Ag Finance MT 1

Which of the following is an example of a firm's stakeholder?

Suppliers

Which of the following is true of stakeholders?

They are groups having a direct economic link to a firm.

The primary goal of a financial manager is ___

maximizing wealth

The wealth of the owners of a corporation is represented by ___

share value

The amount earned during the accounting period on each outstanding share of common stock is called ________.

earnings per share

An effective ethics program ___

can enhance a corporation's value

Investment decisions

focus on how a company will spend its financial resources on long-term projects that ultimately determine whether the firm successfully creates value for its owners.

The primary principle that finance borrows from economics is ____

Marginal cost-benefit analysis

Corporations

Form of organization that is most expensive to organize

Which of the following is true of sole proprietorships and corporations?

In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.

Corporate governance refers to ___

the rules, processes, and laws by which companies are operated, controlled, and regulated

Johnson, Inc. has just ended the calendar year making a sale in the amount of $10K of merchandise purchased during the year at a total of $7K. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ___.

$3K and -$7K, respectively

The principal-agent problem arises when

The owners of the firm are not the people managing the firm

Under a progressive tax structure in which tax rates rise with income levels, ___

the marginal tax rate is usually greater than the average tax rate

Agency costs are ___

costs that shareholders bear because managers pursue their own interests rather than acting in the interests of shareholders

Government is typically a ___

net demander of funds because it borrows more than it saves

Which of the following serves as an intermediary channeling the savings of individuals, businesses, and governments into loans and investments?

financial institutions

Which of the following assists companies in raising capital, advise firms on major transactions such as mergers or financial restructuring, and engage in trading and market making activities?

investment banks

Which of the following provides savers with a secure place to invest funds and offer both individuals and companies loans to finance investments?

Commercial banks

Which of the following is true of a primary market?

it is the only market in which the issuer is directly involved in the transaction.

Which of the following is true of a secondary market?

It is a market in which preowned securities are traded

The key securities traded in the capital markets are ___

stocks and bonds

A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n) ________.

efficient market

The ___ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.

capital market

Which of the following is a forum in which suppliers and demanders of funds can transact business directly?

financial markets

The ________ market is where securities are initially issued and the ________ market is where pre-owned securities (not new issues) are traded.

primary; secondary

The Federal Deposit Insurance Corporation (FDIC)___

is an agency, created by the Glass-Steagall Act, that monitors banks on a regular basis to ensure that they were safe and sound

A(n) ____ is hired by a firm to find prospective buyers for its new stock or bond issue.

investment banker

A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ____.

underwriting syndicate

A crisis in the financial sector often spills over into other industries because when financial institutions ___ borrowing, activity in most other industries ____.

Contract; slows down

The process of pooling mortages or other types of loans and selling the claims or securities against that pool in the secondary market is called ___.

Securitization

Which of the following is true of preferred stock?

its dividends can be paid only after paying dividends to the common stockholders

The Glass-Stegall Act ___

separated the activities of commercial and investment banks

When one prices are falling, we would expect a(n) ____

high mortgage default rates

The stockholder's report includes ___

statement of retained earnings

A(n) ___ provides a financial summary of a firm's operating results during a specified period.

income statement

Gross profit is ___.

sales revenue minus cost of goods sold

Which of the following is a current liability?

Notes payable

Which of the following is a fixed asset?

Land

Retained earning on the balance sheet represents the ___.

cumulative total of all earning reinvested in the firm

The statement of cash flows ___

provides insight into a firm's operating, investment, and financing cash flows

On the balance sheet, net fixed assets represent ___

gross fixed assets at cost minus accumulated depreciation

Paid-in capital in excess of par represents the amount of proceeds ____.

in excess of the par value from the original sale of common stock

The ___ ratio reflects how much investors are willing to pay for a company's stock per dollar of earnings that the company generates.

price/earnings

___ analysis involves the comparison of different firms' financial ratios at the same point in time.

cross-sectional

___ generally reflect(s) the anticipated financial impact of planned long-term actions.

strategic financial plans

The depreciable value of an asset, under MARCS, is the ___.

the original cost plus installation

A firm's operating cash flow (OCF) is defined as ___.

EBIT times one minus the tax rate plus depreciation

Which of the following is a source of cash flows?

increase in accounts payable

Which of the following is a cash inflow?

a decrease in accounts receivable

Which of the following is a cash outflow?

an increase in accounts receivable

Cash flows directly related to production and sale of a firm's products and services are called ___.

cash flow from operating activities

Cash flows associated with the purchase and sale of fixed assets and business interests are called cash flow from ___.

investment activities

Cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to pay cash dividends or repurchase stock are called cash flow from ___.

financing activities

You invest a certain amount of money today. The process of determining how much money that investment will produce in the future is called ___.

compounding

The future value of a dollar ___ as the interest rate increases and ___ the longer the money remains invested.

increases; increases

In comparing an ordinary and an annuity due, which of the following is true?

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.

Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income above $10,000 but below $40,000, and 22% tax on income above $40,000. Suppose the business earns $50,000 in income this year. Its average tax rate is closest to ________.

14%

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10percent, is approximately ______.

$77

The future value of $200 received today and deposited at 8 percent for three years is approximately

$252

The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.

$178,571

Bill plans to fund his individual retirement account (IRA) by contributing $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

$144,105

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is ________.

$31,291

Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 17 percent on its investments.

Year Amount

1 $3,000

2 6,000

3 9,000

$20,127

The future value of $200 received today and deposited at 8 percent compounded semiannually for three years is ________.

$253

How much would Sophie have in her account at the end of 10 years if she deposit $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously?

$4,451

Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000, and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?

$2,457

Nico makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was ________.

$15,000

Ashley owns stock in a company which has consistently paid a growing dividend over the last five years. The first year Ashley owned the stock, she received $1.71 per share and in the fifth year, she received $2.89 per share. What is the growth rate of the dividends over the last five years?

11%

The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately ________.

7%