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FINAL T/F for bus 320
flashcard
102
Business
12/05/2011

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Cards

Term
Ch.2- the income statement measures the increase in the assets of a firm over a period of time.
Definition
FALSE
Term
Ch.2 The P/E ratio provides no indication of investors' expectations about the future of a company.
Definition
FALSE
Term
Ch.2- Asset Accounts are listed in order of their liquidity
Definition
TRUE
Term
ch.2 - Marketable securities are temporary investments of excess cash and are valued at their original purchase price.
Definition
FALSE
Term
ch.2 - Book value per share and market value per share are usually the same dollar amount.
Definition
FALSE
Term
Ch.2 - Retained earnings shown on the balance sheet represents available cash on hand generated from prior year's earning but not paid out in dividends.
Definition
FALSE
Term
Ch.2 - Cash flow consists of illiquid cash equivalents which are difficult to convert to cash within 90 days
Definition
FALSE
Term
Ch.2 - An increase in an asset represents a source of funds.
Definition
FALSE
Term
ch.2 - Interest expense is dedutible before taxes and therefore has an after tax cost equal to the interest paid time ( 1- tax rate)
Definition
TRUE
Term
ch.2 - A cash flow statement is correct if the net cash flow ties to the ending cash balance.
Definition
FALSE
Term
ch.3 - Liquidity ratios indicate how fast a firm can generate cash to pay bills.
Definition
TRUE
Term
Ch.3 - A banker or trade creditor is most concerned about a firm's profitability ratios.
Definition
FALSE
Term
ch.3 - The Dupont system of analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover.
Definition
TRUE
Term
ch.3 - Return on equity will not change if the firm increases its use of debt
Definition
FALSE
Term
ch.3- A current ratio of 2 to 1 is always acceptable, for a company in any industry.
Definition
FALSE
Term
ch.3- During disinflation, stock prices tend to go up because the investors required rate of return goes down.
Definition
TRUE
Term
Ch.3 - Intangible assets are becoming an important part of the assets in a company's financial statements because accountants are recognizing the growing impact of brand names.
Definition
FALSE
Term
ch.3- Absolute values taken from financial statements are more useful than relative values.
Definition
FALSE
Term
ch.3 - A company can improve their ROE by changing their capital structure
Definition
TRUE
Term
ch.3 - Times interest earned is an example of a profitability ratio
Definition
FALSE
Term
ch.9- Compounding refers to the growth process that turns 1 dollar today into a greater value several periods in the future.
Definition
TRUE
Term
ch.9 - The interest factor for the future value of a single sum is equal to ( 1+n)i
Definition
FALSE
Term
The time value of money concept is fundamental to the analysis of cash inflow and outflow decisions covering periods of over one year.
Definition
TRUE
Term
ch.9 - The interest factor for the present value of a single amount is the inverse of the future value interest factor.
Definition
TRUE
Term
Higher interest rates ( discount rates ) reduce the present value of amounts to be recieved in the future.
Definition
TRUE
Term
ch.9 - The present value of an annuity table provides a short cut for calculating the future vale. the equation is PVa = A( 1/ (1+i) ) + ...
Definition
TRUE
Term
ch.9 - The farther into the future any given amount is recieved, the larger its present value
Definition
FALSE
Term
ch. 9 -An annuity is a series of consecutive payments of equal amount
Definition
TRUE
Term
ch.9 - The amount of annual payments necessary to repay a mortgage loan can be found by reference to the present value of an annuity table.
Definition
TRUE
Term
ch.10 - The market determined required rate of return is also called the discount rate
Definition
TRUE
Term
ch.10 - When the interest rate on a bond and its yield to maturity are equal, the bond will trade at par value.
Definition
TRUE
Term
ch.10 - The yield to maturity is always equal to the interest payment of a bond.
Definition
FALSE
Term
ch.10 - Business risk relates to the inability of the firm to meet its debt obligations as they come due.
Definition
FALSE
Term
ch.10 - When inflation rises, bond prices fall.
Definition
TRUE
Term
ch. 10 - The longer the maturity of a bond, the greater the impact on price to changes in market interest rates.
Definition
TRUE
Term
ch.10 - Preferred stock is compensated for not having ownership priveleges by offering a fixed dividend stream supported by a binding contractual obligation.
