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Finance Flashcards

Macro Exam 2 Chapter 14

The field of finance primarily studies:a. how society manages its scarce resources.b. the implications of time and risk for allocating resources over time.c. firms’ decisions concerning how much to produce and what price to charge.d. how society can reduce market risk. b. the implications of time and risk for allocating resources over time.
Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5 percent, then the present value of the $500 isa. $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years.b. $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years.c. $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years.d. $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years. b. $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years.
Suppose you are deciding whether to buy a particular bond. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. If the interest rate is 6 percent, you will buy the bond if its price today is no greater thana. $8,225.06.b. $7,920.94.c. $7,672.58.d. $6,998.98. b. $7,920.94.
Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?a. $1(1 + .05)16b. $1(1 + .05 x 16) x 16c. $1(1 + .05 x 16)d. $1(1 + 16/.05)16 a. $1(1 + .05)16
At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?a. 5b. 7c. 9d. 11 b. 7
You put $75 in the bank one year ago and forgot about it. The bank sends you a notice that you now have $81 in your account. What interest rate did you earn?a. 5 percentb. 6 percentc. 7 percentd. 8 percent d. 8 percent
If you put $125 into an account that paid 3.25 percent interest, then how much money would you have in the account after 20 years?a. $285.83b. $236.98c. $202.04d. $145.65 b. $236.98
Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?a. 5 percentb. 6 percentc. 7 percentd. 8 percent a. 5 percent
Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?a. about $860b. about $870c. about $880d. about $890 d. about $890
Cleo promises to pay Jacques $1,000 in two years. If the interest rate is 6 percent, how much is this future payment worth today?a. $883.60b. $887.97c. $890.00d. None of the above are correct to the nearest cent. c. $890.00
A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $11,000 two years from today. Of the following interest rates, which is the lowest one at which Harry would be better off paying $11,000 two years from today?a. 2 percentb. 3 percentc. 4 percentd. 5 percent d. 5 percent
Yoyo’s Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of one year, $60,000 additional revenue at the end of two years, and $70,000 in additional revenue at the end of three years. If the interest rate is 5 percent, Yoyo would be willing to paya. $140,000, but not $150,000.b. $150,000, but not $160,000.c. $160,000, but not $170,000.d. $170,000, but not $180,000. c. $160,000, but not $170,000.
Greg’s Tasty Ice Cream is considering building a new ice cream factory that costs $8.3 million. The company accountants believe that, not accounting for interest costs, building the factory will increase profits by $5 million the first year, $4 million the second year and have no value thereafter. Greg’s Tasty Ice Cream should build the factory if the interest rate isa. 3% but not if it is 4%.b. 4% but not if it is 5%.c. 5% but not if it is 6%.d. 6% but not if it is 7%. c. 5% but not if it is 6%.
Diversification of a portfolioa. can eliminate market risk, but it cannot eliminate firm-specific risk.b. can eliminate firm-specific risk, but it cannot eliminate market risk.c. increases the portfolio’s standard deviation.d. is not necessary for a person who is risk averse. b. can eliminate firm-specific risk, but it cannot eliminate market risk.
If a person is risk averse, then as wealth increases, total utility of wealtha. increases at an increasing rate.b. increases at a decreasing rate.c. decreases at an increasing rate.d. decreases at a decreasing rate. b. increases at a decreasing rate.
Fundamental analysis shows that stock in Cedar Valley Furniture Corporation has a price that exceeds its present value.a. This stock is overvalued; you should consider adding it to your portfolio.b. This stock is overvalued; you shouldn’t consider adding it to your portfolio.c. This stock is undervalued; you should consider adding it to your portfolio.d. This stock is undervalued; you shouldn’t consider adding it to your portfolio. b. This stock is overvalued; you shouldn’t consider adding it to your portfolio.
The efficient markets hypothesis says that beating the market consistently isa. impossible. Many studies find that beating the market is, at best, extremely difficult.b. impossible. Many studies find that beating the market is relatively easy.c. relatively easy. Many studies find that beating the market is, at best, extremely difficult.d. relatively easy. Many studies find that beating the market is relatively easy. a. impossible. Many studies find that beating the market is, at best, extremely difficult.
Which of the following methods of picking stocks is not consistent with fundamental analysis?a. doing research such as thoroughly reading and analyzing companies’ annual reportsb. choosing mutual funds that are managed by individuals with good reputationsc. viewing individual stock prices as unpredictabled. relying upon the advice of Wall Street analysts c. viewing individual stock prices as unpredictable
The value of a stock is based on thea. present values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rise.b. present values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.c. future values of the dividend stream and final price. As a result, the value of a stock rises when interest rates rises.d. future values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise. b. present values of the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.
The possibility of speculative bubbles in the stock market arises in part becausea. stock prices may not depend at all on psychological factors.b. fundamental analysis may be the correct way to evaluate the value of stocks.c. future streams of dividend payments are very hard to estimate.d. the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold. d. the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold.
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Finance Flashcards

