FIN 357 exam 1 Concept questions with correct answers 100%

FIN 357 exam 1 Concept questions with correct answers 100% Three types of financial management decisions - Correct Answer 1. Capital budgeting (deciding whether to expand a manufac plant) 2. Capital structure (deciding whether to issue new equity and retire outstanding debt) 3. Working capital management (modifying firms credit collection policy with customers) Disadvantages of Sole Proprietorship and Parterships - Correct Answer Disadvantages: unlimited liability, limited life, difficulty in transferring ownership, difficulty in raising capital funds Some advantages: simpler, less regulation, owners are also managers, sometimes personal tax rates are better Disadvantage/Advantages of Corporations - Correct Answer Disadvantage: double taxation to shareholders of distributed earnings and dividends Advantages: limited liability, ease of transferability, ability to raise capital, unlimited life Sarbanes-Oxley Act - Correct Answer Small firms in the US have opted to "go dark" and delist their stock. cost of compliance can be millions, which can be a large percentage of a firms profits Corporate Finance Organization Groups - who report to CFO? - Correct Answer Treasurer's office - responsible for cash/credit management, capital budgeting, financial planning controllers office- handles cost and financial accounting, tax, MIS Goal of Financial Management - Correct Answer To maximize the current market value (share price) of the equity of the firm (publicly or not) Agency Problems in Corporations - Correct Answer shareholders are owners of the firm. Shareholders elect directors, who appoint firms management. Separation of ownership from control causes agency problems - conflict of interest IPP Market Transaction - Correct Answer A Primary market transaction Auction vs Dealer Markets - Correct Answer Auction: NYSE, brokers and agents match buyers and sellers Dealer: NASDAQ, electronically, sell assets over the counter Liquidity - Correct Answer how quickly and easily an asset can be converted to cash Why might revenue and cost figures shown on income statement not be representative of the actual cash flow? - Correct Answer recognition and matching principles in financial accounting call for revenues and associated costs to be "booked" when revenue process, not when cash is collected. Book Value vs. Market Values - Correct Answer Historical costs can be objectively and precisely measured whereas market values can be difficult to estimate Operating Cash Flow (OCF) what are two items you find in net income but now in OCF? - Correct Answer Depreciation and Interest expense Can Liabilities exceed assets in market values? - Correct Answer No, market values can never be negative. liabilityes can not exceed assets in market value Suppose a company's cash flow from assets in negative for a particular period. Is this a good or bad thing? - Correct Answer a successful company may have negative cash flow. What matters is whether the money is spend wisely, not whether its positive or negative