Definition
FALSE
Term
ch.10 - The value of a share of stock is the present value of the expected stream of future dividends.
Definition
TRUE
Term
ch.10 - Valuation of a common stock with no dividend growth potential is treated in the same manner as preferred stock
Definition
TRUE
Term
ch.10 - The drawback of the future stock value procedure is that it does not consider dividend income.
Definition
FALSE
Term
ch.10 - Firms with bright expectations for the future, tend to trade at high P/E ratios.
Definition
TRUE
Term
ch.11 - In determing the cost of debt, yields and prices of outstanding bonds are used.
Definition
TRUE
Term
ch. 11 - The amount of debt capital used by a corporation is not related to the availability of equity funds from retained earnings and new common stock
Definition
FALSE
Term
ch.11 - A firms cost of preferred stock is equal to the preferred dividend divided by the net price after flotation costs.
Definition
TRUE
Term
ch.11- The use of the optimum capital structure minimizes the cost of capital.
Definition
TRUE
Term
ch.11 - Weights used to calculate the weighted average cost of capital are derived from the optimum capital structure.
Definition
TRUE
Term
ch.11- Taking on additional debt will reduce the cost of equity.
Definition
FALSE
Term
ch.11- According to traditional financial theory, the cost of capital curve is U-shaped over the range of debt-equity mixes
Definition
TRUE
Term
ch.11 - A firm that does not earn the cost of capital in the short run will probably be in bankruptcy
Definition
FALSE
Term
ch.11- Market values rather than book values should be used for determining the optimal capital structure, though in practice, book value is commonly used.
Definition
TRUE
Term
ch.11- The capital asset pricing model ( CAPM ) relates the risk-return tradeoffs of individual assets to market returns.
Definition
TRUE
Term
ch.11 - Individual common stocks betas have a tendency to move toward 1.0 over time.
Definition
TRUE
Term
ch.11- The cost of debt, preferred stock, and common equity must all be adjusted for tax implications
Definition
FALSE
Term
ch.12 - A good capital budgeting program requires that a number of steps be taken in the decision making process. The first step is the explanation of data.
Definition
FALSE
Term
ch.12 - In most capital budgeting decisions the emphasis should be on reported earnings rather than cash flows.
Definition
FALSE
Term
ch.12 - Using the payback method can be appropriate when the time value of money is very low.
Definition
FALSE
Term
ch.12- Non mutually exlusive alternatives can be accepted at the same time.
Definition
TRUE
Term
ch.12- Under the net present value method, cash flows are assumed to be reinvested at the firm's weighted average cost of capital
Definition
TRUE
Term
ch.12- For a small business, it is possible for the purchase price of an asset to be expensed rather than depreciated.
Definition
TRUE
Term
ch.12 - Under MACRS depreciation, taxes paid in the first year of an asset's life are subtracted from the base used to calculate depreciation expense.
Definition
FALSE
Term
ch.12 - Under MACRS depreciation, the tax life of an asset and its economically useful life are assumed to be the same.
Definition
FALSE
Term
ch.12 - When NPV and IRR analysis provide inconsistent rankings of projects, the financial manager should generally select the project with the highest IRR.
Definition
FALSE
Term
ch.14 - Capital markets consist of securities having maturities greater than one year.
Definition
TRUE
Term
Ch.14 - U.S. government agency securities are directly guaranteed by the full faith and credit of the U.S. Treasury.
Definition
FALSE
Term
ch.14- In the new issues market for corporate capital, common stocks account for the largest percentage of new funds raised
Definition
FALSE
Term
ch.14 - The capital markets serve as a way of allocating available capital to the most efficient user.
Definition
TRUE
Term
ch.14- When an investor buys stock in the stock market, he is purchasing shares from a company
Definition
FALSE
Term
ch.14 - Securities issued by states and municipalities are referred to as statutory bonds and municipal bonds, respectively.
Definition
FALSE
Term
ch.14 - Brokers actually own the securities they buy and sell on the floor of the exchange.
Definition
FALSE
Term
ch.14 - A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities.
Definition
FALSE
Term
ch.14 - The weak form of the efficient market hypothesis states that an investor can profit by using past price data.
Definition
FALSE
Term
ch.14 - The Sarbanes- Oxley Act of 2002 holds the CFO legally accountable for the accuracy of their firm's financial statements.
