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FIN 3320 Exam 1 TTU Questions And Answers Latest |Update| Verified Answers, Exams of Finance

Widener University - DelawareFinance

Types of businesses - CORRECT ANSWER-- sole proprietorship - partnership - coporation sole proprietorship - CORRECT ANSWER-a business owned by a single person who is entitled to all of the firm's profits and debts advantages of sole proprietorship - CORRECT ANSWER-- easy to start - no need to consult others while making decisions - taxed at personal tax rate

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FIN 3320 Exam 1 TTU
Types of businesses - CORRECT ANSWER-- sole proprietorship
- partnership
- coporation
sole proprietorship - CORRECT ANSWER-a business owned by a single person who is
entitled to all of the firm's profits and debts
advantages of sole proprietorship - CORRECT ANSWER-- easy to start
- no need to consult others while making decisions
- taxed at personal tax rate
disadvantages of sole proprietorship - CORRECT ANSWER-- personal liability
- business ceases on death of owner
- harder to raise money
partnership - CORRECT ANSWER-an association of two or more persons who come
together as co-owners for the purpose of operating a business for profit
advantages of partnership - CORRECT ANSWER-- easy to start
- taxed at personal tax rate
- access to funds from multiple sources or partners
disadvantages of partnership - CORRECT ANSWER-- partners jointly share unlimited
liability
- it is not always easy to transfer ownership
limited partnership - CORRECT ANSWER-two classes of partners: General and Limited
Finance - CORRECT ANSWER-the study of how people and businesses evaluate
investments and raise capital to fund them
advantages of corporation - CORRECT ANSWER-- liability of owners is limited to
invested funds
- life of corporation is not tied to the owner
- easier to transfer ownership
- easier to raise capital
disadvantages of corporation - CORRECT ANSWER-- greater regulation
- double taxation of dividends
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Download FIN 3320 Exam 1 TTU Questions And Answers Latest |Update| Verified Answers and more Exams Finance in PDF only on Docsity!

FIN 3320 Exam 1 TTU

Types of businesses - CORRECT ANSWER-- sole proprietorship

  • partnership
  • coporation sole proprietorship - CORRECT ANSWER-a business owned by a single person who is entitled to all of the firm's profits and debts advantages of sole proprietorship - CORRECT ANSWER-- easy to start
  • no need to consult others while making decisions
  • taxed at personal tax rate disadvantages of sole proprietorship - CORRECT ANSWER-- personal liability
  • business ceases on death of owner
  • harder to raise money partnership - CORRECT ANSWER-an association of two or more persons who come together as co-owners for the purpose of operating a business for profit advantages of partnership - CORRECT ANSWER-- easy to start
  • taxed at personal tax rate
  • access to funds from multiple sources or partners disadvantages of partnership - CORRECT ANSWER-- partners jointly share unlimited liability
  • it is not always easy to transfer ownership limited partnership - CORRECT ANSWER-two classes of partners: General and Limited Finance - CORRECT ANSWER-the study of how people and businesses evaluate investments and raise capital to fund them advantages of corporation - CORRECT ANSWER-- liability of owners is limited to invested funds
  • life of corporation is not tied to the owner
  • easier to transfer ownership
  • easier to raise capital disadvantages of corporation - CORRECT ANSWER-- greater regulation
  • double taxation of dividends

limited liability corporation - CORRECT ANSWER-combines the tax benefits of a partnership with the limited liability benefit of corporations COO - CORRECT ANSWER-marketing, production, human resources, and other operating departments CFO - CORRECT ANSWER-accounting, treasury, credit, legal, capital budgeting, and investor relations create value for investors - CORRECT ANSWER-goal of financial manager intrinsic value - CORRECT ANSWER-estimate of stock's true value based on risk and return. Cannot be measured precisely only estimated. (theoretical value) market value - CORRECT ANSWER-stock value based on perceived information as seen by investors. This is the price the stock buys and sells at. (Trading Value) equilibrium - CORRECT ANSWER-actual market price = intrinsic value stock price should equal what its "true" value is types of conflict within the business - CORRECT ANSWER-(1) shareholder - manager conflict (2) shareholder - debt holder conflict (3) shareholder interests and society interests shareholder - manager conflict - CORRECT ANSWER-managers are naturally inclined to act in their own best interests AGENCY PROBLEM affect managerial behavior - CORRECT ANSWER-- managerial compensation packages

