FINA 3000 UGA TEST 1 – POPE EXAM
2025 QUESTIONS WITH COMPLETE
SOLUTIONS 2025
market capitalization (market cap) - ANSWERmarket value of the firm's trading
common stock
- # of shares outstanding * current trading $/share
-value varies among firms
-dynamic
P/E ratio - ANSWER- price / earnings
-price today for $1 of firm's current earnings
-greater P/E ratio, greater growth potential seen by investors (becomes more expensive
though)
Earnings per share - ANSWERnet income / # of common shares outstanding
S & P 500 index - ANSWER-500 largest firms by market capitalization in US economy
-represents every area of our economy
Dow Jones Industrial Average - ANSWER-Average of the stock price of 30 large
industrial firms in US
-sum of 30 stock prices / constant #
Debt - ANSWERloan you pay back
-required interest payments & repayment of principal
-set maturity date
-fixed payments
-no ownership, no voting rights, no control given to investors
Equity - ANSWERsell ownership for financing
-voting rights for investor
-shares give ownership
-dividends
-residual claim (last in line for dividends)
-Preemptive right
Preemptive Right - ANSWERInvestors who own stock have the right to buy new shares
Time Value of Money - ANSWERA dollar today is worth more than a dollar tomorrow
Risk and return - ANSWERThe greater the risk, the greater the return
-what interest rate should we earn on our money
, Leverage - ANSWEROperating and Financial
-operating: degree of fixed costs on your income statement
-financial: amount of debt relative to equity you carry
RULE: greater the leverage, greater the volatility or risk associated with the firm
Diversification - ANSWERYour overall risk can decline by investing in multiple
opportunities
Three main types of businesses - ANSWERSole Proprietorship
-unlimited liability
-subject to fewer gov't regulations
-difficult to raise capital
Partnership
-same as sole proprietorship but have partnership issues
Corporation
-Easier to raise capital
-limited liability
-unlimited life
-greater government regulation
What business do we favor? - ANSWERcorporations
1. investors favor less risk
2. firms need capital to grow
Raising Capital - ANSWERcan use retained earnings or external funding through debt
and equity to raise capital
Total Assets - ANSWERgives an approximate value of what the firm's assets are worth
at some given time
Current assets - ANSWERrepresent short term investments for the firm
-if we increase current assets, we reduce cash flow
Current liabilities - ANSWERrepresent accounts we must pay in the next 30-60 days
Shareholder equity - ANSWER'book value' of firm's equity
Enterprise Value - ANSWER(market value of equity + market value of debt + market
value of PREFERRED stock) - cash
-price tag on the whole firm or the value of the business
Financial ratios - ANSWERcalculations based on values of the firm's financial
statements
2025 QUESTIONS WITH COMPLETE
SOLUTIONS 2025
market capitalization (market cap) - ANSWERmarket value of the firm's trading
common stock
- # of shares outstanding * current trading $/share
-value varies among firms
-dynamic
P/E ratio - ANSWER- price / earnings
-price today for $1 of firm's current earnings
-greater P/E ratio, greater growth potential seen by investors (becomes more expensive
though)
Earnings per share - ANSWERnet income / # of common shares outstanding
S & P 500 index - ANSWER-500 largest firms by market capitalization in US economy
-represents every area of our economy
Dow Jones Industrial Average - ANSWER-Average of the stock price of 30 large
industrial firms in US
-sum of 30 stock prices / constant #
Debt - ANSWERloan you pay back
-required interest payments & repayment of principal
-set maturity date
-fixed payments
-no ownership, no voting rights, no control given to investors
Equity - ANSWERsell ownership for financing
-voting rights for investor
-shares give ownership
-dividends
-residual claim (last in line for dividends)
-Preemptive right
Preemptive Right - ANSWERInvestors who own stock have the right to buy new shares
Time Value of Money - ANSWERA dollar today is worth more than a dollar tomorrow
Risk and return - ANSWERThe greater the risk, the greater the return
-what interest rate should we earn on our money
, Leverage - ANSWEROperating and Financial
-operating: degree of fixed costs on your income statement
-financial: amount of debt relative to equity you carry
RULE: greater the leverage, greater the volatility or risk associated with the firm
Diversification - ANSWERYour overall risk can decline by investing in multiple
opportunities
Three main types of businesses - ANSWERSole Proprietorship
-unlimited liability
-subject to fewer gov't regulations
-difficult to raise capital
Partnership
-same as sole proprietorship but have partnership issues
Corporation
-Easier to raise capital
-limited liability
-unlimited life
-greater government regulation
What business do we favor? - ANSWERcorporations
1. investors favor less risk
2. firms need capital to grow
Raising Capital - ANSWERcan use retained earnings or external funding through debt
and equity to raise capital
Total Assets - ANSWERgives an approximate value of what the firm's assets are worth
at some given time
Current assets - ANSWERrepresent short term investments for the firm
-if we increase current assets, we reduce cash flow
Current liabilities - ANSWERrepresent accounts we must pay in the next 30-60 days
Shareholder equity - ANSWER'book value' of firm's equity
Enterprise Value - ANSWER(market value of equity + market value of debt + market
value of PREFERRED stock) - cash
-price tag on the whole firm or the value of the business
Financial ratios - ANSWERcalculations based on values of the firm's financial
statements
