Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Stack #4678813
| Question | Answer |
|---|---|
| Before the company goes public, it wants to show a strong history of profit and is focusing its efforts on improving its bottom line (on the income statement) What is a potential negative consequence if the firm focuses solely on profit maximization? | Unethical behavior and potential scandals |
| ocusing solely on profit maximization can lead to unethical behavior, as exemplified by | the Enron scandal, where the pursuit of profit led to misreported financial statements and significant loss of shareholder value. |
| How might a privately held company define shareholder value differently from a publicly held company? | Privately held companies may value keeping the business within the family. |
| What effect does a currency devaluation have on a country’s international trade? | It makes a country’s exports cheaper internationally. |
| Devaluation reduces the price of a country’s goods and services abroad, making exports | more competitive while potentially increasing the volume of exports. |
| Global financing integration enables companies to tap into international markets for debt and equity, offering them more | favorable conditions and diversification benefits than might be available domestically. |
| What is an auction market in secondary financial markets? | A market that operates where prices are determined by the highest bidder |
| What does Retained Earnings represent in the equity section of the balance sheet? | The cumulative total of earnings not paid out as dividends to stockholders |
| Why is scrubbing the data crucial when comparing a company with its peers through ratio analysis? | o adjust for differences in fiscal year-ends and accounting practices among companies |
| What information does the return on equity (ROE) ratio provide? | It indicates the earnings generated for each dollar of equity invested. |
| an example of an external risk that should be considered in an integrated financial analysis of a firm? | Changes in competitive forces due to economic turndown |
| How is the number of periods (n) calculated for a bond paying semiannual coupons? | It is multiplied by 2. |
| How does global financing integration benefit corporations? | It provides access to a wider range of funding sources and investment opportunities. |
| For a bond with semiannual coupon payments, the number of periods (n) is | payments, the number of periods (n) is calculated by multiplying the number of years until maturity by 2. For instance, a three-year bond with semiannual payments would have n = 3 years × 2 = 6 periods. |
| In the statement of cash flows, why is depreciation expense added back to net income when calculating cash flows from operations (CFO)? | Because it is a non-cash expense |
| ROE, calculated as Net Income divided by Owner’s Equity, evaluates the | return earned on the equity invested by the company’s shareholders. It addresses the question of how much a shareholder earns for each dollar invested in the company. |
| Which difficulty may arise when performing ratio analysis for seasonal businesses? | Seasonal variations make it challenging to compare ratios across firms if the reporting dates of the company’s financial statements are different. |
| What is the primary characteristic of the cash flow pattern for a typical corporate bond? | A stream of annual or semiannual interest payments and a final principal repayment |
| Why are efficient, well-developed financial markets important for stock pricing? | They produce more reliable stock prices. |
| In the case of bankruptcy, what represents a primary difference in the claim hierarchy between common and preferred stockholders? | Preferred stockholders have a higher claim on company assets in case of liquidation. |
| What is a key advantage of holding common stock over preferred stock? | Potential for capital appreciation |
| What is the book value per share if a company’s total equity is $200 million and it has 20 million shares outstanding? | $10 |
| n investor is considering putting money into a start-up company. They ask for the company’s projected statement of cash flows for the next period. How will this help the investor evaluate the start-up’s projected performance? | It will show the cash flows the firm expects from operating, investing, and financing activities |
| A company is expected to pay a dividend of $1.80 next year, which is expected to grow at a rate of 7% per year indefinitely. The required rate of return on the company’s stock is 11%. What is the value of the stock using the Gordon growth model? | $45.00 |
| A company plans to pay $4.12 for its next dividend. The dividends are expected to grow at 3% annually, and the required rate of return is 11%. What is the value of the stock using the Gordon growth model? | $51.50 |
| Efficient and well-developed financial markets enable frequent trading of stocks, leading to more reliable and | up-to-date pricing that better reflects available information about the stock. |
