FNAN 320 EXAM 1 QUESTIONS WITH VERIFIED
ANSWERS
Capital structure - Answers - mixture of long-term debt and equity the firm uses to
finance its operations.
Forms of businesses
Agency conflicts - Answers - Potential conflict between owner and its managers.
Primary goal of financial management - Answers - maximize the market value of
existing stock for a corporation.
Sarbanes-Oxley Act (2002) - Answers - Corporate accounting and financial fraud.
Net working capital - Answers - current assets - current liabilities
Average tax rate - Answers - total tax paid divided by the total taxable income.
Marginal tax rate - Answers - Extra tax you would pay if you earned one more dollar.
Cash flow from assets - Answers - Operating cash flow - change in NWC - net capital
spending
Liquidity - Answers - Speed and ease with which an asset can be converted to cash.
Decrease liquidity?:
1) Cash purchase of inv.
2) Credit sale of inv.
3) Cash sale of inv.
4) Collection of an A/R
5) Proceeds from a long-term loan - Answers - 1) Cash purchase of inventory
Financial leverage - Answers - increases the potential return to the shareholders.
Income statement prepared according to GAAP - Answers - records expenses based on
matching principle.
Matching principle - Answers - the costs of producing an item should be recorded when
the sale of that item is recorded as revenue.
Depreciation does what for a profitable firm? - Answers - Lowers taxes
ANSWERS
Capital structure - Answers - mixture of long-term debt and equity the firm uses to
finance its operations.
Forms of businesses
Agency conflicts - Answers - Potential conflict between owner and its managers.
Primary goal of financial management - Answers - maximize the market value of
existing stock for a corporation.
Sarbanes-Oxley Act (2002) - Answers - Corporate accounting and financial fraud.
Net working capital - Answers - current assets - current liabilities
Average tax rate - Answers - total tax paid divided by the total taxable income.
Marginal tax rate - Answers - Extra tax you would pay if you earned one more dollar.
Cash flow from assets - Answers - Operating cash flow - change in NWC - net capital
spending
Liquidity - Answers - Speed and ease with which an asset can be converted to cash.
Decrease liquidity?:
1) Cash purchase of inv.
2) Credit sale of inv.
3) Cash sale of inv.
4) Collection of an A/R
5) Proceeds from a long-term loan - Answers - 1) Cash purchase of inventory
Financial leverage - Answers - increases the potential return to the shareholders.
Income statement prepared according to GAAP - Answers - records expenses based on
matching principle.
Matching principle - Answers - the costs of producing an item should be recorded when
the sale of that item is recorded as revenue.
Depreciation does what for a profitable firm? - Answers - Lowers taxes