Personal Finance UNIT 4

the federal deposit insurance corporation is an insurance agency that is supported by the government in the united states true
who would be eligible of a 403b account a government employee
brokerage firms make their profits primarily in what way fees or commissions on sales or transfers
401k accounts accounts that are partially funded by employers using a portion of wages
the government provides no oversight of financial instituions in most countries false
mutual fund companies are what type of companies investment
in the united states, all financial institutions are required to conduct business at a physical location only false
401k accounts are what type of accounts retirement
What is the end of the CD account time when the money can be withdrawn maturity date
web only financial institution do not have what physical locations
check cashing businesses do not require that an individual be an account holder, they will cash any valid check true
financial experts recommend that you compare at least several different financial institutions in these areas and find the one that best meets your needs true
the FDIC in the united states insures some financial accounts up to what amount $250,000
credit unions are non profit organizations true
savings and loans institutions put about 70 percent of their money into what mortgages
investments that promise to pay a certain amount of interest on the principle amount after a given time period bonds
manage and facilitate the purchase of stocks, bonds, and other types of investments brokerage firms
these accounts pay a standard rate of interest on the balance, but the money must be left in the account for a specified period of time certificate of deposit
funded through deposits into checking and savings accounts and they provide services such as mortgages, personal loans, and bank issued credit cards commercial banks
nonprofit member owned institutions credit unions
accounts where you have the right to demand a withdrawal of the funds from the account at any time demand deposit accounts
those that receive their money from customer deposits depository institutions
these companies sell life insurance which is paid out by the company upon the death of the insured individual life insurance companies
investment companies, they sell shares to individuals and pool funds to buy financial securities mutual fund companies
owned by the individuals who deposit their money in the institution mutual savings institutions
receive their money from other sources than consumer deposits non-depository institutions
offers individuals a loan based on the value of the persons possessions such as jewelry or other items pawnshops
may offer cash advances, delayed deposit loans, and postdated check loans payday loan businesses
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Finance Flashcards

4-1 Personal Finance

Which of the following is not one of the three types of business arrangements in the United States? Sole partnership
With a sole proprietorship, who pays the taxes? The owner
Which of the following would not be considered an advantage of a sole proprietorship? A proprietor is also responsible for his or her own health insurance.
What can a proprietor do to minimize personal risk and liability? Form a limited liability company
Why are partnerships often favored over corporations? A partnership structure eliminates the dividend tax levied upon profits realized by the owners.
What are the two types of partnerships? Linited and General
Which of the following would not be considered an advantage of partnership? Each general partner is deemed the agent of the partnership
As a generic legal term, ______ means any group of persons with a legal entity. Corporation
Who regulates a corporation? The government of the state, province, or national government with which it is registered.
Which of the following is not a legal characteristic of a corporation? Legal protection from law suits
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Finance Flashcards

