help me one !!!!!! i have some question form DR Yingbing IN UTA ABOUT FINNCIAL

2. Financing decisions involve sources of capital used in the running of a firm. Investment decisions, typically called capital budgeting, involve the uses of capital raised in the financing process. a. Investment decision b. Financing decision c. Investment decision d. Investment decision e. Investment decision f. Financing decision: On the surface, this may appear similar to a dividend decision, but in reality retiring debt is a change in capital structure and more closely aligned with a financing decision. 4. a. A share of stock financial b. A personal IOU financial c. A trademark real d. A truck real e. Undeveloped land real f. The balance in the firm's checking account financial g. An experienced and hardworking sales force real h. A bank loan agreement financial 10. B. The corporation survives even if managers are dismissed and C. Shareholders can sell their holdings without disrupting the business. 12. B. Responsible for investing the firm's spare cash and C. Responsible for arranging any issue of common stock. 14. A corporation might cut its labor force dramatically, which could reduce immediate expenses and increase profits in the short term. Over the long term, however, the firm might not be able to serve its customers properly, or it might alienate its remaining workers; if so, future profits will decrease, and the stock price, and the market value of the firm, will decrease in anticipation of these problems. Similarly, a corporation can boost profits over the short term by using less costly materials even if this reduces the quality of the product. Once customers catch on, sales will decrease and profits will fall in the future. The stock price will fall. The moral of these examples is that, because stock prices reflect present and future profitability, the corporation should not necessarily sacrifice future prospects for short-term gains. 15. Financial managers refer to the opportunity cost of capital because corporations increase value for their shareholders only by accepting all investment projects that earn more than this rate. If thecompany earns below this rate, the market value of the company's stock falls and stockholders look for other places to invest. To find the opportunity cost of capital for a safe investment, managers and investors look at current interest rates on safe debt securities, such as U.S. Treasury debt. 18. a. This action might appear, superficially, to be a grant to former employees and thus not consistent with value maximization. However, such \"benevolent\" actions might enhance the firm's reputation as a good place to work, might result in greater loyalty on the part of current employees, and might contribute to the firm's recruiting efforts. Therefore, from a broader perspective, the action may be value-maximizing. b. The reduction in dividends, in order to allow increased reinvestment, can be consistent with maximization of current market value. If the firm has attractive investment opportunities, and wants to save the expenses associated with issuing new shares to the public, then it could make sense to reduce the dividend in order to free up capital for the additional investments. c. The corporate jet would have to generate benefits in excess of its costs in order to be considered stock-price enhancing. Such benefits might include time savings for executives and greater convenience and flexibility in travel. d. Although the drilling appears to be a bad bet, with a low probability of success, the project may be value-maximizing if a successful outcome (although unlikely) is potentially sufficiently profitable. A one-in-five chance of success is acceptable if the payoff conditional on finding an oil field is 10 times the costs of exploration. 21. A. Make shareholders as wealthy as possible by investing in real assets. 22. The director is mistaken. The risk of the project is not determined by the borrowing rate from the bank. The opportunity cost of capital is the rate of return available from investments in the financial markets at the same level of risk as Quince's average-risk investments. Therefore, the opportunity cost of capital is also the minimum acceptable rate of return for a firm's capital investments. The rate of return on the average-risk investment project must be compared to the firm's cost of capital in order to determine whether to move ahead with the project. 30. a. Paying managers according to the performance of the firm's stock aligns their interest with those of the owners. Since managers are likely to seek to maximize their own income, linking their compensation to share price is likely to cause them to focus on increasing firm value. b. Paying managers according to the performance of the firm's stock will cause managers to focus on short- term results, since that will create higher income to managers sooner. Longterm decisions may not produce short- term profits, thus managers may shy away from making good long- term decisions. Salary compensation plans may induce better long- term decisions. 33. a. A fixed salary means that compensation is (at least in the short run) independent of the firm's success. b. A salary linked to profits ties the employee's compensation to this measure of the success of the firm. However, profits are not a wholly reliable way to measure the success of the firm. The text points out that profits are subject to differing accounting rules and reflect only the current year's situation rather than the long-run prospects of the firm. c. A salary that is paid partly in the form of the company's shares means that the manager earns the most when the shareholders' wealth is maximized. This is therefore most likely to align the interests of managers and shareholders. 37. As the text notes, the first step in doing well is doing good by your customers. Businesses cannot prosper for long if they do not provide to their customers the products and services they desire. In addition, reputation effects often make it in the firm's own interest to act ethically toward its business partners and employees since the firm's ability to make deals and to hire skilled labor depends on its reputation for dealing fairly. In some circumstances, when firms have incentives to act in a manner inconsistent with the public interest, taxes or fees can align private and public interests. For example, taxes or fees charged on pollution make it more costly for firms to pollute, thereby affecting the firm's decisions regarding activities that cause pollution. Other \"incentives\" used by governments to align private interests with public interests include legislation providing for worker safety and product, or consumer, safety; building code requirements enforced by local governments; and pollution and gasoline mileage requirements imposed on automobile manufacturers CH2 Financial Markets and Institutions Q2,3,6,7, 8,9,11,12,13, 15, 17, 18, 19, 2. Money markets: where short-term debt instruments are bought and sold. Foreign-exchange markets: where currencies are traded; most trading takes place in over-thecounter transactions between the major international banks. Commodities markets: where agricultural commodities, fuels (including crude oil and natural gas), and metals (such as gold, silver, and platinum) are traded. Derivatives markets: where options and other derivative instruments are traded. 