Finance Final

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34 terms

Corporation

Which of the following legal forms of organization is characterized by limited liability?

Making investment and financial decisions

The primary emphasis of the financial manager is the use of____

Maximize profit of the owners

The primary goal of the financial manager is____

The share price of the stock

The wealth of the owners of a corporation is represented by_____

Operating Profits

Profits earned from producing and selling products (EBIT)

Financial Leverage

_____ is a term used to describe the magnification of risk and return introduced through the use of fixed cost financing such as preferred stock and long-term debt.

Net Profit Margin

The _______ measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted.

Operating Cash Flow (OCF)

The cash flow a firm generates from its normal operations

Operating, Investment, Financing

Which of the following is a source of cash flows?

A number of operating budgets, cash budget, and pro forma financial statements

The key output (s) of the short-run financial planning process are a(n)_____

Cash Budget

The________ is a financial projection of the firm's short-term cash surpluses or shortages

Depreciation and other noncash charges

Cash disbursements may include all of the following EXCEPT

Assumes all costs are variable

A weakness of the percent-of-sales method to preparing a pro forma income statement

Tends to understate profits when sales are increasing

In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to

Portfolio

A collection of assets is called

The higher the required return

the higher an asset's beta,

Capital Budgeting

_____is the process of evaluating and selecting long-term investments consistent with the firm's goal of owner wealth maximization

Internal Rate of Return (IRR)

The______ is the discount rate that equates the present value of the cash inflows with the initial investment

Cost of Capital

The______ is the rate of return a firm must earn on its investments in projects in order to maintain the market value of its stock

Net proceeds; Flotation costs

The ______ from the sale of a security are the funds actually received from the sale after_____, or the total costs of issuing and selling the security, which have been subtracted from the total proceeds

Breakeven Analysis

Is a technique used to assess the returns associated with various cost structures and levels of sales

Variable

_____costs are a function of volume, not time

Total

_____ leverage is concerned with the relationship between sales revenue and earnings per share

EBIT; EPS

The higher financial leverage causes____ to increase more for a given increase in _______

Lower the market price

The purpose of a stock split is to____

Increase the market price

The purpose of a reverse stock split is to _____

Increase; Increase

The repurchase of stock____ the earnings per share and _____ the market price of stock

Net Working Capital

The portion of a firm's current assets financed with long-term funds may be called

Technically Insolvent

In working capital management, risk is measured by the probability that a firm will become________

Risk decreases

In general, the more net working capital a firm has,

Permanent and seasonal

The firm's financing requirements can be separated into

Accruals

_______are liabilities for services received for which payment has yet to be made. The most common accounts are taxes and wages

Revolving credit agreements

A line of credit guaranteed to a borrower by a commercial bank regardless of the scarcity of money. Commitment fee usually charged. Can be greater than 1

Factoring

_____involves the sale of accounts receivable

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