Definition
TRUE
Term
ch.14 - Which of the following statements concerning futures markets is false?
A) Futures markets allow investors to manage risk
B) Futures markets can be used to hedge against changing commodity prices.
C) Interest rate futures can be used to hedge against the risk of rising interest rates
Definition
All of the statements are true
Term
Ch.14 - All of the following are recognized as an important influence in the development of the banking crisis of 2008 and the resulting credit crisis EXCEPT:
Definition
The IMF bailed out Freddie Mac and Fannie Mae
Term
ch.14 - The formation of the European Monetary Union and its single currency Euro is expected to:
A) Eliminate foreign currency risk between its member countries
B) Create stock and bond prices denominated in Euros.
C) Have stock and bond indexes tracking a combined group of common stocks and bonds from the member countries.
Definition
ALL of these are true
Term
ch.14 - Companies list their stock around the globe to:
A) Capitalize on the inefficiency inherent in foreign markets.
B) Increase liquidity for their stockholders.
C) provide opportunities for the sale of new stock in foreign countries.
D) B and C are correct
Definition
B and C are correct
Term
ch.14 - The purpose of secondary trading is to :
Definition
Provide a market to issue securites not handled in primary trading.
Term
ch.14 - Which of the following is not a criterion for an efficient market?
Definition
Computerized handling of transactions
Term
ch.14 - The efficient market hypothesis deals primarily with
Definition
the degree to which prices adjust to new information
Term
ch.14 - The strong form of the efficient market hypothesis states that
Definition
all information both public and private is immediately reflected in stock prices.
Term
ch.14 - The securities exchange act of 1934 is primarily concerned with
Definition
regulation of organized exchanges
Term
ch.15- The whole area of investment banking is becoming more competetive
Definition
TRUE
Term
ch.15- An investment banker acts as a middleman between a corporation needing funds and investors with funds.
Definition
TRUE
Term
ch.15- Small investment banking houses may handle distributions for relatively unknown corporations on a best effort basis.
Definition
TRUE
Term
ch.15 - The underwriting spread is the guaranteed minimum profit to an investment bank for each share distributed.
Definition
FALSE
Term
ch.15 - The out of pocket cost to issue new common stock is always paid by the investment banker.
Definition
FALSE
Term
ch.15 - While manipulation of security prices is normally ilegal, the SEC allows underwriters to temporarily support the price of stocks that they have brought to market.
Definition
TRUE
Term
ch.15 - Shelf registration primarily gives large, strong companies flexibility in the timing of debt or equity issues.
Definition
TRUE
Term
ch.15 - When a company first goes public, a registration statement must be filed with the NYSE
Definition
FALSE
Term
ch.15 - Private placement eliminates the expensive regristration process with the SEC
Definition
TRUE
Term
ch.15- One of the reasons why the debt market is much larger than the equity market is because debt issuances mature periodically unlike equity issuances.
Definition
TRUE
Term
ch.16 - Par value and maturity value on a bond are generally the same
Definition
TRUE
Term
ch.16 - Debentures are commonly issued by small companies
Definition
FALSE
Term
ch.16- If a company has promised to pay interest on debt, it must pay the interest even if it shows no profit for the year, or else it may go bankrupt
Definition
TRUE
Term
ch.16 - Bonds may be recalled only if there is a specific call provision in the bond.
Definition
TRUE
Term
ch.16 - Generally the greater the protection offered to a given class of bondholders, the higher will be the interest rate on the bonds
Definition
FALSE
Term
ch.16 - The value of bonds will move opposite interest rates
Definition
TRUE
Term
ch.16- the yield to maturity is the internal rate of return on a bond.
Definition
TRUE
Term
ch.16 - Costs of bond refunding are the call premium and the underwriting cost on the new bond issue.
Definition
TRUE
Term
ch.16 - The advantage of a zero coupon bond to an investor is that the annual increase in the bond is taxable as ordinary income.
Definition
FALSE
Term
ch.16 - A floating rate bond's price is inversely related to the changes in interest rates.
Definition
FALSE
Term
ch.16 - In an inflationary economy, debt must be paid back with " more expensive dollars"
Definition
FALSE
Term
ch.16 - Bond provide stable pricing because they offer a fixed coupon rate and maturity date unlike stocks.
Definition
FALSE