Foundations in Personal Finance- Chapter 4 Test

Which of the following is not a factor in determine a FICO score?a) getting a personal loan from a bankb) using credit cardsc) paying cash for all purchasesd) taking out a mortgage of the house c
Which of the following is not a good idea for getting out of debt?a) quit borrowing moneyb) get a part-time job or work overtimec) sell somethingd) borrow money from your parents to pay for debt d
Which of the following things cannot be done with a debit card but can be done with a credit card?a) go into debtb) rent a carc) purchase something onlined) purchase an airline ticket a
What factors affect a credit score?a) type of debtb) new debtc) duration of debtd) all of the above d
Which of the following statements is false?a) prior to the FCRA, consumers were unable to challenge errors in their credit reports.b) under FCRA, consumers are allowed to receive one free credit report every five years.c) the U.S. Congress enacted the Fair Credit Reporting Act to address concerns over consumer credit report accuracy, privacy, and fairnessd) under FCRA, creditors must notify consumers if they deny credit based on a credit report file, and they must also tell the consumer which of the three credit bureaus provided the report b
Which of the following is not a recommended step in the Drive Free method of purchasing a car?a) plan your purchase in advance using the sinking fund method of savingb) place your savings in a mutual find so that your money can make more moneyc) start with an inexpensive car and gradually move up in car value as your savings increasesd) explore new car dealerships for the best interest rate d
Which of the following is the most cost-effective option from purchasing a home?a) get a 15-year mortgage with a 5% down paymentb) get a 30-year mortgage so that you can get the lowest possible paymentsc) the most ideal way to buy a house is the 100% down if that is not an option, you should get no more than a 15-year, fixed rate mortgage with a down payment of at least 10%d) get a 30-year mortgage with a 20% down payment c
Which of the following is not recommend in the debt snowball method of getting out of debt?a) list your debts in order from smallest to largest balance and focus on paying the smallest debt off firstb) every extra dollar you get should be thrown at the largest debt firstc) attack your debt with intensityd) every time you pay off a debt, you add its old minimum payment to your neck debt payment b
What is paycheck garnishment?a) a court-ordered attachment that allows a lender to take monies owed directly from a borrower’s paycheckb) process of taking something back for failure to make paymentsc) process by which the holder of a mortgage sells the property of a homeowner who has fallen behind on paymentsd) a legal procedure for dealing with debt problems of individuals and businesses a
Which of the following best summarizes how the use of a credit card for purchases instead of cash can change one’s spending behavior?a) spending behavior does not matter as long as you pay off the credit card balance each monthb) studies show that there is no change in spending behavior whether a person uses cash or creditc) people typically spend less when they know that they are earning credit card “rewards”d) studies show that consumers typically spend more when using credit as opposed to cash purchases d
Which of the following is not a credit myth?a) the lottery and other forms of gambling will make you richb) you have “arrived” financially once you get approved for a credit cardc) debt is a tool and should be used to create prosperityd) borrowing money can have serious consequences and prevent you from building wealth d
If you do not have FICO score, what doctors will determine whether or not you qualify for a mortgage?a) history of rental and utility paymentsb) amount of your down payment and employment historyc) you cannot get a mortgage without a credit historyd) A and B d
A credit score is intended to measure…a) your financial successb) the risk of your not repaying debtc) your income leveld) the amount of money you have in the bank b
Which of the following is a sign that your identity may have been stolen?a) a call from a collection agency about debt you didn’t incurb) bank and billing statements don’t arrive on timec) your credit report shows accounts you didn’t opend) all the above d
Individual account information is removed from your credit report seven years after the last activity on the account, except Chapter 7 bankruptcy, which stays on your credit report for.a) 1 yearb) 10 yearsc) 5 yearsd) 20 years b
You must establish credit in order to buy a house (T/F) F
If you are a victim of identity theft, you are only responsible for paying back half of the debt. (T/F) F
There are three credit bureaus: Experian, TransUnion and Equifax (T/F) T
You can and should obtain a free copy of your credit report annually in order to check for any suspicious activity. (T/F) T
You need to have a credit card to rent a car or check in to a hotel (T/F) F
It is okay to use a credit card if you say it off every month (T/F) T
The Federal Trade Commission is one of many U.S. federal agencies that regulate the consumer credit system and enforce the laws related to it (T/F) T
Under the Fair Credit Reporting Act, any person or organization may check a person’s credit information without having a legitimate need. (T/F) F
Teens are a huge target of credit card companies today. (T/F) T
Co-signing a loan is a good way to help a friend or relative (T/F) F
Preferred method of debt repayment , includes a list of all debts- organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments (credit counseling, debt snowball) debt snowball
A detailed report of an individuals credit history (credit report, cash flow statement) credit report
Time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated (loan term, loan financing) loan term
Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan ( annual percentage rate, annual fee) annual percentage rate
A decrease or loss in value (inflation, depreciation) depreciation
A yearly fee that’s charged by the credit card company for the convenience of the credit card ( interest rate, annual fee) annual fee
An interest rate charged to a customer during the early stages of a loan; the rate often goes up after a specified period of time (introductory rate, new customer fee) introductory rate
A long term rental agreement on a car; a form of secured long-term debt (loan, lease) lease
When a person owes more on an item than it is worth, the person is said to be (secured, upside down) on the loan upside down
A card issued by a bank that allows users to finance a purchase (credit card, debit card) credit card
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corporate finance chapter three

The ratios that are based on financial statement values and used for comparison purposes are called financial ratios
The DuPont identity can be accurately defined as: Equity multiplier × Return on assets.
A common-size balance sheet helps financial managers determine: if changes are occurring in a firm’s mix of assets.
Which one of these transactions will increase the liquidity of a firm? credit sale of inventory at cost
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. cash payment of an account payable
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: has positive net working capital
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due. quick ratio
The cash ratio is used to evaluate the: length of time that a firm can pay its bills if no additional cash becomes available.
If a firm has an inventory turnover of 15, the firm: sells its entire inventory an average of 15 times each year
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? total asset turnover
Which one of the following will increase the profit margin of a firm, all else held constant? decrease in the tax rate
A firm can increase its sustainable rate of growth by decreasing its: dividends
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Foundations in Personal Finance- Chapter 3 Test Review