| What is the impact of portfolio diversification on expected returns? | It reduces the variability of expected returns. |
| Which scenario would explain why the change in retained earnings from the previous year did not increase by the total income earned? | The remaining earnings were paid out as dividends to shareholders. |
| What is the primary purpose of diversification in a portfolio? | To reduce the idiosyncratic risk |
| The book value per share is total equity divided by the number of shares, | so $200 million/20 million shares = $10 per share. |
| In the capital asset pricing model (CAPM), what is the significance of the market risk premium? | It is the extra return over the risk-free rate expected from the market. |
| What does the capital asset pricing model (CAPM) imply about stocks with a beta greater than 1? | They are more volatile than the market. |
| Which factor is used in the capital asset pricing model (CAPM) but not the Gordon growth model to estimate the cost of common equity? | The company’s beta |
| In the statement of cash flows, when using the indirect method of calculating cash flow from operations (CFO), how is an increase in operating asset accounts (other than cash) treated? | It is subtracted from net income. |
| A company with a market capitalization of $500 million has net income of $25 million. What is the company’s earnings per share (EPS) if it has 10 million shares outstanding? | $2.50 |
| What is a primary advantage of using the Gordon growth model to estimate the cost of common equity? | It incorporates a company’s dividend growth rate. |
| Which key factors are used to approximate the return required by shareholders in the Gordon growth model? | Dividend growth rate and current share price |
| Which method estimates the cost of common equity by considering the expected market returns and the risk-free rate? | Capital asset pricing model |
| What is a primary reason for a firm to consider slowing its sales growth? | To reduce its dependency on external financing |
| A company has net income of $50,000 and total equity of $350,000. The company also pays out 12% of its net income in dividends. What is the sustainable growth rate? | 12.57% |
| Which factor is most likely to lead a company to increase its leverage? | Tax shield benefits from debt financing |
| What impact does company size have on capital structure? | Larger companies can often borrow at lower rates. |
| How does a just-in-time (JIT) inventory system affect a firm’s working capital requirement? | It reduces the amount of working capital tied up in inventory. |
| Which financial ratio is best used to assess the efficiency of a firm’s credit policy? | Receivables turnover |
| What is float in cash management? | The time delay between writing a check and the actual cash outflow |
| What is the operating balance in the context of cash management? | The amount of cash the firm needs to pay its immediate bills |
| Why should a firm not carry too much cash? | To avoid incurring large opportunity costs |
| What is a key consideration when setting credit terms? | The impact on the firm’s cash cycle and cash needs |
| What is a primary cost consideration when deciding on the level of inventory to hold? | The trade-off between holding costs and the risk of stockouts |
| One of the primary cost considerations is balancing the cost of holding inventory with the risk of | running out of stock (stockouts), which can lead to missed sales and unsatisfied customers. |
| What is the effect of just-in-time (JIT) inventory systems on storage costs? | JIT systems reduce storage costs by minimizing inventory levels. |
| What is the primary role of the U.S. Securities and Exchange Commission (SEC)? | To regulate capital markets and protect investors |
| What is one of the roles of the Securities and Exchange Commission (SEC) in initial registration for public companies? | Ensuring public disclosure of financial data |
| What must a company file with the Securities and Exchange Commission (SEC) after the company goes public? | Form 10-Q and Form 10-K |
| Public companies are required to file quarterly | (Form 10-Q) and annual reports (Form 10-K) with the SEC |
| According to the Sarbanes-Oxley Act (SOX), what must a company’s annual report include regarding internal control? | An assessment of the effectiveness of the internal control structure and procedures |
| what is the effect of the requirement in the Sarbanes-Oxley Act (SOX) for audit committee independence? | It ensures that committees operate without undue influence from company management. |
| What is a key requirement for company management under the Sarbanes-Oxley Act (SOX)? | Develop and assess internal controls annually |
| purchase of a second delivery vehicle for $80,000. The company estimates that it will be able to expand its delivery area, thus increasing sales. Year 1 $15,000 Year 2 $20,000 Year 3 $35,000 Year 4 $40,000 Year 5 $41,000 | 4 |
| Which capital budget budgeting method is used by firms that wish to recover their invested capital as quickly as possible? | Payback |
Created by:
mnapole