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quiz 1 buad 195

chapter 1 & 2

QuestionAnswer
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.
Created by: buad ok college
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