finance two

What is the primary goal of corporate finance?

Maximizing shareholder value.

The right-hand side of the financial balance sheet represents:

The company’s sources of financing.

Which of the following is an example of a tangible asset?

Machinery.

Agency costs refer to:

The costs arising from conflicts between shareholders and management.

Which of the following is NOT a difference between a financial and an accounting balance sheet?

Accounting balance sheets focus on cash flows, while financial balance sheets focus on net income.

Which market is where companies issue new securities for the first time?

Primary market.

The Government’s role in financial markets includes:

Regulating markets and enforcing rules.

Short selling involves:

Borrowing and selling a stock, hoping to buy it back at a lower price.

A perfectly competitive market is characterized by:

Many sellers with no pricing power.

Which form of market efficiency suggests that all public and private information is already reflected in stock prices?

Strong form.

The income statement primarily reports:

Revenue, expenses, and net profit.

The simple cash cycle refers to:

The time between paying suppliers and receiving customer payments.

Which of the following is NOT a reason why accounting profits differ from cash flows?

Stock price fluctuations.

What is the quick formula to estimate cash flows from operations?

Cash Flows = Net Income + Depreciation.

Opportunity cost refers to:

The potential benefit lost by choosing one investment over another.

The formula for future value using compound interest is:

FV = P(1 + r)^n.

If interest is compounded semi-annually, how do you adjust the interest rate and periods?

Divide the interest rate by 2 and multiply the number of periods by 2.

Corporate finance focuses only on how companies raise funds, not how they invest them.

False.

The financial balance sheet focuses on market values, while the accounting balance sheet relies on historical costs.

True.

Residual claims refer to the fixed claims of debt holders.

False.

The primary financial goal of a corporation is to maximize shareholder value.

True.

Shirking is when employees put in extra effort to maximize company profits.

False.

The secondary market is where investors buy and sell existing securities.

True.

The government has no influence on financial markets since stock prices are determined by supply and demand.

False.

Short selling involves buying undervalued stocks and holding them long-term.

False.

Perfect competition means that companies have complete control over pricing.

False.

In a strong-form efficient market, even insider information cannot lead to abnormally high profits.

True.

Depreciation expense reduces net income but does not involve an actual cash outflow.

True.

The cash cycle measures how quickly a company can convert investments into cash flow.

True.