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Finance For Managers: Chapter 1 + 2

Terms in this set (93)

On a balance sheet, patents and trademarks are classified as ______________________.
Fixed Assets
Which one of the following are examples of current assets?
Inventory: Current assets include cash, accounts receivable, and inventory.
The purpose of a firm is to:
Create value for the owner.
A current liability is defined as debt that must be repaid within which period of time?
One year
Which of the following provides a snapshot of a firms finances at a given point of time?
Balance Sheet
The left side of a balance sheet shows a firm's current and fixed _________.
Assets
Corporate bonds are generally classified as ______________________________________
Long-term debt
Which of the following are examples of fixed assets?
Warehouses and Equipment
In large firms, financial activity is usually associated with which top officer?
Chief Financial Officer
A current asset has a(n) _______________ life.
Short: Current assets are short-term assets. They are assets that will be on the balance sheet for at most one year.
Which of the following is an example of current liability?
Accounts Payable
A sole proprietorship is a business that ___________________________.
Is owned by one person.
A firm's balance sheet shows a snapshot of its finances:
At a point in time
A business without separate legal authority formed by two or more people is known as a _____________________________.
Partnership
A _______________ liability does not have to be paid within one year.
Long-Term
Which one of the following positions generally report to the chief financial officer (CFO)?
Treasurer and Controller
A corporation is a distinct _________ entity and as such can have a name and take advantage of the legal powers of natural persons.
legal
Which one of the following show why a corporation is the most important form of business?
- A corporation is a separate legal entity with the ability to acquire and exchange property.
- Corporations can sue and be sued.
- Corporations can enter into contracts.
Which of the following is the most complicated to start?
Corporation
A partnership must have at least _______ owners
two
The rules used by a corporation to regulate its existence are known as ___________________.
Bylaws
When a corporation is formed, it is granted which of the following rights?
- Provincial citizenship for jurisdictional purposes
- The ability to issue stocks
- Legal powers to sue
The owners of a corporation are called:
shareholders
An organization must prepare ____________ and bylaws when forming a corporation.
articles of incorporation
Which of the following business forms is easiest to transfer ownership stakes in?
Corporation
Bylaws of a corporation concern which of the following groups?
Shareholders
The life of a corporation __________.
is unlimited
Some of the cash flows generated by a firm goes back to the financial markets in the form of _____________________________.
dividends and debt payments.
What determines when a sale is recorded for accounting purposes?
Generally accepted accounting principles
How is ownership transferred in a corporation?
Ownership is transferred by gifting or selling shares of stock
Since ___________ and ownership are separated, a corporation's life is unlimited.
Management
Assuming interest rates are positive and are greater than the inflation rate, one dollar received today is worth ___________ one dollar received next year.
more than
Which of the following, according to the textbook, are possible financial goals for a company?
- Minimize costs
- Survival
- Maximize profits
True or False: Accounting profit does not adequately account for cash flow.
True: Accounting profit records sales made and expenses incurred but not the timing of cash receipts and expenditures.
When would individuals prefer to receive cash flows?
Sooner rather than later
The primary responsibility of financial managers is to increase the value of ______________________.
the existing shares of stock
In a shareholder -manager relationship, who is the agent?
Managers
Because shareholders get paid last after all other obligations are satisfied, they are often called:
Residual Owners
A bad financial decision is defined as a decision that _____________ owners' equity.
decreases
Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that ______ effectively controls the firm.
Management
What are agency costs?
the costs of interest between stockholders and managers.
What is an agency relationship?
A relationship between stockholders and management
Which of the following are general ways shareholders control the agency relationship with management?
compensation and replacement
A good financial decision will do which of the following?
Increase the value of the firm's existing stock.
________________ are frequently used to encourage key managers to maximize the value of the firm's stock.
Stock Options
Which of the following can be used to encourage managers to act in the best interests of shareholders?
Stock options and bonuses, Management compensation tied to performance
Which of the following is true concerning government regulations?