Consequences of overdrawing your checking account? – Bounced check fee from the store- Stress from money mismanagement- Over draft fee from bank
Having a budget -Keeps you from overspending, removes guilt and shame sometimes associated with a purchase, shows if you are overspending in an area, and makes your money go farther
Your monthly budget should include: – Variable expenses- Discretionary expenses- Fixed expenses
A budget – A budget is meant to guide you in the future in your money management
Which of the following is something that a typical millionaire would do? Spend less money than he/she makes
Rent is (type expense): – Fixed expense
Eating out (type expense): – Discretionary expense
Car repairs a (type expense): – Intermittent expense
Groceries are a (type expense): – Variable expense
A written budget, if followed, removes_ from your finances? – Guilt- Overspending-Management by crisis
The following are guidelines for budgeting with an irregular income: Prioritize the list in order of importance, make a list of all of your expenses for the month ahead, when your check comes in, spend your money all the way down the list.
Percentage of Americans living paycheck to paycheck: 70%
The zero-based budget is the best method of budgeting because: The zero-based budget ensures that every dollar you make is assigned a specific purpose.
Record keeping features/services you can expect from your bank An account register, a reconciliation sheet, and a monthly account statement
Which account record would have the most current balance? Your own account register.
The number one cause of divorce in North America today is stress and disagreements over money. T/F True
The envelope system works great for managing spending on things that don’t normally have a fixed monthly expense. T/F True
If you write a zero-based budget every month, it is not necessary to reconcile your account. T/F False
Budgeting is crucial to your financial success. T/F True
Writing and following a zero-based budget will help you avoid overspending and impulse purchases. True
A debit card cannot be used for online purchases. False
” Pay yourself first” means you should assign a portion of your income to saving and investing every month. True
Online bill pay allows you to make payments to whomever you wish without having to write a check and sending it in the mail. True
Having more than one bank account is never a good idea since it can complicate money management. False
Setting up automatic account transfers is the easiest way to build your savings for your emergency fund or large purchases. True
Occurs when money is withdrawn from a bank account and the available balance goes below zero. Overdraft
A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the totally expenses equals. Zero-based budget
Series of envelopes that are divided into categories and are used for planned monthly expenses. Envelope system
An item that is bought without previous planning or consideration of the long-term effects. Impulse system
To match your bank statement with your checkbook Reconcile
A written cash flow plan. Budget
Expenses that remain the same from month to month. Fixed
Non-essential expenses. Discretionary
A summary of all the income and outgo over a certain time period. Cash flow statement
Your own record of all your transactions. Check register
Cash flow statement Summarizes all of the income and outgo (spending) over a certain time period. It is reflective of what has already taken place.
Budget A written plan for saving and spending
Some things a typical millionaire would NOT do Lease a car, replace things that are not broken, carry debt
Budgeting with an irregular income is no different than budgeting with a regular income. T/F False
Reasons a cash flow plan (budget) may not work Fail to have or follow a budget, overcomplicate your plan, leave things out
Why is a zero-based budget the best method of budgeting? Every dollar you make is assigned a specific purpose.
Why should you have a cash flow plan? It removes the management by crisis, guilt, shame, fear, stress, overdrafts and overspending from your finances.
Payment options that come with a checking account? Writing checks, debit card purchase (in store or online), online bill pay
Reasons you need to maintain a file of both paper and electronic financial records. As a reference for filing taxes, always have an accurate account balance, can catch errors made by the bank, and can detect fraudulent activity on your account.
It is important to develop a personalized financial plan for spending, savings, and record keeping. Everyone has different spending, saving and organizational strengths and weaknesses. Your plan must be specific to you.
Describe some changes in circumstances that might affect a personal budget. Change in income, marriage/divorce, family composition.
Outstanding checks Any checks written, but not yet cleared the bank.
Bank Statement A bank listing of checks paid, deposits and service charges.
Restrictive endorsement To sign your name on the back of a check payable to you limiting the use of the check.
Endorsement in full or special endorsement Transfers the check to another person.
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B22 Finance Final Exam Review

