Fin 419

True False

A financial analyst is responsible for maintaining and controlling the firm’s daily cash balances.

Frequently manages the firm’s short-term investments and coordinates short-term borrowing and banking relationships.

In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.

In partnerships, a partner can readily transfer his/her wealth to other partners.

The board of directors is responsible for managing day-to-day operations and carrying out the policies established by the chief executive officer.

The president or chief executive officer is elected by the firm’s stockholders and has ultimate authority to guide corporate affairs and make general policy.

In limited liability partnerships, the liability protection does not protect partners from their own individual acts of malpractice.

In limited liability partnership, all partners have limited liability with regard to the business, they are not personally liable for other partners’ malpractice, and the limited liability partnership is taxed as partnership.

The agency problem occurs when the firm selects an ineffective marketing advertising and PR firm to represent them.

The major purpose of the Sarbanes-Oxley Act of 2002 was to place caps on the compensation that could be paid to corporate executives.

High earnings per share (EPS) does not necessarily translate into a high stock price.

High-quality (high-rated) bonds provide lower returns than lower-quality (low-rated) bonds.

Holders of equity have claims on both income and assets that are secondary to the claims of creditors.

The tax deductibility of interest lowers the cost of debt financing, thereby causing the cost of debt financing to be lower than the cost of equity financing.

Preferred stock has characteristics of debt since it provides a fixed periodic cash payment.

The number of outstanding shares of common stock is always greater than or equal to the number of authorized shares of common stock.

The free cash flow valuation model can be used to determine the value of an entire company as the present value of its expected free cash flows discounted at the firm’s weighted average cost of capital.

A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on the firm’s income and assets have been satisfied.

Treasury stock generally does not have voting rights, does not earn dividends, and does not have a claim on assets in liquidation.

Firms occasionally repurchase stock in order to alter capital structure or to increase the returns to the owners.

A prospectus is another term for a firm’s annual report showing the firm’s prospects for the coming year.

The opportunity for management to purchase a certain number of shares of their firm’s common stock at a specified price over a certain period of time is a warrant.

In an efficient market, the expected return and the required return are equal.

In an efficient market, stock prices adjust quickly to new public information.

The constant growth model is an approach to dividend valuation that assumes that dividends grow at a constant rate indefinitely.

Future value is the value of a future amount at the present time, found by applying compound interest over a specified period of time.

The future value interest factor is the future value of $1 per period compounded at i percent for n periods.

Everything else being equal, the higher the discount rate, the higher the present value.

An ordinary annuity is an annuity in which cash flows occurs at the beginning of each period.

Multiple Choice
Managerial finance
involves tasks such as budgeting, financial forecasting, cash management, and funds procurement.
involves the design and delivery of advice and financial products.
recognizes funds on an accrual basis.
devotes the majority of its attention to the collection and presentation of financial data.

Finance can be defined as
the system of debits and credits.
the science of the production, distribution, and consumption of wealth.
the art and science of managing money.
the art of merchandising products and services.

TheĀ  owner(s) of the corporation is (are) the ________.
board of directors
chief executive officer
stockholders
creditors

High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price.

Managing the firm’s assets includes all of the following EXCEPT
inventory.
fixed assets.
accounts receivable.
notes payable.

Managing the firm’s liabilities includes all of the following EXCEPT
accruals.
notes payable.
cash.
accounts payable.

A firm purchased goods on January 27 with a purchase price of $1,000 and credit terms of 2/10 net 30 EOM. The firm paid for these goods on February 9. The firm must pay _____ for the goods.

$1,000
$980
$800
$900

The future value of $200 received today and deposited at 8 percent for three years is
$248.
$252.
$158.
$200.

The present value of a $25,000 perpetuity at a 14 percent discount rate is
$178,571.
$285,000.
$350,000.
$219,298.

Shares of stock currently owned by the firm’s shareholders are called
authorized
issued.
outstanding.
treasury shares.

According to Table 7.1, Ford’s common stock must have closed at ________ per share on the previous trading day.
$29.64
$30.76
$30.99
$31.55

According to Table 7.1, the expected dividend per share for Ford is
$0.25.
$1.00.
$2.00.
$3.30.

Based on Table 7.1, Ford’s earnings per share are
$0.80.
$1.21.
$1.68.
$1.91.

Corporate owner’s receive realizable return through
earnings per share and cash dividends.
increase in share price and cash dividends.
increase in share price and earnings per share.
profit and earnings per share.

As the risk of a stock investment increases, investors’
return will increase.
return will decrease.
required rate of return will decrease.
required rate of return will increase.

The Sarbanes-Oxley Act of 2002 was passed in response to
insider trading activities.
disclosures in financial reporting.
the decline in technology stocks.
all of the above.

The Sarbanes-Oxley Act of 2002 did all of the following EXCEPT
tighten audit regulations and controls.
toughen penalties against overcompensated executives.
toughen penalties against executives who commit corporate fraud.
All of the above are .

A public offering is the sale of a new security issue, typically debt or preferred stock, directly to an investor or group of investors.
A competitive market that allocates funds to their most productive use is called a(n)
liquid market.
middleman’s market.
efficient market.
investor’s market.

A downward-sloping yield curve indicates generally cheaper short-term borrowing costs than long-term borrowing costs.

If a bond pays $1,000 plus interest at maturity, $1,000 is called the
stated value.
market value.
par value.
long-term value.

Calculate the present value of $5,800 received at the end of year 1, $6,400 received at the end of year 2, and $8,700 at the end of year 3, assuming an opportunity cost of 13 percent.