Test Bank
Foundations of Financial Management
17th Edition
by
Stanley B. Block, Geoffrey A. Hirt, Bartley R.
Danielsen
,Contents
Cover
About This Ebook
Title Page
Copyright
About the Authors
Preface
Brief Contents
List of Selected Managerial Examples and Boxes
List of Selected Global Examples and Boxes
PART 1 | INTRODUCTION
1 The Goals and Activities of Financial Management 2
The Field of Finance 3
Evolution of the Field of Finance 3
Modern Issues in Finance 4
Risk Management and a Review of the Financial Crisis 4
The Dodd–Frank Act 5
The Impact of Information Technology 7
Activities of Financial Management 7
Forms of Organization 8
Impact of 2017 Tax Cuts and Jobs Act on Organizations 8
Sole Proprietorship 8
Partnership 9
Corporation 10
Corporate Governance 11
The Sarbanes–Oxley Act 13
Goals of Financial Management 13
A Valuation Approach 14
Maximizing Shareholder Wealth 14
Management and Stockholder Wealth 15
Social Responsibility and Ethical Behavior 15
, The Role of the Financial Markets 17
Structure and Functions of the Financial Markets 18
Allocation of Capital 18
Institutional Pressure on Public Companies to Restructure 19
Internationalization of the Financial Markets 20
Information Technology and Changes in the Capital Markets 20
Format of the Text 21
Parts 21
1. Introduction 21
2. Financial Analysis and Planning 22
3. Working Capital Management 22
4. The Capital Budgeting Process 22
5. Long-Term Financing 22
6. Expanding the Perspective of Corporate Finance 22
List of Terms 23
Discussion Questions 23
Web Exercise 24
PART 2 | FINANCIAL ANALYSIS AND PLANNING 25
2 Review of Accounting 26
Income Statement 27
Return to Capital 28
Price-Earnings Ratio Applied to Earnings per Share 28
Limitations of the Income Statement 29
Balance Sheet 30
Interpretation of Balance Sheet Items 30
Concept of Net Worth 32
Limitations of the Balance Sheet 32
Statement of Cash Flows 34
Developing an Actual Statement 34
Determining Cash Flows from Operating Activities 35
Determining Cash Flows from Investing Activities 38
Determining Cash Flows from Financing Activities 38
Combining the Three Sections of the Statement 39
Depreciation and Funds Flow 41
Free Cash Flow 44
Income Tax Considerations 44
Corporate Tax Rates 44
Cost of a Tax-Deductible Expense 46
Depreciation as a Tax Shield 46
Summary 47
List of Terms 47
Discussion Questions 48
Practice Problems and Solutions 48
Problems 49
Web Exercise 57
3 Financial Analysis 58
Ratio Analysis 59
Classification System 59
The Analysis 60
A. Profitability Ratios 61
B. Asset Utilization Ratios 64
C. Liquidity Ratios 65
D. Debt Utilization Ratios 65
Trend Analysis 67
Impact of Inflation on Financial Analysis 69
, An Illustration 70
Disinflation Effect 72
Deflation 72
Other Elements of Distortion in Reported Income 73
Explanation of Discrepancies 73
Sales 73
Cost of Goods Sold 74
Net Income 74
Summary 75
List of Terms 75
Discussion Questions 75
Practice Problems and Solutions 76
Problems 79
Comprehensive Problem 90
Comprehensive Problem 92
Web Exercise 95
4 Financial Forecasting 96
Constructing Pro Forma Statements 97
Pro Forma Income Statement 98
Establish a Sales Projection 98
Determine a Production Schedule and the Gross Profit 98
Cost of Goods Sold 100
Other Expense Items 101
Actual Pro Forma Income Statement 101
Cash Budget 102
Cash Receipts 102
Cash Payments 103
Actual Budget 104
Pro Forma Balance Sheet 105
Explanation of Pro Forma Balance Sheet 107
Analysis of Pro Forma Statement 108
Percent-of-Sales Method 108
Summary 111
List of Terms 111
Discussion Questions 112
Practice Problems and Solutions 112
Problems 113
Comprehensive Problem 122
Comprehensive Problem 123
Web Exercise 124
5 Operating and Financial Leverage 125
Leverage in a Business 126
Operating Leverage 126
Break-Even Analysis 126
A More Conservative Approach 128
The Risk Factor 130
Cash Break-Even Analysis 130
Degree of Operating Leverage 131
Leveraged Firm 131
Conservative Firm 132
Limitations of Analysis 133
Financial Leverage 133
Impact on Earnings 134
Degree of Financial Leverage 136
Plan A (Leveraged) 137
Plan B (Conservative) 137
Limitations to Use of Financial Leverage 137
Foundations of Financial Management
17th Edition
by
Stanley B. Block, Geoffrey A. Hirt, Bartley R.
