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1. (TCO 1) What is the goal of financial management for a sole proprietorship? (Points : 3)
decrease long-term debt to reduce the risk to the owner
maximize net income given the resources of the firm
maximize the market value of the equity
minimize the tax impact on the proprietor
minimize costs and increase production
establishing the inventory level
deciding when to pay suppliers
determining the amount of cash needed on a daily basis
establishing credit terms for customers
all of the above
The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above
It shows the revenue and expenses, based upon selected accounting methods.
It reveals the net cash flows of a firm over a stated period of time.
It reflects the financial position of a firm as of a particular date.
It records revenue only when cash is received for the product or service provided.
It records expenses based on the recognition principle
(Points : 3)
income and expenses at the time when those items affect the cash flows of a firm.
income and expenses in accordance with GAAP.
the cash flows in accordance with GAAP.
the flow of cash into and out of a firm during a stated period of time.
the flow of cash into and out of a firm as of a particular date
Mark will earn more interest in year 4 than he will in year 3.
Mark will receive equal interest payments every six months over the life of the investment.
Mark would have earned more interest if he had invested in an account paying 8 percent simple interest.
Mark would have earned more interest if he had invested in an account paying annual interest.
Mark will earn less and less interest each year over the life of the investment
The current value of the project’s inflows is $16,000
The approximate current value of the project’s inflows is $13,000
The current value of the project’s inflows is somewhere in between $14,000 and $16,000
The project should be rejected because its present value is negative
14. (TCO 4) You are considering two investments. Investment I is in a software company, and Investment II is an engineering company. The investments offer the following cash flows:YearSoftware CompanyEngineering Company
If the appropriate discount rate is 10 percent, what is the approximate present value of the Engineering Company investment? (Points : 3)
South Bank because its effective rate is higher.
North Bank because the APR is lower.
South Bank because its effective rate is lower.
North Bank because its effective rate is lower
7.5 percent simple interest
7.5 percent interest, compounded monthly
8.0 percent simple interest
8.0 percent interest, compounded annually
8.0 percent interest, compounded monthly
unequal payments each month, for 18 months
payments of equal amount each quarter forever
unequal payments each year forever
equal payments every six months for 48 months
unending equal payments every other month
Bond issuers maintain a listing of bondholders when bonds are issued in bearer form.
An indenture, is a contract between a corporation and its shareholders.
Collateralized bonds are called debentures.
The description of any property used to secure a bond issue is included in the bond indenture
None of the above
$4, $4.5 and $4.8
$4.24, $4.76 and $5.05
$4.24, $4.49, $4.76
$4, $4.50, $5.05
it is the market where the largest number of shares are traded on a daily basis.
it is the market in which the largest number of issues are listed.
it is the market with the largest number of participants.
it is the market where new securities are offered.
it is the market where shareholders trade most frequently with each other
yield to maturity.
yield to call.
Most bonds do not carry default risk.
Municipal bonds are free of default risk.
Bonds are not sensitive to changes in the interest rates.
Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.
None of the above is true
A bond that adjusts the coupon payments based on an interest rate index, such as the T-bill.
An EE Savings Bond issued by the U.S. government.
A bond that does not have any coupons until maturity.
A bond that adjusts the coupon and face value payment based on inflation.
Have coupons that depend on the company’s income
Can be exchanged for a fixed number of shares before maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
the partnership debts that he or she personally obtained for the firm.
his or her proportionate share of all partnership debts, regardless of which partner incurred that debt.
the total debts of the partnership, even if he or she was unaware of those debts.
the debts of the partnership, up to the amount he or she invested in the firm.
all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts
tangible fixed assets.
intangible fixed assets
1. (TCO 1) Can you provide some examples of recent, well-known unethical behavior cases? Explain the situation in one or two sentences.
2. What are some real-life scenarios where you can apply the time value of money? Present two or three scenarios. Briefly explain your rationale.
3. Explain some of the key risks associated with bonds.
4. What are some of the features of zero-coupon bonds that make them attractive to certain investors? Which type of investors will be most interested in these bonds?