Which one of the following best exemplifies unsystematic risk?-Unexpected economic collapse-Unexpected increase in interest rates-Unexpected increase in the variable costs for a firm-Sudden decrease in inflation-Expected increase in tax rates Unexpected increase in the variable costs for a firm
Systematic risk is:-totally eliminated when a portfolio is fully diversified.-defined as the total risk associated with surprise events.-risk that affects a limited number of securities.-measured by beta.-measured by standard deviation. Measured by beta
Expected Return of a stock’s portfolio using E(R) = p1R1 + p2R2 + …..+ pnRnWhere: pn = the probability the return actually will occur in state n Rn = the expected return for state n
Standard Deviation of a Stock’s Portfolio is the square root of the variance: ..
Capital Asset Price Model CAPM –> a model that represents the relationship between Risk and Expected Return (cost of Equity)
CAPM model is used to calculate exactly how much average percentage return that a company should offer investors to make their risk worth it to them to invest in your company
Which one of the following will increase the cost of equity, all else held constant?a) Increase in the dividend growth rateb) Decrease in betac) Decrease in future dividendsd) Increase in stock pricee) Decrease in market risk premium a) increase in the dividend growth rate(section 12.2)
W.A.C.C. The minimum return a company needs to earn to satisfy all of it’s investors, including stockholders, bondholders and preferred stockholders.The rate the firm should use for projects of similar risk to the firm’s existing activities; If used for all projects with distinctly different risks will cause the firm to incorrectly accept risky projects, will have a tendency for the firm to accept unprofitable investments and become increasingly risky.
The aftertax cost of which of the following is affected by a change in a firm’s tax rate?I. Preferred stockII. DebtIII. EquityIV. Capital II and IV:Debt and Capital The aftertax cost of debt and capital are affected y a change in a firm’s tax rate.
Earning per Share the return earned by each share of common stock; calculated by dividing all earnings remaining after paying preferred dividends by the number of common shares outstanding=(Earnings-Preferred Dividends)/ (Common Shares Outstanding)
Which of the following are important factors to consider when seeking a venture capitalist?I. Exit strategyII. Management styleIII. Personal contactsIV. Financial strength ALL factors are important to consider
EPS= (EBIT)/(Common Shares Outstanding)
Underwriters Investment firms that act as intermediaries between a company selling securities and the investing public
Venture Capital Financing for new, often high-risk ventures
Relative purchasing power parity is based on the principle that the expected percentage change in the exchange rate between two countries is equal to which one of the following?-Difference in the risk-free interest rates in the two countries-Average interest rate in the two countries-Average inflation rate of the two countries-Difference in the inflation rates of the two countries-Difference between the two countries’ average inflation and interest rates Difference in the inflation rates of the two countries
Which one of the following is an advantage of being a limited partner?-Nontaxable share of any profits-Control over the daily operations of the firm-Losses limited to capital invested-Unlimited profits without risk of incurring a loss-Active market for ownership interest Losses limited to capital invested
The primary goal of financial management is to maximize which one of the following for a corporation?-Current profits-Market share-Number of shares outstanding-Market value of existing stock-Revenue growth Market value of existing stock
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Finance Chapter 7

own the firm Holders of equity capital ________.
secured creditors If bankruptcy were to occur, ________ would have the first claim on assets.
voting rights Which of the following typically applies to common stock but not to preferred stock?
the stock market Equity capital can be raised through ________.
residual owners Common stockholders are sometimes referred to as ________.
ADRs securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets
preferred stockholders ______ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.
cumulative Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are ________.
quasi-debt nature Preferred stock is characterized by ________.
treasury bill Which of the following is a marketable security?
outstanding shares Shares of stock currently owned by a firm’s shareholders are called ________.
dividends Common stockholders expect to earn a return by receiving ________.
proxy battle The attempt by a nonmanagement group to gain control of the management of a firm by soliciting a sufficient number of proxy votes is called a ________.
rights offering ________ are financial instruments that allow stockholders to purchase additional shares at a price below the market price, in direct proportion to their number of owned shares.
investment banker A(n)________ is hired by a firm to find prospective buyers for its new stock or bond issue
rights offering In a ________, new shares are sold to the existing shareholders.
underwriting syndicate A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________.
perpetuity Preferred stock is valued as if it were a ________.
zero-growth model The ________ is utilized to value preferred stock.
book value ________ is the value of a firm’s ownership in the event that all assets are sold for their exact accounting value and the proceeds remaining after paying all liabilities (including preferred stock) are divided among common stockholders.
liquidation value ________ is the actual amount each common stockholder would expect to receive if a firm’s assets are sold for their market value, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.
P/E multiple ________ is a guide to a firm’s value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry.
P/E multiple The use of the ________ is especially helpful in valuing firms that are not publicly traded.
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Ch. 14 intro to business finance