  • direct intervention by shareholders
  • the threat of firing
  • the threat of takeover
  • monitoring by the board of directors
  • monitoring by financial markets (such as auditors, bankers, security analysts, credit agencies) shareholder - debtholder conflict - CORRECT ANSWER-bondholders are particularly concerned about the use of additional debt debtholders protect themselves with covenants in bond agreements shareholder interests and society interests - CORRECT ANSWER-the primary financial goal of management is creating value for the shareholders

invest primarily in stocks, bonds, and real estate company's funds are "pooled" all together and the company monitors how much you put in insurance companies - CORRECT ANSWER-sell insurance to individuals and businesses to protect their investments they collect "premiums" and "pay out claims" from the pooled amount of premium deductible - CORRECT ANSWER-what the customer pays out when a claim is filled deductible + extra for additional service mutual funds - CORRECT ANSWER-professionally managed according to a stated investment objective individuals can invest in these funds by buying shares in the fund at the net asset value (NAV) load or no-load hedge funds - CORRECT ANSWER-similar to mutual funds but are less regulated take more risk open to only high net worth investors once you put your money in it is "locked in" for 5-10 years, unless you want to pay a fee to get out private equity companies - CORRECT ANSWER-financial intermediary that invests in equities that are not traded on the public capital markets two types of private equity companies - CORRECT ANSWER-- venture capital (VC) firms

  • leveraged buyout (LBO) firms venture capital firms - CORRECT ANSWER-financing for private start-up companies when they are first founded leveraged buyout firms - CORRECT ANSWER-acquire established firms that typically have not been performing well with the objectives of making them profitable again and then selling them

typically uses debt to fund the purchase of a firm market - CORRECT ANSWER-is a venue where goods and services are exchanged financial market - CORRECT ANSWER-is a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds importance of financial markets - CORRECT ANSWER-well-functioning financial markets facilitate the flow of capital from investors to the users of capital security - CORRECT ANSWER-is a negotiable instrument that represents a financial claim

  • can take the form of ownership (stocks) or a debt agreement types of financial markets - CORRECT ANSWER-spot market future market money market capital market primary market secondary market public market private market spot market - CORRECT ANSWER-assets are bought or sold for "on-the-spot" delivery future market - CORRECT ANSWER-participants agree today to buy or sell an asset at some future date
  • used so you can time when you need to complete a transaction money market - CORRECT ANSWER-funds are borrowed or loaned for short periods of time (usually less than 1 year) capital market - CORRECT ANSWER-for stocks and intermediate or long term debt (usually a year or longer) primary market - CORRECT ANSWER-securities are bought and sold for the "first time" (the firm selling the securities receives the money raised) secondary market - CORRECT ANSWER-a market for "subsequent trading" of previously issued securities (the issuing firm does not receive any new money) initial public offering (IPO) - CORRECT ANSWER-occurs when a company issues stock in the public market for the first time ("going public")
  • small company not followed by many analysts. not much contact with investors. highly efficient
  • large company followed by many analysts. Good communication with investors. barriers to efficiency - CORRECT ANSWER-it is costly and/or risky for traders to take advantage of mispriced assets behavioral finance - CORRECT ANSWER-borrows insights from psychology to better understand how irrational behavior can be sustained over time information acquisition costs - CORRECT ANSWER-not always cheap to gain good information on stocks
  • expensive in terms of time and money
  • only beneficial if the value of the info exceeds its costs trading costs - CORRECT ANSWER-investor will only trade on information if the benefit exceeds the cost of trading
  • leads to a range around the efficient price in which the stock could reasonably be priced balance sheet - CORRECT ANSWER-provides a snapshot of a firm's financial position at one point in time income statement - CORRECT ANSWER-summarizes a firm's revenues and expenses over a given period of time statement of cash flows - CORRECT ANSWER-reports the impact of a firm's activities on cash flows over a given period of time statement of stockholders' equity - CORRECT ANSWER-shows how much of the firm's earnings were retained, rather than paid out as dividends total liabilities - CORRECT ANSWER-represent the total amount of money the firm owes its creditors total shareholders' equity - CORRECT ANSWER-refers to the difference in the value of the firm's total assets and the firm's total liabilities total assets - CORRECT ANSWER-the sum of total shareholders' equity and total liabilities, represents the resources owned by the firm current assets - CORRECT ANSWER-consists of the firm's cash plus other assets the firm expects to convert to cash within 12 months or less, such as receivables and inventory

