A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:
general partnership
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:
limited partner
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
agency problem
Which one of the following is a capital budgeting decision?
deciding whether or not to purchase a new machine for the production line
Which of the following individuals have unlimited liability based on their ownership interest?
I. general partner
II. sole proprietor
III. stockholder
IV. limited partner
I and II only
Which of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
I, III, and IV only
Which one of the following actions by a financial manager is most apt to create an agency problem?
increasing current profits when doing so lowers the value of the firm's equity
Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.
I. compensation based on the value of the stock
II. stock option plans
III. threat of a company takeover
IV. threat of a
I, II, III, and IV
Which form of business structure is most associated with agency problems?
corporation
Which one of the following parties has ultimate control of a corporation?
shareholders
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
balance sheet
Net working capital is defined as:
(current assets)-(current liabilities)
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.
marginal
The _____ tax rate is equal to total taxes divided by total taxable income.
average
Which term relates to the cash flow which results from a firm's ongoing, normal business activities?
operating cash flow
Cash flow from assets is also known as the firm's:
free cash flow
Which of the following are current assets?
I. patent
II. inventory
III. accounts payable
IV. cash
II and IV only
Which one of the following statements concerning net working capital is correct?
Net working capital increases when inventory is sold for cash at a profit.
Which one of the following statements related to liquidity is correct?
Liquid assets are valuable to a firm.
Depreciation
reduces both taxes and net income
For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.
depreciation
Andre's Bakery has sales of $687,000 with costs of $492,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 35 percent. What is the net income?
$82,550
A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
sales
The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
DuPont identity
Which one of the following is a source of cash?
increase in accounts payable
On a common-size balance sheet all accounts are expressed as a percentage of:
total assets for the current year
Tracy invested $1,000 five years ago and earns 4 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as w
compounding
Sara invested $500 six years ago at 5 percent interest. She spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment. Which type of interest is Sara earning?
simple interest
Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following stateme
Sue will have more money than Neal as long as they retire at the same time.
Shelley won a lottery and will receive $1,000 a year for the next ten years. The value of her winnings today discounted at her discount rate is called which one of the following?
present value
Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following?
discount rate
Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now
decreases
You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5 percent annual interest. Which of the following will reduc
I and III only