Regulations can be costly to a firm, can help ensure firms disclose relevant information to investors and can help reduce conflicts of interest between managers and shareholders.
The 1934 Securities Exchange Act deals with the important issue of _______________ trading.
insider
A bad financial decision is defined as a decision that ____________ owners' equity.
decreases
Which year was the Sarbanes-Oxley Act enacted?
2002
What is the primary purpose of awarding stock options to managers?
To give managers the incentive to pursue shareholders' goals, such as, increasing shareholder value.
True or False: Shareholders are the ONLY stakeholder in a firm as they are the owners.
False: Employers, customers, suppliers and even the government all have a financial interest in the firm.
The Securities Act of 1933 and the Securities _____________ Act of 1934 provide the basic regulatory framework in the United States for the public trading of securities.
Exchange
The 1934 Securities Exchange Act restricts anyone who has access to __________________________ information from trading on that information.
non-public
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?
WorldCom, Enron, Tyco
___________________ refers to the quickness and ease with which assets can be converted to ________________.
Liquidity, cash
Stockholders' equity ___________ when retained earnings increase.
increases
The price at which willing buyers and sellers would trade is called ________ value.
market
How is income defined?
revenue minus expenses
What does balance sheet reflect about a firm?
accounting value on a specific date
Dividends per share (DPS) equals ________________ divided by total shares outstanding.
Dividends
True or False: The realization (timing) of income can be useful to a firm.
True
When a firm pays out fewer dividends, it ____________ the accounting value of its retained earnings.
increases
What is depreciation?
A systematic expensing of an asset based on the asset's estimated life
The short run is a period when there are _______________ costs.
both fixed and variable
Taxes represent which of the following:
cash outflow
To smooth its earnings, a firm is more apt to sell appreciated property and realize the income on that sale when the other earnings are _____
down
In the U.S. taxes on proprietorships and partnerships follow which type of system after passage of the Tax Cults and Job Acts of 2017?
progressive tax
The short run for a firm is the period of time during which ________.
output can vary; some costs are fixed
True or False: Taxes can be a large cash outflow for a corporation.
True
_______________ income is the income subject to tax.
Taxable
How many tax brackets are there for forms of business other than corporations?
> 1
If a firm's current assets equal $200 and its current liabilities equal $150, than its net working capital equals
$50
What is the most important item that can be extracted from financial statements?
The firm's actual cash flows
Operating cash flow reflects which one of these?
Tax payments
If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is:
$20
Changes in capital spending can be negative when the acquisition of fixed assets is _____________ the sale of fixed assets.
equal to
Which of the following is true?
Cash flows can be derived from financial statements.
Net capital spending is equal to the change in net fixed assets plus:
Depreciation
Cash flow from operations is calculated by adding depreciation to EBIT and _____________ current taxes.
dividing by
Debt service implies paying ________________
interest and principal
Who owns treasury stock?
the issuer of the stock
If the acquisition of fixed assets is $10,000,000 and the sales of fixed assets is $15,000,000, capital spending will be:
negative
The activity of making net payments to creditors and owners (excluding interest) is called a(n) __________________ activity in the accounting statement of cash flows.
financing
Which one of the following calculates cash flow from operations?
EBIT + Depreciation - Taxes
If Net income is 97 million dollars, depreciation is 33 million dollars and deferred taxes are 22 million dollars, what is the cash flow from operating activities?
152 million
Which of the following are included in cash flow from investing activities?
acquisition of fixed assets and sales of fixed assets
Which of the following are examples of financing activities?
net payments to creditors and owners
The cash flows from financing activities include changes in:
common stock and long-term debt
TRUE OR FALSE: Operating cash flow includes capital spending and working capital requirements.
False
It is difficult to manipulate _________________
cash flows.
Which of the following cash flows appear in the financing activities section of the accounting statement of cash flows?
- Retirement of long-term debt
- Repurchase of stock
- Payment of dividends
Cash flow analysis is popular because:
it is harder to "spin" and mislead
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