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3310 – Ch 1 HW Questions

A financial analyst is responsible for maintaining and controlling the firm’s daily cash balances. Frequently manages the firm’s short-term investments and coordinates short-term borrowing and banking relationships.
Marginal analysis states that financial decisions should be made and actions taken only when added benefits exceeds added costs.
When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm’s stock, financial managers should accept only those actions that are expected to increase the firm’s profitability.
The goal of ethics is to motivate business and market participants to adhere to both the letter and the spirit of laws and regulations in all aspects of business and professional practice.
Primary and secondary markets are for short-term and long-term securities, respectively.
The ordinary income of a corporation is income earned through the sale of a firm’s goods and services and is currently taxed subject to the individual income tax rates.
Finance is concerned with the process institutions, markets, and instruments involved in teh transfer of money among and between individuals, businesses and government.
The corporate controller typically handles the accounting activities, such as tax management, data processing, and cost and financial accounting.
Financial analysis and planning is concerned with analyzing the mix of assets and liabilities.
To achieve the goal of profit maximization for each alternative being considered, the financial manager would select the one that is expected to result in the highest monetary return.
Financial markets are intermediaries that channel the savings of individuals, businesses and government into loans or investments.
The marginal tax rate represents the rate at which additional income is taxed.
Financial services are concerned with the duties of the financial manager.
The financial manager places primary emphasis on cash flows, the inflow and outflow of cash.
Financing decisions deal with the left-hand side of the firm’s balance sheet and involve the most appropriate mix of current and fixed assets.
Dividend payments change directly with changes in earnings per share.
Money markets involve the trading of securities with maturities of one year or less while capital market involve the buying and selling of securities with maturities of more than one year.
All dividend income received by one corporation from an investment in the common and preferred stock of another corporation is excluded from taxation.
Financial managers actively manage the financial affairs of many types of business-financial and non-financial, private and public, for-profit and not-for-profit.
Managerial finance is concerned with design and delivery of advice and financial products to individuals, business, and government.
The key role of the financial manager is
decision making.
The wealth of corporate owners is measured by the share price of the stock.
A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or investments.
Because of the dividend exclusion only 70% of intercorporate dividend income is included as ordinary income.
In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.
The corporate treasurer typically handles both the cost accounting and financial accounting
The key activities of the financial manager include all of the following EXCEPT
managing financial accounting
Risk and the magnitude and timing of cash flows are the key determinants of share price, which represents teh wealth of the owners in the firm.
A public offering is teh sale of a new security issue — typically debt or preferred stock — directly to an investor or group of investors.
Tax laws often are used to accomplish economic goals such as providing incentives for corporate investment in certain types of assets.
In partnerships, a partner can readily transfer his/her wealth to other partners.
The accrual method recognizes revenue at the point of sale and recognizes expenses when incurred.
Included in teh primary activities of the financial manager are
financial analysis and planning, making financing decisions, making investment decisions, analyzing and planning cash flows (all of the above)
A high earnings per share (EPS) does not necessarily translate into a high stock price.
Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of teh country where the bank is located.
With progressive tax rates, the average tax rate is always less than or equal to the marginal tax rate.
The board of directors is responsible for managing day-to-day operations an carrying out the policies established by the chief executive officer.
The accountant evaluates financial statements, develops additional data, and makes decisions based on his or her assessment of the associated returns and risks.
The financial manager may be responsible for any of the following EXCEPT
monitoring of quarterly tax payments.
The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk.
A primary market is a financial market in which pre-owned securities are traded.
Dividends received by a corporation on an investment in the common and preferred stock of another corporation (where ownership in the dividend paying corporation is less than 20%) is subject to 70% exclusion for tax purposes.
The sole proprietor has unlimited liability; his or her total investment in teh business, but not his or her personal assets, can be taken to satisfay creditors.
The corporate treasurer is the officer responsible for the firm’s accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
Making investment decisions includes all of the following EXCEPT
notes payable
When considering each financial decision alternative or possible action in terms of its impact on the share price of the fim’s stock, financial managers should accept only those actions that are expected to maximize shareholder value.
Loan transactions between commercial banks in which the federal government becomes involved are referred to as federal funds.
The tax deductibility of various expenses such as general and administrative expenses [BLANK] their after-tax cost.
In limited partnerships, only one partner may assume limited liability. All other partners have to have unlimited liability.
The corporate controller is the officer responsible for the firm’s financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange.
Making financing decisions includes all of the following EXCEPT
analyzing quarterly budget and performance reports.
An increase in firm risk tends to result in a higher share price since the stockholder must be compensated for the greater risk.
If a corporation sells certain capital equipment for more than their initial purchase price, the difference between the sale price and the purchase price is called a(n)
capital gain
Congress allows corporations to exclude from taxes 70 to 100% of dividends received from other corporations. Congress did this to
avoid triple taxation on dividends.
The primary goal of the financial manager is
maximizing wealth
Corporation A owns 15% of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on
$30,000 of ordinary income.
The accountant recognizes revenues and expenses on
an accrual basis.
Most businesses raise money by selling their securities in a
public offering.
The financial manager recognizes revenues and expenses utilizing
the actual inflows and outflows of cash.
The [BLANK] is created by a financial relationship between suppliers and demanders fo short-term funds.
money market
The financial manager is interested in the cash inflows and outflows of the firm, rather than the accounting data, in order to ensure
If a company’s managers are NOT owners of the company, then they are
Economic theories that the financial manager must be able to utilize for efficient business operations, include
price theory, profit-maximizing strategies, supply-and-demand analysis, and marginal analysis.
A competitive market that allocates funds to their most productive use is called a(n)
efficient market.
The primary economic principle used in managerial finance is
marginal analysis.
Which of the following legal forms of organization is most expensive to orgaize?
Most money market transactions are made in
marketable securities.
Agency costs include all of the following EXCEPT
management reports to stockholders.
Under which of the following legal forms of organization, is ownership readily transferable?
One way often used to insure that management decisions are in the best interest of the stockholders is to
tie management compensation to the performance of the company’s common stock price.
The true owner(s) of the corporation is (are) the [BLANK].
The amount earned during teh accounting period on each outstanding share of common stock is called
earnings per share.
The nonexclusive sale of either bonds or stocks to the general public is called
public offering.
Marginal analysis states that financial decisions should be made and actions taken only when
added benefits exceed added costs.
Profit maximization as a goal is not ideal because it does NOT directly consider
risk and cash flow.
Profit maximization as the goal of the firm is NOT ideal because
profit maximization does not consider risk.
Profit maximization fails because it ignores all EXCEPT
earnings per share.
A major weakness of a partnership is
difficulty liquidating or transferring ownership.
Long-term debt instruments used by both government and business are known as
The two key financial markets are
money market and capital market.
Financial managers evaluating decision alternatives or potential actions must consider
risk, return, and the impact on share price.
As the risk of a stock investment increases, investors’
required rate of return will increase.

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