True It is possible that the results of financial statement analysis could reflect the none financial operations of a firm.
false cross-sectional analysis is used to evaluate to evaluate a firm’s performance over time.
true ratio analysis is a financial technique that involves dividing various financial statements numbers into one another.
false Asset management ratios indicate the ability to meet short-term obligations to creditors as they come due.
true Financial leverage ratios indicate the extent to which borrowed funds are used to finance assets.
false The operating profit margin is calculated as the firm’s net income divided by the sales.
true Market value rights indicate the willingness of investors to value a firms in the marketplace relative to financial statement values
false The net profit margin is an example of a market value ratio
true The price-to-book ratio measure the market’s value of the firm relative to balance sheet equity.
true Financial analysis using ratios can assist managers in the firm’s long-term financial planning process.
true Financial planning begins with a sales forecast for one or more years
true Budgets are written financial plans utilized in sales forecasts.
false Break-even analysis is used to estimate how many units of products must be sold in order for the firm to have a reasonable profit.
true The contribution margin represents contribution of each unit sold that first goes toward paying fixed costs.
true The degree of operating leverage measures the sensitivity of operating income to changes in the level of output.
b. asset utilization ratios The extent to which assets are used to support sales is indicated by which of the following ratios:a. liquidity ratios b. asset utilization ratiosc. financial leverage ratiosd. profitability
a. liquidity ratios The ability of a firm to meet its short-term debt obligations as they come due is indicated by which of the following ratios:a. liquidity ratios b. asset utilization ratiosc. financial leverage ratiosd. profitability
a. liquidity ratios Which one of the following types of ratios indicates the ability to meet short-term obligations to creditors as they come due?a. liquidity ratios b. asset utilization ratiosc. capital structure ratiosd. profitability ratiose. market value ratios
c. financial leverage ratios The extent to which assets are financed by borrowed funds and other liabilities is indicated by:a. liquidity ratiosb. asset utilizationc. financial leverage ratiosd. profitability ratios
a. balance sheet Which one of the following financial statements reports a firm’s assets and the claims on assets?a. balance sheetb. income statementc. statement of changes in financial positiond. cash flow statement
b. equal total costs In cost-volume-profit analysis, a firm “breaks even” when its total revenues:a. equal variable costsb. equal total costsc. equal fixed costsd. are less than the sum of variable and fixed costs
a. total assets divided by owners’ equity The equity multiplier is calculated as:a. total assets divided by owner’s equityb. net income divided by owners’ equityc. net income divided by total assetsd. net sales divided by total assets
a. total liabilities divided by total assets As part of the measurement of financial leverage, the total debt ratio is calculated as:a. total liabilities divided by total assetsb. total liabilities times total assetsc. current liabilities divided by total assetsd. total assets minus current liabilities divided by total liabilities
d. liquidity margin Which one of the following is not a basic component of the DuPont method of ratio analysis?a. profit marginb. total asset turnoverc. equity multiplierd. liquidity margin
a. stock price divided by earnings per share The price/earnings ratio (P/E) is calculated as:a. stock price divided by earnings per shareb. stock price times earnings per sharec. earnings per share divided by stock priced. stock price divided by the difference between earnings per share and cash dividends per share
c. DuPont analysis The method of calculating return on assets which highlights the importance of sales, profit margin,and asset turnover is known as:a. the Gordon modelb. Cost-volume profit analysisc. DuPont analysisd. break-even analysis
b. the ability of the firm to meet short-term obligations to creditors The primary purpose of the liquidity ratios is to determine:a. the extent to which borrowed funds are used to finance assetsb. the ability of the firm to meet short-term obligations to creditors.c. the extent to which assets are used to support salesd. none of the above
a. trend analysis The method of evaluating the firm’s performance over time is known as:a. trend analysisb. cross-sectional analysisc. industry comparative analysisd. Due Pont analysis
b. cross-sectional analysis Ratios used to compare different firms at the same point in time belong to a category of analysis called:a. time series analysisb. cross-sectional analysisc. industry comparative analysisd. just-in-time analysis
e. market value ratios Which one of the following types of financial ratios does not get all of its information from a firm’s income statements and balance sheets?a. liquidity ratiosb. asset management ratiosc. capital structure ratiosd. profitability ratiose. market value ratios
b. average collection period Which of the following ratios indicates the average number of days that sales are outstanding?a. average payment periodb. average collection periodc. quick ratiod. interest coverage
c. fixed charged coverage Rental or lease payments are included in which one of the following ratios?a. interest coverageb. times-interest-earnedc. fixed charged coveraged. equity multiplier
d, liquidity margin Which of the following is not a basic component of the DuPont method of ratio analysis?a. profit marginb. total asset turnoverc. equity multiplierd. liquidity margin
b. unit sales Cost-volume-profit analysis can be used to estimate the firm’s operation profits at different levels of:a. dollar salesb. unit salesc. dollar fixed costsd. unit variable costs
c. ratio analysis A financial technique that involves dividing various financial statement numbers into one another is called:a. trend analysisb. cross sectional analysisc. ratio analysisd. percent of sales analysis
d. interest coverage The ________________ ratio is computed as earnings before interest and taxes divided by interest expense:a. net profit marginb. fixed charge coveragec. total asset turnoverd. interest coverage
b. return on equity The profitability ratio that measures the return that share holders earned on their investment in the firm is the:a. operation profit marginb return on equityc. net profit margind. return on assets
c. the same as If a firm has no debt and pays no taxes, then the firm’s operating profit margin will be ____________ the firm’s net profit margin.a. greater thanb. less thanc. the same asd. we can’t tell
a. operating profits Earnings before interest and taxes (EBIT) is another way of describing:a. operating profitsb. net profits before taxesc. gross profitsd. earnings per share
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Finance Flashcards

