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quiz 1 buad 195
chapter 1 & 2
Question | Answer |
---|---|
What is the primary goal of financial management? | Maximizing shareholders' wealth. |
What is one major disadvantages of Sole Proprietorship? | unlimited Liability to the owner. |
Maximization of shareholder wealth is a concept in which... | through achieving the highest possible value for the firm in the marketplace. |
What are the characteristics of a Corporation? | a legal entity unto itself, ownership by shareholders, divisibility of the ownership, continuous life span, taxation on its own income. |
How do you calculate working capital? | current assets - current liabilities |
How do you calculate Earnings Available to Shareholders? | EAT - preferred shares |
How do you calculate Earnings per common share? | P/E ratio x # of common shares |
How do you calculate the total amount of dividends received by a common shareholder? | Earnings available to common shareholders/ # of common shares |
How do you calculate book value? | A - L - P stock/ # comm shares, or TSEq - P stock/ # comm shares, or $ comm shares + retained earnings/ # comm shares |
State two advantages of common shares over preferred shares | They have the right to vote, & the right to participate in earnings growth of the company |
State two advantages of preferred shares over common shares | Annual dividend is fixed and must be paid in full before the other shares, & upon liquidation they must receive all of their capital back before the other shareholders. |
Calculate after-tax cost of annual interest expense | $ interest paid x tax rate % in other words $ interest x (1-rate) |
Calculate the after-tax cost of the total dividends paid | No tax deductions allowed - just the amount of the dividend |
What are the 3 headings on a cash flow statement? | Operations, Investments & Financing. |
What effect does a positive or negative number have on the cash flow statement? | A positive number is a source of cash & a negative number is a use of cash. |