finance exam 1

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  1. Pick the group where not all terms belong together.

    (a)Stocks; equities; residual claim  (b) limited
    liability; stocks; corporations  (c) bonds; coupon rates; dividends  (d) bonds; debt; loans
    (c) bonds; coupon rates; dividends
  2. Mary will be entering college in 3 years.  Currently annual tuition is $25,000 and is due at the beginning of the academic year.  If tuition is scheduled to increase at a 5% annual rate, how much must Mary’s parents have available at the beginning of Mary’s freshman and junior years, respectively?
    (a) $28,941; $31,907
  3. Which of the following is TRUE regarding a standard supply-demand diagram?
    (a) There is downward pressure on price when price is below the equilibrium price.
    b)At a price above equilibrium, there is excess demand.
    C)Quantities supplied and demanded are measured vertically.
    d)After an increase in supply, quantity supplied exceeds quantity demanded at the
    original equilibrium price.
    E)An upward shift in the supply curve represents an increase in supply.
    d)After an increase in supply, quantity supplied exceeds quantity demanded at the original equilibrium price.
  4. If,ceteris paribus, a company sells $100 out of its inventory on credit rather than for cash, which of the following would be TRUE?(a) Total assets would decline.(b) Accounts payable would increase by $100.(c) The value of neither total assets, total liabilities nor owners’ equity would change.(d) There is not sufficient information to assess statements (a) through (c)..
    The value of neither total assets, total liabilities nor owners’ equity would change.(
  5. If the fraction (A/B) decreases, this could be the result of (a) B going down by more than A.(b) an increase in A and decrease in B.(c) B increasing by more than A.(d) no change in A and a decrease in B.
    B increasing by more than A.(
  6. If the corporate tax rate is 40%, the impact on NI from an increase of $10 in depreciation would be a(a) $4 increase  (b) $6 increase.  (c) $4 decrease.  (d) $6 decrease.  (e) $10 decrease.
    (d) $6 decrease.
  7. Given the following:  OCF = $20; Chg, in NWC = minus $5;  NCS = $10; Int. expense = $5;  no chg. In L.T. debt; Dividends = $6.  This company ____________ stock in the amount of _____________. (a) repurchased; $26  (b)issued; $4  (c) issued; $26  (d) repurchased $4
    repurchased $4
  8. Ceteris paribus, if the change in NWC is + $10 and the corporate tax rate is 40%, this would make the cash available for distribution
    to investors (CFFA)_______ by _______. (a) higher; $10  (b) lower; $10  (c) higher; $6  (d) lower; $6
    (b) lower; $10
  9. You invest $100 at 6% per year.  How much
    more interest would you earn in year 3 with compound interest than with simple interest? (a)$0.00  (b) $0.36 (c) $0.74  (d) $1.10
    (c) $0.74
  10. By your 25th birthday you managed to save $10,000 and would like to become a millionaire.  If you can earn 8% a year, how old would you be by the time you were a millionaire?(a) 100  (b) 85 (c) 60  (d) 50  (e) 45
    (b) 85
  11. Main areas of Finance (4)
    • 1. corporate finance
    • institutions and markets
    • 4.International finance
  12. finance
    making decisions about when to buy and when to sell, and what to buy and what to sell.
  13. Financial management
    those activities that create or preserve the economic value of the assets of an individual, small business, or corporation.
  14. cycle of money
    the movement of money from lender to borrower and back again.
  15. financial intermediary
    an institution that acts as a middleman between lenders and borrowers.
  16. corporate finance
    • one of the four main areas of finance.
    • the set of financial activities that support the operations of a corporation or business.
  17. investments
    • one of the four main areas of finance.
    • activities centering on the buying and selling of assets, both real and financial.
  18. real assets
    physical assets aka. property,buildings
  19. financial assets
    intangible assets such as stocks and bonds
  20. financial institutions and markets
    • one of the four main areas of finance.
    • the organized financial intermediaries and the forums that promote the cycle of money.
  21. international finance
    • one of the four main areas of finance.
    • concerned with the multinational element to finance .
  22. what are the four types of financial markets?
    • 1.equity market
    • 2.debt mkts
    • 3.derivative mkts
    • 4.foreign exchange mkt
  23. equity mkt
    where stocks are bought and sold
  24. debt mkt
    where bonds are bought and sold
  25. derivative mkt
    where future contracts on commodities are bought and sold or where options on equities,futures,or currencies are bought and sold
  26. foreign exchange mkt
    where currencies are bought and sold
  27. money mkt
    where financial assets that will mature within one year are bought and sold
  28. capital mkts
    where financial assets that have maturities over a year are sold.
  29. dealer market
    an individual or firm that buys and sells securities out of their own inventory, much as in used car dealership.
  30. auction market
    many securities that are bought and sold at the same time
  31. cfo
    oversees all the company's financial activities, such as determining the best repayment structure for borrowed funds to ensure the company meets its debt obligations in a timely fashion and still has sufficient cash for day to day operations.
  32. three main categories of financial mgmt
    • capital budgeting
    • capital structure
    • working capital management
  33. capital budgeting
    process of planning, comparing, and selecting the long term operating projects of the company.
  34. capital structure
    means by which the company is financed
  35. working capital mgmt
    the process of managing the day to day needs of the company through its current assets and current liabilities.
  36. what is the primary objective of the finance manager?
    maximize the current stock price of the firm
  37. balance sheet
    • the first financial statement we consider
    • represents the set of assets owned by the company and all claims against these assets.
  38. accounting identity
  39. double entry book keeping
    a debit for every credit(why the balance sheet balances)
  40. cash account
    much like a checking account.(cash and cash equivalents)
  41. working capital accounts
    current assets and current liabilities of the company
  42. net working capital
    the measure of the relationship btwn current assets and current liabilities
  43. what does ebit stand for?
    earnings before interest and taxes
  44. gaap
    generally accepted accounting principles
  45. accrual based accounting
    rev is recognized and recorded at the time of sale, whether or not it has been received in cash.
  46. statement of retained earnings
    distribution of net income for the past period
  47. cash flow identity
    states that the cash flow from assets is equal to the cash flow to creditors and owners
  48. growth rate
    another name for the interest rate
  49. lump sum payment
    one time payment of money at a future date.
  50. two financial statements
    • balance sheet
    • income statement
  51. common size income statements
    where all line items are expressed as percentages
  52. financial ratios
    relationships between different accounts from financial statements
  53. liquidity ratios
    determines if the company meet its obligations in the short term
  54. 3 examples of liquidity ratios
    current,quick,cash ratios
  55. solvency ratios
    can the company meet its financial obligations in the long term
  56. asset management ratios
    how effectively is the company managing its assets
  57. profitability ratios
    how well the company has performed overall
  58. market val ratios
    how does the market view the company's prospects.
  59. 5 types of financial ratios
    liquidity,solvency,asset mgmt,profitability,mkt value
  60. financial leverage ratios
    measure a company's ability to meet its long term debt obligations.
  61. mkt value ratios
    measure the performance of the firm against the percieved value of the firm from trading value of the shares or number of sales.
  62. three components of dupont analysis
    • op efficiency(profit margin)
    • asset mgmt efficiency(asset turnover)
    • financial leverage(equity multiplier)
Card Set
finance exam 1
finance exam 1
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