Business Finance Exam 1 correctly
answered already passed
Marginal Investor determines actual stock price? - correct answer ✔✔True
Primary operating goal of publicly owned firm trying to serve shareholders should? - correct
answer ✔✔Use well-structured managerial compensation package to reduce conflicts that may
exist between stockholders & managers
For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic
value. - correct answer ✔✔False
If stocks intrinsic value is greater than market price, then the stock is undervalued & should be
purchased - correct answer ✔✔True
- Intrinsic value = market price = fairly priced
- intrinsic value less than market price = overvalued
Free cash flow (FCF) is essentially, the cash flow that is available for interest & dividends after
the company has made investments in current & fixed assets that are necessary to sustain
ongoing operations - correct answer ✔✔True
EBIT(1+t) + Dep - CAPEX - Change in NWOC
Bessett Company Operations provided a negative cash flow, yet cash shown on its balance sheet
increased. Which of the following could explain increase in cash, assuming company financial
statements were prepared under generally accepted accounting principles (GAAP) - correct
answer ✔✔Company sold some of its fixed assets, Source.
, - Change in cash = changes cash from operations + investments + financing
Firms ROE is below the industry average, but both its profit margin & equity multiplier are
above industry average. Which statement is correct? - correct answer ✔✔its total assets
turnover must be below industry average
- ROE = PM x TATO x EM
Which is true? - correct answer ✔✔Debt management ratios show the extent to which a firms
manager are attempting to magnify returns on owners capitol through use of financial leverage
Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly.
Which of the following statements is correct? - correct answer ✔✔periodic rate of interest is
1.5% & effective rate of interest is greater than 6%
M=4 | EAR will be greater Inom
Iper 6/4 = 1.5%
Analyzing the value of potential investment lay calculating the sum of the present values of its
expected cash flows. Which would increase calculated value of investments? Higher PV - correct
answer ✔✔The discount rate decreases, if interest rates increase PV declines, if interest rates
decrease PV rises
Press Company balance sheet showed total current assets of $3,500, required in operations.
Current liabilities consisted of $975 accounts payable, $600 of 6% notes payable to bank, $250
accrued wages & taxes. What is the net operating working capital? - correct answer
✔✔Operating Liabilities = AP + Accruals | $975+$250=$1225
Operating Current Assets - Operating Current Liabilities = change in NOWC
answered already passed
Marginal Investor determines actual stock price? - correct answer ✔✔True
Primary operating goal of publicly owned firm trying to serve shareholders should? - correct
answer ✔✔Use well-structured managerial compensation package to reduce conflicts that may
exist between stockholders & managers
For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic
value. - correct answer ✔✔False
If stocks intrinsic value is greater than market price, then the stock is undervalued & should be
purchased - correct answer ✔✔True
- Intrinsic value = market price = fairly priced
- intrinsic value less than market price = overvalued
Free cash flow (FCF) is essentially, the cash flow that is available for interest & dividends after
the company has made investments in current & fixed assets that are necessary to sustain
ongoing operations - correct answer ✔✔True
EBIT(1+t) + Dep - CAPEX - Change in NWOC
Bessett Company Operations provided a negative cash flow, yet cash shown on its balance sheet
increased. Which of the following could explain increase in cash, assuming company financial
statements were prepared under generally accepted accounting principles (GAAP) - correct
answer ✔✔Company sold some of its fixed assets, Source.
, - Change in cash = changes cash from operations + investments + financing
Firms ROE is below the industry average, but both its profit margin & equity multiplier are
above industry average. Which statement is correct? - correct answer ✔✔its total assets
turnover must be below industry average
- ROE = PM x TATO x EM
Which is true? - correct answer ✔✔Debt management ratios show the extent to which a firms
manager are attempting to magnify returns on owners capitol through use of financial leverage
Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly.
Which of the following statements is correct? - correct answer ✔✔periodic rate of interest is
1.5% & effective rate of interest is greater than 6%
M=4 | EAR will be greater Inom
Iper 6/4 = 1.5%
Analyzing the value of potential investment lay calculating the sum of the present values of its
expected cash flows. Which would increase calculated value of investments? Higher PV - correct
answer ✔✔The discount rate decreases, if interest rates increase PV declines, if interest rates
decrease PV rises
Press Company balance sheet showed total current assets of $3,500, required in operations.
Current liabilities consisted of $975 accounts payable, $600 of 6% notes payable to bank, $250
accrued wages & taxes. What is the net operating working capital? - correct answer
✔✔Operating Liabilities = AP + Accruals | $975+$250=$1225
Operating Current Assets - Operating Current Liabilities = change in NOWC
