FIN 325 FINAL EXAM Questions with Correct
Answers
What is true regarding the typical balance sheet of a US Corporation?
The difference between asset value and liabilities constitutes owners
equity. the balance sheet assets are listed in order of liquidity, with more
liquid assets listed first. the values of assets on a balance sheet are
typically lower than their market values. Correct Answer-whats NOT
TRUE: The balance sheet reports activity over a range of time
which type of loan involves a borrower receiving money for one future
lump-sum payment? Correct Answer-PURE DISCOUNT LOAN
What statement is NOT consistent with the definition of the time value
of money?
Statements that are true:
individuals prefer money now versus later, on average
individuals are willing to wait to receive money if appropriately
compensated. if enough interest is offered, many individuals will be
willing to wait for a future date to receive money. Correct Answer-NOT
TRUE- no individuals prefer to receive money in the future if they are
given the option to receive the money today.
what is NOT a disadvantage of structuring a business as a corporation
relative to other structures?
Disadvantages;
, corporate earnings are taxed at both the corporate level and the
individual level. corporations are subject to increased regulatory
scrutiny. the potential for agency problems is amplified in a corporate
setting. Correct Answer-NOT A DISADVANTAGE- corporations have
limited access to sources of capital for growth
what is most likely an example of an agency problem? Correct Answer-a
manager lowers prices on goods in order to meet earnings expectations
what is the optimal goal of financial managers? Correct Answer-- to
maximize shareholder wealth
- to maximize the current price of common equity
What is TRUE regarding interest rates?
what is TRUE;
if the interest compounds annually, effective annual rate = the annual
percentage rate. simple interest is the same each year while compound
interest grows exponentially. in the US, companies are required to report
the annual percentage rate Correct Answer-NOT TRUE- the effective
annual rate decreases as the number times the rate compounds per year
increases
which of the following does NOT describe one of the impacts of
increasing financial leverage (ie. financing a greater proportion of
operations with debt)?
WHAT IS THE IMPACT OF INCREASING FINANCIAL
LEVERAGE;
Answers
What is true regarding the typical balance sheet of a US Corporation?
The difference between asset value and liabilities constitutes owners
equity. the balance sheet assets are listed in order of liquidity, with more
liquid assets listed first. the values of assets on a balance sheet are
typically lower than their market values. Correct Answer-whats NOT
TRUE: The balance sheet reports activity over a range of time
which type of loan involves a borrower receiving money for one future
lump-sum payment? Correct Answer-PURE DISCOUNT LOAN
What statement is NOT consistent with the definition of the time value
of money?
Statements that are true:
individuals prefer money now versus later, on average
individuals are willing to wait to receive money if appropriately
compensated. if enough interest is offered, many individuals will be
willing to wait for a future date to receive money. Correct Answer-NOT
TRUE- no individuals prefer to receive money in the future if they are
given the option to receive the money today.
what is NOT a disadvantage of structuring a business as a corporation
relative to other structures?
Disadvantages;
, corporate earnings are taxed at both the corporate level and the
individual level. corporations are subject to increased regulatory
scrutiny. the potential for agency problems is amplified in a corporate
setting. Correct Answer-NOT A DISADVANTAGE- corporations have
limited access to sources of capital for growth
what is most likely an example of an agency problem? Correct Answer-a
manager lowers prices on goods in order to meet earnings expectations
what is the optimal goal of financial managers? Correct Answer-- to
maximize shareholder wealth
- to maximize the current price of common equity
What is TRUE regarding interest rates?
what is TRUE;
if the interest compounds annually, effective annual rate = the annual
percentage rate. simple interest is the same each year while compound
interest grows exponentially. in the US, companies are required to report
the annual percentage rate Correct Answer-NOT TRUE- the effective
annual rate decreases as the number times the rate compounds per year
increases
which of the following does NOT describe one of the impacts of
increasing financial leverage (ie. financing a greater proportion of
operations with debt)?
WHAT IS THE IMPACT OF INCREASING FINANCIAL
LEVERAGE;
