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C214- PA Final 2

QuestionAnswer
What is a potential negative consequence if the firm focuses solely on profit maximization? Unethical behavior and potential scandals
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.
The goal of a public corporation is to Maximize stock price
What does Beta measure? The relative riskiness of an individual stock
How does global financing integration benefit corporations? It provides access to a wider range of funding sources and investment opportunities
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
Why are efficient, well-developed financial markets important for stock pricing? They produce more reliable stock prices.
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.
Change in retained earnings is calculated as net income less dividends. This relationship indicates that net income is either distributed as dividends or contributes to a change in the retained earnings of the company.
When reviewing the financials, she notices that although the company produced $200,000 in net income during the last year, the retained earnings increased by only $50,000. The remaining earnings were paid out as dividends to shareholders.
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
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
What determines the prices of financial securities? PV of expected cash flow to investors
Which does not affect the required yield on a bond? coupon rate
What factors affect the dealer bid/ask spread? 1. Volatility of security prices 2. Frequency of security trading
The primary market is characterized by Corporations are raising cash
Junk bonds are those whose rating is below BBB
Diversification protects against Individual firm risk
The DFN framework states that firm growth is limited by Investment opportunities
Income statement differs from cash flow because of Accrual items
Which measures a firms ability to produce and sell at a profit? Cash Flow Operations
If IRR is greater than the required return, an adopted project, Increases shareholder value
Why would financial leverage affect required return? Increased profit volatility
Which factor affects a firm's capital structure? a. Volatiity of sales b. Degree of operating leverage c. Firm size
What is the cash cycle? Period from paying supplier to receiving customer cash
Which is not a part of managing A/R? inventory levels
Inventory costs include a. Storage cost b. Holding Cost c. Financing cost
In the Gordon model, what would cause increased stock price? Higher expected growth rate
The percent of sales method is used for 1. Spontaneouse accounts 2. Current Assets
Which stock value model is used by equity analysts? Gordon Growth
The stock risk premium is compensation for systematic risk
Which model uses real market price statistics? Capital Asset Pricing Model
What causes a stock to have a higher required return? High beta
If a firm's ROE is higher than industry average, The firm is more profitable than the industry
Which is true about the current ratio? Creditors want a high ratio & the firm wants a low ratio
Which causes a decrease in CFO?
Created by: mnapole
 

 



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