Question 1 The proper goal...
The proper goal of the financial manager should be to maximize the firm's expected profit, because this will add the most wealth to each of the individual shareholders (owners) of the firm.
Which of the following statements is correct?
A. A hostile takeover is a primary method of transferring ownership interest in a corporation.
B. The corporation is a legal entity created by the state and is a direct extension of the legal status of its owners and managers, that is, the owners and managers are the corporation.
C. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
D. In part due to limited liability and ease of ownership transfer, corporations have less trouble raising money in financial markets than other organizational forms.
E. Although stockholders of the corporation are insulated by limited legal liability, the legal status of the corporation does not protect the firm's managers in the same way.
Which of the following statements is correct?
A. A major disadvantage of a regular partnership or a corporation as a form of business is the fact that they do not offer their owners limited liability, whereas proprietorships do.
B. An advantage of the corporate form for many businesses is the fact the corporate tax rate always exceeds the personal tax rate, which is the rate at which proprietorships and partnerships are taxed.
C. There are more partnerships and sole proprietorships than corporations in the U.S., but corporations produce more goods and services than do other forms of business.
D. Because corporations enjoy the benefits of limited liability, easy transferability of ownership interest, unlimited life, and favorable tax status relative to the situation for partnerships and proprietorships, most large businesses choose to incorporate.
E. Because lawyers have the incorporation process so automated (e.g., word processors for drawing up the necessary papers), it is less expensive to form a corporation than to form a proprietorship or partnership.
Which of the following statements about the corporate form of business organization isincorrect?
A. The corporation is the easiest form of business organization to establish.
B. In the United States, corporations generate a significantly greater percentage of total annual sales than either partnerships or proprietorships.
C. Corporations generally are larger than either partnerships or proprietorships.
D. One of the most important features of the corporate form of business organization is that stockholders have limited liability.
E. None of the above.
Which of the following should be the primary goal pursued by the financial manager of a firm?
A. Maximize net income (profits).
B. Maximize the firm's net worth, or book value.
C. Maximize dividends paid to common stockholders.
D. Minimize variable operating expenses.
E. Maximize the market value of the firm's stock.
All else equal, in which of the following forms of business would the possibility of an agency problem be the greatest?
A. An U.S. corporation that is publicly traded.
B. A proprietorship.
C. A partnership in which all the partners share management and decision-making responsibilities equally.
D. A foreign corporation with concentrated ownership—that is, relatively few owners.
The annual report contains all of the following financial statements except
A. income statement.
B. statement of changes in long-term financing.
C. statement of cash flows.
D. balance sheet.
E. statement of retained earnings.
Determine the increase or decrease in cash for Rinky Supply Company for last year, given the following information. (Assume no other changes occurred during the past year.)
Decrease in marketable securities = $25
Increase in accounts receivables = $50
Increase in notes payable = $30
Decrease in accounts payable = $20
Increase in accrued wages and taxes = $15
Increase in inventories = $35
Retained earnings = $ 5
Selzer Inc. sells all its merchandise on credit. It has a profit margin of 4 percent, days sales outstanding equal to 60 days, receivables of $150,000, total assets of $3 million, and a debt ratio of 0.64. What is the firm's return on equity (ROE)?
Harvey Supplies Inc. has a current ratio of 3.0, a quick ratio of 2.4, and an inventory turnover ratio of 6. Harvey's total assets are $1 million and its debt ratio is 0.20. The firm has no long-term debt. What is Harvey's sales figure if the total cost of goods sold is 75% of sales?
Suppose two firms with the same amount of assets pay the same interest rate on their debt and earn the same rate of return on their assets, and that ROA is positive. However, one firm has a higher debt ratio. Under these conditions, the firm with the higher debt ratio will also have a higher rate of return on common equity.
Bubbles Soap Corporation has a quick ratio of 1.0 and a current ratio of 2.0 implying that
A. the value of current assets is equal to the value of inventory.
B. the value of current assets is equal to the value of current liabilities.
C. the value of current liabilities is equal to the value of inventory.
D. All of the above.
E. None of the above.
The OTC market is a physical exchange, much like the New York Stock Exchange, where securities dealers provide trading in unlisted securities.
If a corporation that has been in business for many years (for example IBM) wants to raise funds by issuing new common stock, its stock will be sold in the __________ market.
If you wanted to purchase previously issued shares of stock from another investor you would find the shares in the
A. primary market.
B. debt market.
C. IPO market.
D. secondary market.
E. SEO market.
An agreement for the sale of securities in which the investment bank guarantees the sale by purchasing the securities from the issuer and then sells the securities in the primary is a(n) __________.
A. best efforts arrangement
B. guaranteed issue arrangement
C. underwritten arrangement
D. private placement
E. None of the above
Which of the following is not a considered financial intermediary?
A. commercial bank
B. savings and loan association
C. credit union
D. investment bank
E. All of the above are financial intermediaries.
Certificates representing ownership in stocks of foreign companies, which are held in a trust bank located in the country the stock is traded are called __________.
A. Certificates of Ownership
B. Foreign Stock Funds
C. Mutual Funds
D. American Depository Receipts
E. Investment Bankers
Sarah is thinking about purchasing an investment from HiBond Investing. If she buys the investment, Sarah will receive $100 every three months for five years. The first $100 payment will be made as soon as she purchases the investment. If Sarah's required rate of return is 16 percent, to the nearest dollar, how much should she be willing to pay for this investment?
At an inflation rate of 9 percent, the purchasing power of $1 would be cut in half in 8.04 years. How long to the nearest year would it take the purchasing power of $1 to be cut in half if the inflation rate were only 4%?
A. 12 years
B. 15 years
C. 18 years
D. 20 years
E. 23 years
If you buy a factory for $250,000 and the terms are 20 percent down, the balance to be paid off over 30 years at a 12 percent rate of interest on the unpaid balance, what are the 30 equal annual payments?
A bank pays a quoted annual (simple) interest rate of 8 percent. However, it pays interest (compounds) daily using a 365-day year. What is the effective annual rate of return?
Bank A offers a 2-year certificate of deposit (CD) that pays 10 percent compounded annually. Bank B offers a 2-year CD that is compounded semi-annually. The CDs have identical risk. What is the stated, or simple, rate that Bank B would have to offer to make you indifferent between the two investments?
You want to buy a Nissan 350Z on your 27th birthday. You have priced these cars and found that they currently sell for $30,000. You believe that the price will increase by 5 percent per year until you are ready to buy. You can presently invest to earn 14 percent. If you just turned 20 years old, how much must you invest at the end of each of the next 7 years to be able to purchase the Nissan in 7 years?
Your lease calls for payments of $500 at the end of each month for the next 12 months. Now your landlord offers you a new 1-year lease which calls for zero rent for 3 months, then rental payments of $700 at the end of each month for the next 9 months. You keep your money in a bank time deposit that pays a simple annual rate of 5 percent. By what amount would your net worth change if you accept the new lease? (Hint: Your return per month is 5%/12 = 0.4166667%, so this problem involves use of EAR)