Ch. 8 Finance

The insured of life policy dies. The primary and contingent beneficiaries have died previously. The insurance company does what with the death benefitsa. Keeps the benefits. NO payment to anyoneb. Pays the benefits to the insured’s estatec. Pays to the primary beneficiary’s next of kin. b. Pays the benefits to the insured’s estate
If a term life insurance is convertible, the policy can be:exchanged for cash.transferred to the life of another person.revised as needed by the insurer.changed to a comparable whole life policy.changed to health or disability protection. changed to a comparable whole life policy.
You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you will need life insurance for the rest of your life. You should choose a _____ insurance.convertible whole liferenewable premium whole lifesingle premium whole lifecontinuous premium whole lifelimited payment whole life limited payment whole life
Underwriters can predict whether or not you will suffer a loss this year.falsetrue true
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____.the life insurance company makes additional payments to the family of the insured so that they continue to live comfortablythe life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxesthe cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxesthe life insurance proceeds are invested as premiums for the life insurance of the beneficiarythe cash benefits from your life insurance policy cannot be claimed by creditors the cash benefits from your life insurance policy cannot be claimed by creditors
A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _____.mortgage life insurancegroup life insurancecredit life insuranceindustrial life insurancespecial purpose insurance industrial life insurance
Insurance companies use actuarial data to measure:the wealth of a given population.the gross productivity of a given population.the risk of loss for a given population.the consumer price index of a given population.the creditworthiness of a given population. the risk of loss for a given population.
Which of the following is a characteristic of a universal life insurance policy?Lighter fees than other insurance policiesNo flexible premiumsNo choice in how the accumulation account is investedFixed premiums and protection levelsAbsence of a savings feature No choice in how the accumulation account is invested
A(n) _____ policy is a type of term insurance.risk assumptionwhole lifeincreasing termvariable termstraight term straight term
Underwriters use life expectancy figures to look at overall longevity for various age groups and also consider specific factors related to an applicant’s health, habits, and experiences.truefalse true
Guaranteed renewable term insurance allows you to renew a policy for another term without qualifying medically.truefalse true
The most preferred technique for determining how much life insurance coverage is needed for an individual is:using the multiple-of-earnings method adjusted for occupation.assessing the family’s total economic needs and subtracting the financial resources available to meet those needs.computing the Human Life Value.estimating the sum of money which, when paid in installments, will produce the same income as the person would have earned after deducting assumed amounts for taxes and personal maintenance expenses.using the probability of death each year, prevailing interest rates, and assumed inflation rates to find the discounted present value of a future income stream. using the multiple-of-earnings method adjusted for occupation.
It is advisable to purchase life insurance from an insurance company that has been in business for at least _____ years.151019255 25
Employers often provide _____ life insurance as a fringe benefit for their employees.standardhome servicecreditgroupmortgage group
Only one agent should be consulted for discussing personal financial needs and insurance requirements while buying life insurance.falsetrue true
is any activity that lessens the severity of loss once it occurs. loss control
A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the Chartered Life Underwriter
The purchase of insurance is a common form of _____ by the insured.risk avoidanceloss preventionloss controlrisk assumptionrisk transfer loss prevention
The most accurate way to determine how much life insurance you need is to use the ___________ method.a. multiple-of-earnings b. disposable income c. needs analysis d. DuPont analysis . needs analysis
Group life insurance is most likely to be for a. special purpose b. a term c. variable life d. whole life b. a term
The insurance portion of a universal life policy is most analogous to:a. variable insurance.b. term insurance.c. whole life insurance.d. mortgage insurance.e. group insurance. b. term insurance.
Which of the following represents a disadvantage of a whole life insurance policy?a. A whole life insurance policy provides only temporary coverage for a set period.b. It is difficult to evaluate the true cost of a whole life insurance policy at the time of purchase.c. A whole life insurance policy does not provide any tax advantages on accumulated earnings.d. A whole life insurance policy may require a policyholder to pay higher premiums when the policy is renewed.e. A whole life insurance policy often provides lower yields than other investment vehicles. e. A whole life insurance policy often provides lower yields than other investment vehicles.
The primary purpose of a life insurance plan is to help:a. in the risk avoidance of the insured in the event of his or her untimely death.b. in the loss prevention of the insured in the event of his or her untimely death.c. in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.d. in controlling the loss of the insured in the event of his or her untimely death.e. provide tax benefit to the beneficiaries of the policy in the event of the insured’s untimely death. c. in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.
_____ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.a. The needs analysis methodb. The liabilities analysis methodc. The borrowings analysis methodd. The earnings analysis methode. The savings analysis method a. The needs analysis method
Insurance companies use actuarial data to measure: the consumer price index of a given population. the wealth of a given population. the creditworthiness of a given population. the gross productivity of a given population. the risk of loss for a given population. the risk of loss for a given population.
The availability of group coverage through employee benefit programs should be considered when developing a life insurance program. true false true
Insurance companies use _____ to determine whom they will insure and what they will charge for the coverage. the needs analysis method underwriting loss control risk assumption Social Security survivor’s benefits underwriting
