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Post-Lecture Question 1
Cash flows to stakeholders of a firm include interest and principal payments.
Cash flows to stakeholders of a firm include

impairment of goodwill.

depreciation expense of an asset.

equipment contributed by the owner.

interest and principal payments.

Post-Lecture Question 2
The main responsibility of a financial manager is to make decisions that are in the best interests of the firms owners.
The main responsibility of a financial manager is to

keep the firms debt-holders happy.

make decisions that are in the best interests of the firms owners.

assist the marketing department in making sales projections.

manage the wealth of stockholders.

Post-Lecture Question 3
Purchase of equipment is an investment in fixed assets. . Working capital management decisions deal with day-to-day
financial matters and affect current assets, current liabilities, and net working capital.

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Deciding whether or not to spend $5 million to purchase a new piece of equipment is an example of a working capital decision
faced by a financial manager.

True

False

Post-Lecture Question 4
The stockholders or owners of a corporation have limited liability for debts and other obligations.
The owners of a _____ have limited liability for financial obligations.

limited partnership

sole proprietorship

corporation

general partnership

Post-Lecture Question 5
A hybrid business organization is one that combines limited liability benefits with no double taxation for its owners.
A hybrid business organization is one that

is organized like a sole proprietorship but is taxed like a partnership.

makes its owners personally liable for the firms debts while providing them with the benefit of no double taxation.

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has issued common stock as well as debt.

combines limited liability benefits with no double taxation for its owners.

Post-Lecture Question 6
The Controller is responsible for the preparation of financial statements.
Within the finance function of a large organization, the executive who is responsible for the preparation of financial statements is
the

internal auditor.

controller.

treasurer.

chief financial officer (CFO).

Post-Lecture Question 7
Investors determine the value of a firms stock based on the size of expected cash flows, the timing of the cash flows and the
riskiness of the cash flows.
Investors determine the value of a firms stock based on the firms

net profit.

industry status.

expected cash flows.

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market share.

Post-Lecture Question 8
Profit maximization does not consider time value of money.
Profit maximization is not an appropriate goal for a firm because

it considers the current value of the firms stock.

it directly accounts for the firms cash flows.

it directly considers the timing and riskiness of the firms cash flows.

it does not consider time value of money

Post-Lecture Question 9
The main objective of a firms management should be to maximize its stock value.
The main objective of a firms management should be to

maximize its stock value.

minimize its risk exposure.

reduce its debt level.

maximize its profits.

Post-Lecture Question 10

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Managers may make decisions that benefit their own interest rather than those of the stakeholders. This is the reason for
agency conflicts.
Agency conflicts are mainly caused by

owners not caring about the managers interests.

managers not putting shareholders interests above their own interest.

excessive government regulation.

excessive control being exercised by the owners over their managers.

Post-Lecture Question 11
A well designed management compensation package, an efficient managerial labor market, and the Sarbanes-Oxley Act of
2002 are some of the mechanisms that help to align management interests with those of its shareholders.
Which one of the following mechanism helps to align management interests with those of its shareholders?

An inefficient managerial labor market.

A well designed management compensation package.

Unethical activities carried on by a firm.

Small stockholders base.

1.2
Shares in a corporation can be sold to raise capital from investors who are not involved in the business. This greatly increases
the amount of capital that can be raised to fund the business.
Which of the following is the advantage of the corporate form of organization?

Reduced start-up costs.

Greater access to capital markets.

Unlimited liability.

Single taxation.

32
Your answer is correct.
The capital budgeting decision process addresses

how a firm's day-to-day financial matters should be managed.

how a firm should finance its assets.

which productive assets a firm should purchase.

all of the above.

36

Financial markets in which equity and debt instruments with maturities greater than one year are traded are called:

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money markets.

capital markets.

Over the counter exchange.

none of the above.

38
Your answer is correct.
Which of the following business organizational form(s) subject(s) the owner(s) to unlimited liability?

Sole proprietorship

General partnership

Corporation

Both Sole proprietorship and General partnership

Quiz 2
1
The critical role of the financial system in an economy is to gather surplus funds from people, businesses, and governments
and channel that money to those who need it.
The critical role of the financial system in an economy is to

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provide the President with information regarding the debt level in the country.

regulate the operations of the commercial banks.

gather money from savers and channel it to borrowers.

provide managers with incentives to increase capital spending.

2
An investment banker provides origination services by preparing a security issue for sale.
An investment banker is responsible for

preparing a security issue for sale.

taking deposits from investors.

assisting the company in preparing the financial statements.

making loans to needy businesses

3
Compared with money market instruments, capital market instruments are less marketable, have higher default risk, and have
longer maturities.
Compared with money market instruments, capital market instruments

have lower default risk.

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have shorter maturities.

are not affected by inflation.

are less marketable

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Liquidity implies that when a security is sold, its value will be preserved; marketability does not carry this implication.
Liquidity and marketability are often used interchangeably because liquid securities are usually easily marketable.

True

False

5
The New York Stock Exchange is an organized exchange.
Which of the following is true of the New York Stock Exchange?

It is an organized exchange.

It has no central trading location.

It can be used by all U.S citizens.

It is an over-the-counter exchange.

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In an efficient market, market prices adjust quickly to new information as it becomes available.
Which of the following is true of an efficient market?

