of the following are advantages of the corporate form of business ownership?
Maximize the current value per share. Which one of the following best states the primary goal of financial management?
Increasing current profits when doing so lowers the value of the firm’s equity. Which one of the following actions by a financial manager is most apt to create an agency problem?
Taxable as personal income when received by shareholders even though that income was taxed at the corporate level. Corporate dividends are:
1. Net Income 1. Profit Margin * Sales
2. Net Income 2. Sales – Costs – Depreciation = EBITEBIT – Interest = EBT- Taxes (%) = ___________?
3. Net Income 3. Dividends + Addition to Retained Earnings = -________?
Average Tax Rate Total Tax/ Taxable Income
Networking Capital Current Assets – Current Liabilities
Book Value Assets BV CA + BV NFA
Differences in accounting- Assumptions (e.g., LIFO v. FIFO)- Standards (e.g., U.S. v. International)- Earnings management-FraudIndustry factors in ratio analysisExtreme values Problems with comparing ratios across companies:
Investments and Financing Two major decisions in finance?
-Accounts Receivable -Inventory -Fixed assets – Cash Making investments decisions includes decisions affecting a company’s:
Short term funds Money market deals with
Long term funds Capital markets deal with
It ignores the time value of money and risk Profit maximization fails because?
Financial Leverage The use of debt in a firm’s capital is called?
Financial leverage The more debt a firm has (percentage of assets), the greater is its degree of?
Liquidity ________ refers to the speed and ease with which an asset can be converted to cash
Risidual Claim Common Stock is a ?
Direct Finance The flow of funds from savers directly to borrowers
Liquidity adjustment Money market provides for?
Capital formation Capital Market allow?
Simple Interest PV ( 1 + r T)
Earnings Per Share Net Income/ Shares Outstanding
Dividends Per Share Cash Dividends/ Shares Outstanding
Pure Discount Loan Borrower receives money today and makes repayment as a lump sum at some future point in time
Interest Only Loan Borrower receives money today and pays periodic Interest payments and principal as a lump sum at the end of the loan.
Amortized Loan Borrower receives money today and makes periodic payments which include both principal and interest

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