Underwriters can predict whether or not you will suffer a loss this year. false true false
Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan. false true false
A(n) _____ is a common provision in many term policies. arbitration clause limited risk clause loss prevention clause renewable clause reward clause renewable clause
From the standpoint of a person buying insurance, the central purpose of insurance should be: to reduce payouts for the small risks taken. to transfer the risk of serious losses. to contribute to charitable purposes. to collect for all accidental losses. to profit from uncertain future events. to transfer the risk of serious losses.
The settlement option chosen by most policyholders is: life income. interest only. lump sum. fixed time. fixed amount. lump sum.
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____.a. the life insurance proceeds are invested as premiums for the life insurance of the beneficiaryb. the cash benefits from your life insurance policy cannot be claimed by creditorsc. the life insurance company makes additional payments to the family of the insured so that they continue to live comfortablyd. the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxese. the cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxes d. the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxes
Social Security survivor’s benefits are intended to provide basic, minimum support to families faced with the loss of the principal wage earner. true false true
Underwriting refers to _____:a. the determination of which exposures to insure.b. restoring the claimant to the financial condition prior to loss.c. a method for developing policy wording.d. the payment of a claim.e. selling insurance at a premium less than that of the competitors. a. the determination of which exposures to insure.
______________ an effective way to handle small exposures to loss when insurance is too expensive.Loss assumption Risk assumption Loss control Risk prevention Risk assumption
Which of the following is a characteristic of a universal life insurance policy? No flexible premiums No choice in how the accumulation account is invested Lighter fees than other insurance policies Fixed premiums and protection levels Absence of a savings feature No choice in how the accumulation account is invested
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____.a. the life insurance proceeds are invested as premiums for the life insurance of the beneficiaryb. the cash benefits from your life insurance policy cannot be claimed by creditorsc. the life insurance company makes additional payments to the family of the insured so that they continue to live comfortablyd. the life insurance proceeds are paid directly to named beneficiaries after payment of state or federal income taxese. the cash benefits are remitted to the beneficiary only after the beneficiary pays estate taxes b. the cash benefits from your life insurance policy cannot be claimed by creditors
The primary purpose of life insurance is to protect family members of the insured from financial loss in the event of his or her untimely death. true false True
It can be difficult to evaluate the true cost of a _____ at the time of purchase. whole life insurance term life insurance universal life insurance mortgage life insurance variable life insurance universal life insurance
Which of the following is true of the multiple-of-earnings method? The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the net annual earnings of the insured by some selected number. The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number. The multiple-of-earnings method determines the amount of tax benefits available to the insured when the life insurance coverage is availed. The multiple-of-earnings method divides the gross annual earnings of the insured by the insurance coverage available to the insured to determine the amount of annual insurance premium. The multiple-of-earnings method considers the insured’s financial obligations to compute the insurance premium amount. The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number.
In order to predict the number of losses that will occur in a given time accurately, insurance companies must study a a. medium b. negligible c. small d. largenumbers of cases. d.large
The basic purpose of insurance is to _____. protect yourself from economic losses supplement your income shield you from bad decisions protect your health protect yourself from non-financial losses protect yourself from economic losses
While performing needs analysis, when determining the available resources to offset the economic needs, you would generally ignore: Social Security benefits. the employer-provided group life insurance. savings corpus. the earning potential of the surviving spouse. the educational qualification of the children. the educational qualification of the children.
Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What is the amount of insurance, as per the needs analysis method, that Jonathan should purchase if he has current financial resources worth $1,000,000? $2,500,000 $1,500,000 $500,000 $2,000,000 $1,000,000 $1,000,000
Sales commissions and marketing expenses can increase the costs of a fully loaded _____ policy. universal life insurance variable life insurance whole life insurance term life insurance mortgage life insurance whole life insurance
Insurance agents always disclose their commissions in an insurance policy. false true false
Insurance is a tool that can reduce one’s _____ risk. mental exposure accident social economic economic
Which of the following types of insurance policies provides temporary coverage for a set period? Term life insurance policy Extended life insurance policy Universal life insurance policy Variable life insurance policy Whole life insurance policy Term life insurance policy
Term life insurance is characterized by _____. non-convertibility premium amounts related to the age of the insureds level annual premiums throughout one’s life its inappropriateness for most people’s life insurance needs cash value accumulation premium amounts related to the age of the insureds
It is not possible to avoid risks in your life loss control making investments accumulating savings risks in your life
The need for life insurance increases with children. true false true
Families faced with the loss of a principal wage earner receive Social Security benefits _____. after the repayment of all the financial obligations of the principal wage earner that amount to 5 to 10 times the current income of the principal wage earner after paying additional taxes on the benefit amount from the government that are intended to provide basic, minimum support that are deducted from the insurance proceeds, for the purpose of tax calculation from the government that are intended to provide basic, minimum support