Term
| Ch.2- the income statement measures the increase in the assets of a firm over a period of time. |
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Definition
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Term
| Ch.2 The P/E ratio provides no indication of investors' expectations about the future of a company. |
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Definition
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Term
| Ch.2- Asset Accounts are listed in order of their liquidity |
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Definition
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Term
| ch.2 - Marketable securities are temporary investments of excess cash and are valued at their original purchase price. |
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Definition
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Term
| ch.2 - Book value per share and market value per share are usually the same dollar amount. |
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Definition
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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. |
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Definition
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Term
| Ch.2 - Cash flow consists of illiquid cash equivalents which are difficult to convert to cash within 90 days |
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Definition
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Term
| Ch.2 - An increase in an asset represents a source of funds. |
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Definition
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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) |
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Definition
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Term
| ch.2 - A cash flow statement is correct if the net cash flow ties to the ending cash balance. |
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Definition
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Term
| ch.3 - Liquidity ratios indicate how fast a firm can generate cash to pay bills. |
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Definition
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Term
| Ch.3 - A banker or trade creditor is most concerned about a firm's profitability ratios. |
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Definition
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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. |
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Definition
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Term
| ch.3 - Return on equity will not change if the firm increases its use of debt |
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Definition
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Term
| ch.3- A current ratio of 2 to 1 is always acceptable, for a company in any industry. |
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Definition
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Term
| ch.3- During disinflation, stock prices tend to go up because the investors required rate of return goes down. |
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Definition
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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. |
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Definition
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Term
| ch.3- Absolute values taken from financial statements are more useful than relative values. |
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Definition
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Term
| ch.3 - A company can improve their ROE by changing their capital structure |
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Definition
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Term
| ch.3 - Times interest earned is an example of a profitability ratio |
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Definition
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Term
| ch.9- Compounding refers to the growth process that turns 1 dollar today into a greater value several periods in the future. |
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Definition
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Term
| ch.9 - The interest factor for the future value of a single sum is equal to ( 1+n)i |
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Definition
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Term
| The time value of money concept is fundamental to the analysis of cash inflow and outflow decisions covering periods of over one year. |
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Definition
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Term
| ch.9 - The interest factor for the present value of a single amount is the inverse of the future value interest factor. |
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Definition
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Term
| Higher interest rates ( discount rates ) reduce the present value of amounts to be recieved in the future. |
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Definition
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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) ) + ... |
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Definition
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Term
| ch.9 - The farther into the future any given amount is recieved, the larger its present value |
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Definition
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Term
| ch. 9 -An annuity is a series of consecutive payments of equal amount |
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Definition
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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. |
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Definition
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Term
| ch.10 - The market determined required rate of return is also called the discount rate |
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Definition
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Term
| ch.10 - When the interest rate on a bond and its yield to maturity are equal, the bond will trade at par value. |
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Definition
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Term
| ch.10 - The yield to maturity is always equal to the interest payment of a bond. |
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Definition
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Term
| ch.10 - Business risk relates to the inability of the firm to meet its debt obligations as they come due. |
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Definition
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Term
| ch.10 - When inflation rises, bond prices fall. |
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Definition
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Term
| ch. 10 - The longer the maturity of a bond, the greater the impact on price to changes in market interest rates. |
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Definition
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Term
| ch.10 - Preferred stock is compensated for not having ownership priveleges by offering a fixed dividend stream supported by a binding contractual obligation. |
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Definition
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Term
| ch.10 - The value of a share of stock is the present value of the expected stream of future dividends. |
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Definition
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Term
| ch.10 - Valuation of a common stock with no dividend growth potential is treated in the same manner as preferred stock |
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Definition
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Term
| ch.10 - The drawback of the future stock value procedure is that it does not consider dividend income. |
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Definition
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Term
| ch.10 - Firms with bright expectations for the future, tend to trade at high P/E ratios. |
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Definition
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Term
| ch.11 - In determing the cost of debt, yields and prices of outstanding bonds are used. |
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Definition
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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 |
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Definition
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Term
| ch.11 - A firms cost of preferred stock is equal to the preferred dividend divided by the net price after flotation costs. |
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Definition
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Term
| ch.11- The use of the optimum capital structure minimizes the cost of capital. |
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Definition
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Term
| ch.11 - Weights used to calculate the weighted average cost of capital are derived from the optimum capital structure. |
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Definition
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Term
| ch.11- Taking on additional debt will reduce the cost of equity. |
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Definition
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Term
| ch.11- According to traditional financial theory, the cost of capital curve is U-shaped over the range of debt-equity mixes |
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Definition
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Term
| ch.11 - A firm that does not earn the cost of capital in the short run will probably be in bankruptcy |
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Definition
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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. |
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Definition
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Term
| ch.11- The capital asset pricing model ( CAPM ) relates the risk-return tradeoffs of individual assets to market returns. |
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Definition
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Term
| ch.11 - Individual common stocks betas have a tendency to move toward 1.0 over time. |
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Definition
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Term
