Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FI 311 > Quiz 1 > Flashcards

Quiz 1 Flashcards

1
Q

The study of the relationship between business decisions and the market value in the business

A

Corporate finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

3 types of decisions financial managers make:

A
  • Capital budgeting
  • Capital structure
  • Working capital management
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

3 major forms of business in the United States:

A
  • Sole proprietorship
  • Partnership
  • Corporation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the goal of financial management?

A

To maximize the current market value of the existing stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Ownership stake in a company

A

Stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

A share in the ownership of the company

A

A share of stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Stock is also referred to as

A

Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Number of shares issued by a company that are actually owned by someone

A

Outstanding stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Financial market where transaction takes places directly between issuer and investor

A

Primary markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Financial market where transaction takes place between investors

A

Secondary markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does a small company sell its stock?

A

The owners themselves find an investor willing to buy the shares, negotiate a price, and the investor pays the company directly for the stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How does a large company sell its stock?

A

Companies that meet certain size requirements can have their stock listed on an exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Pros of issuing stock?

A
  • The company does not have to pay money back to purchasers of stock
  • Easier for good companies to attract investors who want an ownership stake, higher returns
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Cons of issuing stock?

A
  • Current owners are giving up a piece of their stake in the company
  • Equity investors usually require a higher potential return than bond investors
  • Dividends are not tax-deductible, unlike interest payments on loans or bonds
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Features of common stock

A
  • Voting rights
  • Proxy voting
  • Clases of stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

A contract between a borrower and investor

A

bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Interest payments made by the company are __ __

A

tax deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

T/F

Bond holders do not have an ownership stake in the company

A

True

They are just lenders and not owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

T/F

Bonds can be traded between investors the same way as stocks

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Pros of bonds?

A
  • Selling bonds does not force current owners to give up management or ownership control of the company
  • Unlike stock, bonds have a limited life
  • Since the company can deduct interest payments from income for tax purposes, the cost to the company of issuing and holding debt in the form of bonds is typically lower than that of stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Cons of bonds

A
  • Usually, periodic interest payments must be made. This reduces the company’s liquidity, and can even force the company into bankruptcy
  • Unlike stockholders, the company is obligated to make a payment to bondholders at a specified period of time
  • May be harder to sell bonds than stock in certain circumstances
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Investment grade bond ratings (2):

A
  • High Grade

- Medium Grade

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Non investment grade bond ratings (2):

A
  • Low grade

- Very low grade

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Aaa and AAA bonds capacity to pay is __

A

extremely strong

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Aa and AA bonds capacity to pay is __

A

very strong

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Moody’s A and S&P A bonds capacity to pay is __ but _______

A

strong

more susceptible to changes in circumstances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Moody’s Baa and S&P BBB capacity to pay is __ but adverse conditions will have ___

A

adequate

more impact on the firm’s ability to pay

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Ba and B and BB and B are considered possible that the capacity to pay will ___

A

degenerate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Moody’s C and D and S&P C and D are income bonds with no ____

A

interest being paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

In terms of bonds, D=

A

default with principal and interest in arrears

31
Q

Above bonds can also be known as ___ or __ bonds

A

“High Yield”

“Junk”

32
Q

Pool money from many investors to buy individual securities

A

Mutual funds

33
Q

T/F

Mutual fund managers help investors gain exposure to companies with no charge

A

False

They charge a fee for the service

34
Q

T/F Mutual funds happen within a broad category of security and type

A

False

Mutual funds focus on one type of security (stocks or bonds) and have a particular focus within that security type (large company stocks, government bonds)

35
Q

3 things to consider when examining a balance sheet (from a Finance perspective)

A

Liquidity
Debt vs. equity
Market value vs. book value

36
Q

Liquidity refers to the ease and quickness with which assets can be converted to ______

A

cash quickly and without a significant loss in value

37
Q

The more liquid a firm’s assets, the less likely the firm is to ____

A

experience problems meeting short-term obligations

38
Q

Liquid assets frequently have _____ than fixed assets

A

lower rates of return

39
Q

Equity holders are entitled to only the ____

A

residual value

40
Q

Creditors have the first claim to a firms ____

A

cash flow

41
Q

The balance sheet provides the ____ of the assets, liabilities, and equity

A

book value

42
Q

____ value is the price at which the assets, liabilities, or equity can actually be bought or sold

A

Market

43
Q

How big the company’s equity is based on the current price of the stock

A

Market Capitalization

44
Q

Market cap formula

A

number of shares outstanding * current price of the stock on the market

45
Q

When is revenue recognized?

A

At the time of sale

46
Q

Expenses charged against revenues that do not directly affect cash flow

A

Noncash items

47
Q

noncash items (3):

A
  1. Depreciation
  2. Amortization
  3. Deferred taxes
48
Q

Amount of cash flow available for distribution to investors

A

Cash flow from assets

49
Q

Positive cash flow =

A

firm generates more than enough cash to cover its operating needs

50
Q

Ratios allow for better comparison through __ or between __

A

time

companies

51
Q

T/F

Ratios are only used internally

A

False

They are used internally and externally

52
Q

Current assets / current liabilities

A

Current ratio

53
Q

(current assets-inventory)/(current liabilities)

A

Quick ratio

54
Q

Cash / current liabilities

A

Cash ratio

55
Q

Measures a company’s debt relative to other parts of the balance sheet

A

Long-term solvency ratios

56
Q

Measures how liquid a company is, or how able they are to meet their obligations over the next 12 motnhs

A

Liquidity ratios

57
Q

(Total assets - total equity) / total assets

A

Total debt ratio

58
Q

Measures how likely a company is to meet its interest obligations

A

Coverage ratios

59
Q

Earnings before interest and taxes / interest

A

Times interest earned

60
Q

(EBIT + depreciation) / interest

A

Cash coverage

61
Q

Net income / sales

A

profit margin

62
Q

net income / total assets

A

return on assets

63
Q

net income / total equity

A

return on equity

64
Q

price per share / earnings per share

A

PE ratio

65
Q

price per share / sales per share

A

price-sales ratio

66
Q

price per share / book value per share

A

Market-to-book ratio

67
Q

Why evaluate financial statements?

A

-Performance evaluation
Planning for the future
-Investment potential
-Lending evaluation

68
Q

Potential benchmarking problems

A
  • Difficult for diversified firms
  • No underlying theory
  • Globalization and international competition makes comparison more difficult
  • Varying accounting procedures
  • Different fiscal years
  • Extraordinary events
69
Q

Elements of financial policy (4):

A
  1. Investment in new assets
  2. Degree of financial leverage
  3. Cash paid to shareholders
  4. Liquidity and working capital requirements
70
Q

Dimensions of financial planning (3):

A
  • Planning horizon
  • Aggregation
  • Assumptions and scenarios
71
Q

What is a major drawback to Corporations?

A

Double taxation

72
Q

Which of the following is an advantage of a sole proprietorship?

A. Unlimited life
B. Double taxation
C. Unlimited liability
D. Easier to start and run/less paperwork

A

D. Easier to start and run/less paperwork

73
Q

T/F

In a partnership, if there are 20 partners and one dies, you can still keep the partnership going with the remaining 19 partners

A

False

74
Q

What is the main goal of financial management?

A

To maximize the value of the firm to the owners

FI 311 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions