Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Topic: 01-04 The Financial Manager
27. Financial markets are composed of:
A. capital markets and equity markets.
B. capital markets and debt markets.
C. capital markets and money markets.
D. equity markets and money markets.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Topic: 01-05 Identification of Cash Flows
28. The primary market is defined as:
A. the market for insured securities.
B. the market for new issues.
C. the market for securities of the largest firms.
D. the over-the-counter market.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Topic: 01-05 Identification of Cash Flows
29. Which one of the following is a primary market transaction?
A. A dealer selling shares of stock to an individual investor.
B. A dealer buying newly issued shares of stock from a corporation.
C. An individual investor selling shares of stock to another individual.
D. A bank selling shares of a medical firm to an individual.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-05 Identification of Cash Flows
Short Answer Questions
30. Flea Fall Inc., a maker of dog flea collars, paid $125,000 cash for inventory on January 1, 2014. On December 31, 2014, the company's sales total $147,000 of which $117,000 has been collected. If inventory represents Flea Falls only cost, calculate the firms accounting profit as well as its cash flow as of December 31.
Accounting Profit = Sales - Cost ($147,000 - $125,000 = $22,000)
Cash Flow = Cash Inflow - Cash Outflow ($117,000 - $125,000 = $8,000)
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: Medium
Topic: 01-01 What is Corporate Finance?
31. The Harlow Corporation has promised to pay its debtholders an amount of $2,700 over the next year. The firm's shareholders hold claim to whatever is left after the debtholders' claims have been satisfied. Calculate Harlow's debt and equity level if its assets total $1100 at the end of the year. Recalculate for asset levels of $2,200 and $6,000.
If assets total $1100: Value of Debt = $1100, Value of Equity = $0
If assets total $2200: Value of Debt = $2200, Value of Equity = $0
If assets total $6000: Value of Debt = $2700, Value of Equity = $3300
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: Medium
Topic: 01-01 What is Corporate Finance?
32. A financial manager's most important job is to create value from capital budgeting, financing, and liquidity activities. Explain how financial managers create value.
Buy assets that generate more than their cost.
Sell financial securities that raise more cash than they cost.
Minimize cash payouts to non-investors, ie., taxes to governments.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Topic: 01-01 What is Corporate Finance?
33. List and briefly describe the three basic areas addressed by a financial manager.
The three areas are:
1. Capital budgeting: The financial manager tries to identify investment opportunities that are worth more to the firm than they cost to acquire.
2. Capital structure: This refers to the specific mixture of current and long-term debt and equity a firm uses to finance its operations.
3. Working capital management: This refers to a firm's short-term assets and short-term liabilities. Managing the firm's working capital is a day-to-day activity that ensures the firm has sufficient resources to continue its operations and avoid costly interruptions.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Topic: 01-01 What is Corporate Finance?
34. The decision to incorporate must consider the fact that earnings will be taxed at both the corporate and personal levels. Since this is disadvantageous, provide three reasons why one may want to incorporate.
Easier access to capital markets.
Retention of funds for reinvestment opportunities.
Market pricing and trading of securities.
Accessibility: Keyboard Navigation
Blooms: Understand