| ch.11- The cost of debt, preferred stock, and common equity must all be adjusted for tax implications |
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Definition
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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. |
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Definition
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Term
| ch.12 - In most capital budgeting decisions the emphasis should be on reported earnings rather than cash flows. |
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Definition
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Term
| ch.12 - Using the payback method can be appropriate when the time value of money is very low. |
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Definition
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Term
| ch.12- Non mutually exlusive alternatives can be accepted at the same time. |
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Definition
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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 |
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Definition
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Term
| ch.12- For a small business, it is possible for the purchase price of an asset to be expensed rather than depreciated. |
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Definition
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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. |
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Definition
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Term
| ch.12 - Under MACRS depreciation, the tax life of an asset and its economically useful life are assumed to be the same. |
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Definition
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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. |
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Definition
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Term
| ch.14 - Capital markets consist of securities having maturities greater than one year. |
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Definition
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Term
| Ch.14 - U.S. government agency securities are directly guaranteed by the full faith and credit of the U.S. Treasury. |
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Definition
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Term
| ch.14- In the new issues market for corporate capital, common stocks account for the largest percentage of new funds raised |
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Definition
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Term
| ch.14 - The capital markets serve as a way of allocating available capital to the most efficient user. |
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Definition
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Term
| ch.14- When an investor buys stock in the stock market, he is purchasing shares from a company |
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Definition
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Term
| ch.14 - Securities issued by states and municipalities are referred to as statutory bonds and municipal bonds, respectively. |
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Definition
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Term
| ch.14 - Brokers actually own the securities they buy and sell on the floor of the exchange. |
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Definition
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Term
| ch.14 - A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities. |
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Definition
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Term
| ch.14 - The weak form of the efficient market hypothesis states that an investor can profit by using past price data. |
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Definition
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Term
| ch.14 - The Sarbanes- Oxley Act of 2002 holds the CFO legally accountable for the accuracy of their firm's financial statements. |
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Definition
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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
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Definition
| All of the statements are true |
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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: |
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Definition
| The IMF bailed out Freddie Mac and Fannie Mae |
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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. |
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Definition
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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 |
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Definition
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Term
| ch.14 - The purpose of secondary trading is to : |
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Definition
| Provide a market to issue securites not handled in primary trading. |
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Term
| ch.14 - Which of the following is not a criterion for an efficient market? |
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Definition
| Computerized handling of transactions |
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Term
| ch.14 - The efficient market hypothesis deals primarily with |
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Definition
| the degree to which prices adjust to new information |
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Term
| ch.14 - The strong form of the efficient market hypothesis states that |
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Definition
| all information both public and private is immediately reflected in stock prices. |
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Term
| ch.14 - The securities exchange act of 1934 is primarily concerned with |
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Definition
| regulation of organized exchanges |
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Term
| ch.15- The whole area of investment banking is becoming more competetive |
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Definition
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Term
| ch.15- An investment banker acts as a middleman between a corporation needing funds and investors with funds. |
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Definition
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Term
| ch.15- Small investment banking houses may handle distributions for relatively unknown corporations on a best effort basis. |
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Definition
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Term
| ch.15 - The underwriting spread is the guaranteed minimum profit to an investment bank for each share distributed. |
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Definition
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Term
| ch.15 - The out of pocket cost to issue new common stock is always paid by the investment banker. |
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Definition
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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. |
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Definition
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Term
| ch.15 - Shelf registration primarily gives large, strong companies flexibility in the timing of debt or equity issues. |
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Definition
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Term
| ch.15 - When a company first goes public, a registration statement must be filed with the NYSE |
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Definition
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Term
| ch.15 - Private placement eliminates the expensive regristration process with the SEC |
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Definition
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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. |
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Definition
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Term
| ch.16 - Par value and maturity value on a bond are generally the same |
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Definition
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Term
| ch.16 - Debentures are commonly issued by small companies |
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Definition
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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 |
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Definition
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Term
| ch.16 - Bonds may be recalled only if there is a specific call provision in the bond. |
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Definition
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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 |
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Definition
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Term
| ch.16 - The value of bonds will move opposite interest rates |
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Definition
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Term
| ch.16- the yield to maturity is the internal rate of return on a bond. |
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Definition
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Term
| ch.16 - Costs of bond refunding are the call premium and the underwriting cost on the new bond issue. |
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Definition
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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. |
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Definition
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Term
| ch.16 - A floating rate bond's price is inversely related to the changes in interest rates. |
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Definition
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Term
| ch.16 - In an inflationary economy, debt must be paid back with " more expensive dollars" |
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Definition
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Term
| ch.16 - Bond provide stable pricing because they offer a fixed coupon rate and maturity date unlike stocks. |
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Definition
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