Finance exam 1

a partnership

creates an ulimited liability for all general partners for the parternships debts

what 2 types of companies are taxed in a similar fashion?

sp and partnership

In a corporation an entity can

outlive all of its initial owners

in a general partnership, the general partners have ——- liability for the firms debts and have —— control over day to day operations

unlimited, total

a business formed by two or more individuals who each have unlimited personal liability for all of the firms debts is called a

general partnership

in a LP, each LPs liability for the partnerships debt is

limited to the amount they invested into the partnership

financial managers primarily create firm value by

investing in assets that generate cash in excess of their cost

how does a firm create value?

having greater cash inflow from its stockholders than its outflow to them

What action by a financial manager creates an agency problem?

agreeing to expand the company at the expense of stockholders value

a financial manager should make decisions based on

the welfare of the current shareholder

what is the least apt to help convince managers to work in the best interest of the stockholders

salary raises based on length of service

the ultimate control of a corporation lies in the hands of the corporate

stockholders

what is an agency cost

the payment required for an outside audit of the firm

one intent of the srbanes oxley act of 2002 is to

protect investors from corporate abuse

why might a professional group select LLC form of business over a general partnership or corporation structure?

LLC combines the LL of a corporation witht eh tax treatment of a partnership

a note payable in nine months is a

cl

liquitidy is

valuable to a firm evven though liquid assets tend to be less profitable to own

what equation accuratley expresses the balance sheet

se= a-l

an asset that can be quickly converted into cash without significant loss in value is called

liquid

the book value of assets is determined under

GAAP and is based on the cost of those assets

the financial statement summarizing a firms accounting perfomance over a period of time is an

income statement

all else held constant, EPS will derease as

the number of shares outstanding increases

assuming the number of shares outstanding and total earnings remain constant, an increase in dividends per share will

reduce the addition to retained earnings

deprecieation for a profitable firm

decreases both operating and net income

ratios that measure a firms ability to pay its bills over the short run without undue stress are klnon as

liquidity measures

the debt equity ratio is measured as

total debt/ total equity

days sales in inventory is measured as

365/ inventory turnover

the financial ratio measured as net income / sales is known as the firms

profit margin

the market to book ratio is measured as

market value per share/ book value per share

a supplier who requires a payment within 10 days should be most concerned with which ratio when granting credit

quick ratio

from a cash flow position, which ratio best measures a firms ability to pay the interest on its debts

cash coverage ratio

enterprise value is based on

mv of ib debt + mv of equity - cash

the roe can be calculated as

roa x equity multiplier

the sustainable growth rate assumes

there is no external financing

the sustainable rate of growth for a firm can be increased by

increasing the total asset turnover