Danielsen
,Contents
Cover
About This Ebook
Title Page
Copyright
About the Authors
Preface
Brief Contents
List of Selected Managerial Examples and Boxes
List of Selected Global Examples and Boxes
PART 1 | INTRODUCTION
1 The Goals and Activities of Financial Management 2
The Field of Finance 3
Evolution of the Field of Finance 3
Modern Issues in Finance 4
Risk Management and a Review of the Financial Crisis 4
The Dodd–Frank Act 5
The Impact of Information Technology 7
Activities of Financial Management 7
Forms of Organization 8
Impact of 2017 Tax Cuts and Jobs Act on Organizations 8
Sole Proprietorship 8
Partnership 9
Corporation 10
Corporate Governance 11
The Sarbanes–Oxley Act 13
Goals of Financial Management 13
A Valuation Approach 14
Maximizing Shareholder Wealth 14
Management and Stockholder Wealth 15
Social Responsibility and Ethical Behavior 15
, The Role of the Financial Markets 17
Structure and Functions of the Financial Markets 18
Allocation of Capital 18
Institutional Pressure on Public Companies to Restructure 19
Internationalization of the Financial Markets 20
Information Technology and Changes in the Capital Markets 20
Format of the Text 21
Parts 21
1. Introduction 21
2. Financial Analysis and Planning 22
3. Working Capital Management 22
4. The Capital Budgeting Process 22
5. Long-Term Financing 22
6. Expanding the Perspective of Corporate Finance 22
List of Terms 23
Discussion Questions 23
Web Exercise 24
PART 2 | FINANCIAL ANALYSIS AND PLANNING 25
2 Review of Accounting 26
Income Statement 27
Return to Capital 28
Price-Earnings Ratio Applied to Earnings per Share 28
Limitations of the Income Statement 29
Balance Sheet 30
Interpretation of Balance Sheet Items 30
Concept of Net Worth 32
Limitations of the Balance Sheet 32
Statement of Cash Flows 34
Developing an Actual Statement 34
Determining Cash Flows from Operating Activities 35
Determining Cash Flows from Investing Activities 38
Determining Cash Flows from Financing Activities 38
Combining the Three Sections of the Statement 39
Depreciation and Funds Flow 41
Free Cash Flow 44
Income Tax Considerations 44
Corporate Tax Rates 44
Cost of a Tax-Deductible Expense 46
Depreciation as a Tax Shield 46
Summary 47
List of Terms 47
Discussion Questions 48
Practice Problems and Solutions 48
Problems 49
Web Exercise 57
3 Financial Analysis 58
Ratio Analysis 59
Classification System 59
The Analysis 60
A. Profitability Ratios 61
B. Asset Utilization Ratios 64
C. Liquidity Ratios 65
D. Debt Utilization Ratios 65
Trend Analysis 67
Impact of Inflation on Financial Analysis 69
, An Illustration 70
Disinflation Effect 72
Deflation 72
Other Elements of Distortion in Reported Income 73
Explanation of Discrepancies 73
Sales 73
Cost of Goods Sold 74
Net Income 74
Summary 75
List of Terms 75
Discussion Questions 75
Practice Problems and Solutions 76
Problems 79
Comprehensive Problem 90
Comprehensive Problem 92
Web Exercise 95
4 Financial Forecasting 96
Constructing Pro Forma Statements 97
Pro Forma Income Statement 98
Establish a Sales Projection 98
Determine a Production Schedule and the Gross Profit 98
Cost of Goods Sold 100
Other Expense Items 101
Actual Pro Forma Income Statement 101
Cash Budget 102
Cash Receipts 102
Cash Payments 103
Actual Budget 104
Pro Forma Balance Sheet 105
Explanation of Pro Forma Balance Sheet 107
Analysis of Pro Forma Statement 108
Percent-of-Sales Method 108
Summary 111
List of Terms 111
Discussion Questions 112
Practice Problems and Solutions 112
Problems 113
Comprehensive Problem 122
Comprehensive Problem 123
Web Exercise 124
5 Operating and Financial Leverage 125
Leverage in a Business 126
Operating Leverage 126
Break-Even Analysis 126
A More Conservative Approach 128
The Risk Factor 130
Cash Break-Even Analysis 130
Degree of Operating Leverage 131
Leveraged Firm 131
Conservative Firm 132
Limitations of Analysis 133
Financial Leverage 133
Impact on Earnings 134
Degree of Financial Leverage 136
Plan A (Leveraged) 137
Plan B (Conservative) 137
Limitations to Use of Financial Leverage 137