fixed assets - CORRECT ANSWER-are assets that the firm does not expect to sell within one year (ex: plant and equipment, land) current liabilities - CORRECT ANSWER-represent the amount that the firm owes to creditors that must be repaid within a period of 12 months or less such as accounts payable, notes payable long-term liabilities - CORRECT ANSWER-refer to debt with maturities longer than one year such as bank loans, bonds liquidity - CORRECT ANSWER-refers to the firm's ability to convert its current assets into cash so that it can pay its current liabilities on time net working capital - CORRECT ANSWER-measure a firm's liquidity an income statement will contain - CORRECT ANSWER-revenues expenses (COGS, selling expenses, general and admin. exp, depreciation and amortization exp, interest exp, and income tax expense) net income (= revenues - expenses) cash flow statement - CORRECT ANSWER-change in cash balance = ending cash balance - beginning cash balance cash flow statement components - CORRECT ANSWER-operating activities investing activities financing activities operating activities - CORRECT ANSWER-represent the company's core business, including sales and expenses decrease - CORRECT ANSWER-when current assets go up there is a blank in the operating cash flow increase - CORRECT ANSWER-when current liabilities goes up there is a blank in the operating cash flow investing activities - CORRECT ANSWER-include the cash flows that arise out of the purchase and sale of long-term assets such as plant and equipement going out - CORRECT ANSWER-the more long-term assets we acquire the more money is blank in investing cash flows (you have to pay the money out to acquire the asset) financing activities - CORRECT ANSWER-represent changes in the firm's use of debt and equity such as issue of new shares, the repurchase of outstanding shares, and the payment of dividends

interest earned - CORRECT ANSWER-usually fully taxable (an exception being interest from a "muni") dividends paid - CORRECT ANSWER-paid out of after-tax income analyzing financial statements - CORRECT ANSWER-internal

  • to evaluate the performance of employees
  • to compare the performance of different divisions
  • to prepare financial projections external
  • banks and other lenders
  • suppliers
  • credit-rating agencies ratios - CORRECT ANSWER-blank standardized numbers and facilitate comparisons blank are useful to highlight weaknesses and strengths financial blank allow you to make an inference about the company's financial health regardless of its size (because they're standardized) ratio comparisons - CORRECT ANSWER-industry analysis benchmark (peer) analysis trend analysis - ratio over time liquidity ratios - CORRECT ANSWER-ability to payoff debts this year can we make required payments? asset management ratios - CORRECT ANSWER-how efficiently the firm runs debt management ratios - CORRECT ANSWER-how has the firm financed its purchases right mix of debt and equity? profitability ratios - CORRECT ANSWER-how is the firm operating and using assets do sales prices exceed costs? market value ratios - CORRECT ANSWER-what do investors think about future prospects do investors like what they see?

two perspectives of liquidity - CORRECT ANSWER-overall liquidity liquidity of specific assets overall liquidity - CORRECT ANSWER-analyzed by comparing the firm's current assets to the firm's current liabilities liquidity of specific assets - CORRECT ANSWER-analyzed by examining the timeliness in which the firms' liquid assets (accounts receivable and inventories) are converted into cash current ratio - CORRECT ANSWER-= current assets / current liabilities a higher ratio means greater liquidity quick ratio - CORRECT ANSWER-excludes the inventory from current assets as inventory may not be very liquid higher ratio means greater liquidity liquid ratios - CORRECT ANSWER-we can also measure the liquidity of the firm by examining the liquidity of accounts receivable and inventories to see how long it takes the firm to convert its accounts receivable and inventories into cash inventory turnover ratio - CORRECT ANSWER-measures how many times the company turns over its inventory during the year. Shorter inventory cycles lead to greater liquidity since the items in inventory are converted to cash more quickly DSO - CORRECT ANSWER-average number of days after making a sale before receiving cash a lower number, the greater the firm's liquidity asset management ratios - CORRECT ANSWER-these ratios show how well production is working for you...how well your assets are performing for you capital structure - CORRECT ANSWER-refers to the way a firm finances its assets operating profit margin - CORRECT ANSWER-measures how much profit is generated from each dollar of sales after accounting for both costs of goods sold and operating expenses. It also indicates how well the firm is managing its income statement. profit margin - CORRECT ANSWER-measures how much income is generated from each dollar of sales after adjusting for all expenses (including income taxes)