Market prices adjust quickly to new information as it becomes available.

All information contained in past prices of a security is reflected in its current price but that there is both public and
private information that is not.

Market prices of securities of companies in the same industry are all same.

Securities have no systematic risk

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Liquidity implies that when a security is sold, its value will be preserved; marketability does not carry this implication.
Financial intermediation occurs when the Federal Reserve tampers with the money supply.

True

False

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The level of interest rates tends to rise during periods of economic expansion and decline during periods of economic
contraction. The reasoning is that as the economy expands, businesses begin to borrow money to build up inventories and to
invest in more production capacity in anticipation of increased sales.
The level of interest rates tends to _____ during periods of economic expansion and _____ during periods of economic
contraction.

rise; decline

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decline; rise

decline; stay the same

rise; stay the same

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The level of interest rates tends to rise and fall with changes in the actual rate of inflation. When the expected rate of inflation
increases the level of interest rates tends to rise and vice versa.
When the expected rate of inflation increases, the level of interest rates tends to rise.

True

False

2.9
Your answer is correct.
Identify whether the following transactions are primary market or secondary market transactions.

a.

Jim Hendry bought 300 shares of IBM through his brokerage account.

b
.

Peggy Jones bought $5,000 of General Motors bonds from another investor.

c.

Hathaway Insurance Company bought 500,000 shares of Trigen Corp. when the company issued
stock.

Secondary

Secondary

Primary

2.29

Your parents have given you $1,300 a year before your graduation so that you can take a trip when you graduate. You wisely
decide to invest the money in a bank CD that pays 7.22 percent interest. You know that the trip costs $1,009 right now and that
inflation for the year is predicted to be 6.05 percent. Will you have enough money in a year to purchase the trip?
Yes. The CD will be worth $1,393.86 at the end of the year ($1,300 x 7.22% + $1,300), and the price of the trip will be $1,070.04
($1,009 x 6.05% + $1,009). The CD will be able to cover the trip.

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Quiz 3
1
Accounting principles and reporting practices for U.S. firms are promulgated by the Financial
Accounting Standards Board (FASB). GAAP and reporting practices are published in the form of
FASB statements.
The generally accepted accounting principles (GAAP) are set by:

The Federal Reserve Board (FRB).

The United States Congress.

The Financial Accounting Standards Board (FASB).

Securities
Exchange
Commission
(SEC).

2 Treasury stock represents stock that:

is being held to purchase preferred stock.

is being held to purchase treasury securities.

a firm has purchased back from investors.

a firm has sold to the U.S. Treasury Department.

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Net working capital = Total current assets Total current liabilities

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What is the mathematical expression to calculate net working capital?

4
If a company values its inventory using the LIFO method, when the firm makes
a sale, it assumes the sale is from the newest, highest-cost inventorylast in,
first out. During a period of inflation, firms using LIFO will have the highest
cost of goods sold, the lowest net income, and the lowest inventory value.
During a period of inflation, firms using LIFO will have the:

lowest cost of goods sold, the highest net income, and the highest
inventory value.

lowest cost of goods sold, the highest net income, and the lowest
inventory value.

highest cost of goods sold, the lowest net income, and the lowest
inventory value.

highest cost of goods sold, the lowest net income, and the highest
inventory value.

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Balance sheet is a financial statement that shows a firms financial position at a point in time. The
left-hand side of the balance sheet identifies the firms assets, and the right-hand side of the
balance sheet shows liabilities and stockholders equity.
The balance sheet shows a firms financial position at a point in time.

True

False

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Accounting statements are records of past performance, and they are based on historical
costs, not on current market prices.
Accounting statements are:

based on current cost data.

based on historical data.

based on inflation-adjusted data.

based on residual-value data.

If Kalium Motors has an EBIT of $28 million, interest of $8 million and is taxed at an average
rate of 32%, what is its net income?

$13.6 million

$20 million

$6.4 million

$19 million

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The purchase of treasury stock requires a firm to pay out cash, reducing cash balances.
An increase in treasury stock increases the cash balance.

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True

False

10
Cash flows from investing activities relate to the buying and selling of long-term
assets.
Buying and selling long-term assets are considered _____ activities in the statement of
cash flows of a firm.

financing

operating

investing

noncash

Net cash flow:

is the difference between a firms actual cash receipts and cash payments in a
given period.

is equal to a firms net income.

is the difference between a firms operating cash flow and its financing cash
flow.

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is the
difference
between a
firms total
expenses and
total revenues.
A firms net income may be greater than its net cash flows if the
firm:

deferred income taxes.

deducted depreciation expense.

did not pay dividends.

sold merchandise on credi

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Cash flow from operating activities = Net income + Sources of
cash Uses of cash = $495 + $168 ($42 + $63 + $15 + $39)
= $504) Increase in long-term debt and purchase of treasury
stock are financing activities. Purchasing property and equipment
is an investing activity.
Quipe Industries provided the following information for the year
ending June 30, 2014.

Increase in inventories
Purchased treasury stock
Purchased property and equipment
Net income
Decrease in accrued income taxes
Depreciation and amortization
Decrease in accounts payable
Increase in accounts receivable
Increase in long-term debt
What was Quipe Industries cash flow from operations for the year
ending June 30, 2014?

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