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Finance Exam 1 > Exam 1 > Flashcards

Exam 1 Flashcards

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1
Q

NOPAT=

A

EBIT x Tax Rate

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2
Q

Operating Cash Flow=

A

NOPAT + Depreciation

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3
Q

Investment in Operation Capital=

A

change in gross fixed assets + change in net operating working capital

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4
Q

Net Operating working capital=

A

current assets - current liabilities

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5
Q

Free Cash Flow=

A

operating cash flow - investment in operating capital

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6
Q

Tax Liability=

A

taxable income x tax rate

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7
Q

average tax rate=

A

tax liability/taxable income

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8
Q

calculate taxes reported on the income statement:

A

EBIT - interest expense - net income

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9
Q

when a firm alters its capital structure to include more or less debt (and, in turn, less or more equity), it impacts:

A

residual cash flows available for stockholders, the number of shares of stock outstanding, and the earnings per share

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10
Q

The Sarbanes-Oxley Act requires public companies to ensure the following individuals have considerable experience applying generally accepted accounting principles (GAAP) for financial statements?

A

corporate boards audit committees

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11
Q

what should be considered to maximize owner’s equity value?

A

how best to return the profits from those projects to the owners over time, which projects to invest in, and how best to bring additional funds into the firm

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12
Q

what is an example of aligning managers personal interest with those of the owners?

A

offer the managers an equity stake in the firm

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13
Q

the overall goal of the financial manager is to:

A

maximize shareholder wealth

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14
Q

a legal duty between two parties where one must act in the interest of the other party

A

fiduciary duty

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15
Q

earnings per share=

A

net income/shares

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16
Q

an all-equity financed firm will

A

pay more in income taxes than a primarily debt-financed firm

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17
Q

sole proprietorship is…

A

easy to start but has unlimited liability

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18
Q

where would you find common stock and paid-in surplus

A

balance sheet

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19
Q

what statement shows total revenues and total expenses to generate revenues

A

income statement

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20
Q

how to find total assets using ROA, profit margin, and sales:

A

TA = (profit margin x sales)/ROA

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21
Q

current ratio=

A

current assets/ current liabilities

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22
Q

quick ratio=

A

(current assets - inventory) / current liabilities

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23
Q

cash ratio=

A

(cash and marketable securities) / current liabilities

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24
Q

debt ratio=

A

total debt / total assets

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25
Q

debt-to-equity=

A

total debt / total equity

26
Q

equity multiplier=

A

total assets / total equity
OR
total assets / common stockholders’ equity

27
Q

internal growth rate=

A

ROA x dividend payout

28
Q

debt management ratio:

A

measures the extent to which the firm uses debt versus equity to finance assets

29
Q

times interest earned=

A

EBIT / interest

30
Q

fixed-charge coverage=

A

earnings available to meet fixed charges / fixed charges

31
Q

cash coverage=

A

(EBIT + depreciation) / fixed charges

32
Q

gross profit margin=

A

(sales - COGS) / sales

33
Q

operating profit margin=

A

EBIT / sales

34
Q

profit margin=

A

net income available to common stockholders / sales

35
Q

ROA=

A

net income available to common stockholders / total assets

36
Q

ROE=

A

net income available to common stockholders / common stockholders’ equity

37
Q

inventory turnover=

A

sales or COGS / inventory

38
Q

rule of 72=

A

72 / %

39
Q

PV of a perpetuity=

A

PMT / % (decimal form)

40
Q

PV of annuity due=

A

$ annuity x (1 + rate in decimal form)

41
Q

effective annual rate (EAR)=

A

[(1 + (decimal rate/N))^ N] - 1

42
Q

when interest rates are lower borrowers can…

A

borrow more money

43
Q

your credit rating and economic conditions will determine..

A

the interest rate that a lender will offer

44
Q

partnership

A

easy to start, but hard to raise capital

45
Q

corporation

A

easy to transfer ownership, double taxation

46
Q

hybrid

A

single taxation, limited liability, costs more

47
Q

angel investor

A

well off and invests own money

48
Q

2/10 net 30

A

2% discount if paid in 10 days
OR
due in full by 30 days

49
Q

social security rate:

A

.062

50
Q

medicare rate:

A

.0145

51
Q

ch 7 bankruptcy:

A

liquidation

52
Q

ch 13 bankruptcy:

A

reorganization of debt

53
Q

ch 9 bankruptcy:

A

municipalities

54
Q

ch 11 bankruptcy:

A

reorganization of business to pay off debts

55
Q

ch 12 bankruptcy:

A

family farm and fisherman

56
Q

ch 15 bankruptcy:

A

international bankruptcy

57
Q

most businesses try to keep their debt-to-equity ratio below…

A

2

58
Q

debt payment to income ratio (individual)

A

should be less than 20% after-tax income on consumer credit payments

59
Q

debt-to-equity ratio (individual)

A

maximum of 1

60
Q

28/36 rule:

A

households spend a max of 28% of gross monthly income on total household expenses and 38% on total debt services

Finance Exam 1 (2 decks)

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