FINA Ch. 01 - 04

Question 1

a business organized as a separate legal entity owned by stockholders

Answer 1

Corporaiton

Question 2

assets used to produce goods and services

Answer 2

real assets

Question 3

financial claims to the income generated by the firm’s real assets

Answer 3

financial assets

Question 4

the owners of a corporation are not personally liable for its obligations

Answer 4

limited liablity

Question 5

managers are agents for stockholders, but the managers may act in their own interests rather than maximizing value

Answer 5

agency problems

Question 6

individual investors that hold 5%, 10% or more of the corporation’s shares

Answer 6

blockholders

Question 7

Market where securities are issued and traded

Answer 7

financial market

Question 8

Market for the sale of new securities by corporations

Answer 8

primary market

Question 9

Market in which previously issued securities are traded among investors

Answer 9

secondary market

Question 10

first offering of stock to the general public

Answer 10

initial public offering (IPO)

Question 11

market for debt securities

Answer 11

fixed-income market

Question 12

market for long-term financing

Answer 12

capital market > 1 year

Question 13

market for short-term financing

Answer 13

money market < 1 year

Question 14

An investment company that pools the savings of many investors and invests in a portfolio of securities

Answer 14

mutual fund

Question 15

A private investment pool, open to wealthy or institutional investors, that is only lightly regulated and therefore can pursue more speculative policies than mutual funds

Answer 15

hedge fund

Question 16

Fund set up by an employer to provide for employees’ retirement

Answer 16

pension fund

Question 17

the ability to sell an asset on short notice at close to the market price

Answer 17

liquidity

Question 18

financial statement that shows the firm’s assets and liabilities at a particular time

Answer 18

balance sheet

Question 19

procedures for preparing financial statements

Answer 19

generally accepted accounting principles (GAAP)

Question 20

value of assets or liabilities according to the balance sheet

Answer 20

book value

Question 21

The value of assets or liabilities were they to be resold in a market

Answer 21

market value

Question 22

a financial statement that shows the revenues, expenses, and net income of a firm over a period of time.

Answer 22

income statement

Question 23

All items on a common-size income statement are expressed as a percentage of revenues

Answer 23

common-size income statement

Question 24

a financial statement that shows the firm’s cash receipts and cash payments over time

Answer 24

statement of cash flows

Question 25

market capitalization minus book value of equity

(share price x shares outstanding) - equity

Answer 25

market value added

Question 26

after-tax operating income minus a change for the cost of capital employed, also called residual income

operating income - (cost of capital x total capitalization)

Answer 26

economic value added (EVA)

Question 27

return on capital, return on assets, return on equity

Answer 27

book rates of return

Question 28

after-tax operating income as a percentage of long-term capital

Answer 28

return on capital (ROC)

Question 29

after-tax operating income as a percentage of total assets

Answer 29

return on assets (ROA)

Question 30

net income as a percentage of shareholders’ equity

Answer 30

return on equity (ROE)