3. a. False. Financing could flow through an intermediary, for example. b. False. Investors can buy shares in a private corporation, for example. c. False. There is no centralized FOREX exchange. Foreign exchange trading takes place in the over-the-counter market. d. False. Derivative markets are not sources of financing, but markets where the financial manager can adjust the firm's exposure to various business risks. e. False. The opportunity cost of capital is the expected rate of return that shareholders can earn in the financial markets on investments with the same risk as the firm's capital investments. f. False. The cost of capital is an opportunity cost determined by expected rates of return in the financial markets. The opportunity cost of capital for risky investments is normally higher than the firm's borrowing rate. 6. Yes, an insurance company is a financial intermediary. Insurance companies sell policies and then invest part of the proceeds in corporate bonds and stocks and in direct loans to corporations. The returns from these investments help pay for losses incurred by policyholders. 7. a. Equities. As a percentage of all investors, households are the largest investor in equities. b. Pension funds. Banks own almost no corporate equities, but instead rely on fixed- income investments. c. Commercial banks. In contrast, investment banks raise money for corporations. 8. NASDAQ and The Chicago Mercantile Exchange are financial markets. 9. a. False. Exchange traded funds (ETFs) are portfolios of stocks that can be bought or sold in a single trade. b. False. Hedge funds may provide diversification, but usually have very high fees. c. True. Insurance policy premiums are used to pay claims, create reserves and provide financing for company operations. d. True. The size of the pension investment is variable, depending on market conditions, while the amount contributed is somewhat fixed. 11. The key to the bank's ability to provide liquidity to depositors is the bank's ability to pool relatively small deposits from many investors into large, illiquid loans to corporate borrowers. A withdrawal by any one depositor can be satisfied from any of a number of sources, including new deposits, repayments of other loans made by the bank, bank reserves, and the bank's debt and equity financing. 12. Commercial banks accept deposits and provide financing primarily for businesses. Investment banks do not accept deposits and do not loan money to businesses and individuals. Investment banks may make bridge loans as temporary financing for a takeover or acquisition. In addition, investment banks trade many different financial contracts, such as bonds and options, while providing investment advice and portfolio management for institutional and individual investors. 13. Mutual funds collect money from small investors and invest the money in corporate stocks or bonds, thus channeling savings from investors to corporations. For individuals, the advantages of mutual funds are diversification, professional investment management, and record keeping. 15. The major functions of financial markets and institutions in a modern financial system are: Channeling savings to real investment: The savings of individual investors are made available for real investments by corporations and other business entities by way of financial markets and institutions. Transporting cash across time: Savers can save money now to be withdrawn and spent at a later time, while borrowers can borrow cash today, in effect spending today income to be earned in the future. Risk transfer and diversification: Insurance companies allow individuals and business firms to transfer risk to the insurance company, for a price. Financial institutions, such as mutual funds, allow an investor to reduce risk by diversification of the investor's holdings. Liquidity: Financial markets and institutions provide investors with the ability to exchange an asset for cash on short notice, with minimal loss of value. A deposit in a bank savings account earns interest but can be withdrawn at almost any time. A share of stock in a publicly traded corporation can be sold at virtually any time. Payment mechanism: Financial institutions provide alternatives to cash payments, such as checks and credit cards. Information provided by financial markets: Financial markets reveal information about important economic and financial variables such as commodity prices, interest rates and company values (i.e., stock prices). 17. Financial markets provide extensive data that can be useful to financial managers. Examples include: Prices for agricultural commodities, metals, and fuels. Interest rates for a wide array of loans and securities, including money market instruments, corporate and U.S. government bonds, and interest rates for loans and investments in foreign countries. Foreign exchange rates. Stock prices and overall market values for publicly listed corporations, as determined by trading on the New York Stock Exchange, NASDAQ, or stock markets in London, Frankfurt, Tokyo, and so on. 18. a. 386.65 $90 = $34.799 billion b. 4.28 % c. The farmer sells since the farmer owns cattle and the meat packer needs to buy cattle for processing. 19. a. b. c. d. e. False. The financial crisis had its roots in an easy monetary policy that provided funds for banks to expand the supply of subprime mortgages to low-income borrowers. False. Subprime mortgages are for residential properties. False. While subprime mortgages were packaged into mortgage-backed securities that could be resold, most were held by banks on their own books or sold to other banks. False. The government arranged for Bank of America to take over Merrill but did nothing to rescue Lehman Brothers, which filed for bankruptcy protection. False. Though the massive bailout of Greece calmed the markets somewhat, concerns over Greece and other weak eurozone countries, such as Portugal, Italy, Spain, and even Ireland, remain today. FINA3313-005 Homework1 Fall 2015 FINA3313-005 Homework 1 Chapter 01 Goals and Governance of the Corporation True / False Questions 1 The liability of sole proprietors is limited to the amount of their investment in the company. True False 2 The separation of ownership and management is one distinctive feature of corporations. True False 3 Capital budgeting decisions are used to determine how to raise the cash necessary for investments. True False 4 Facebook's decision to spend $700 million to acquire Instagram is an investment decision. True False 5 The primary goal of any company should be to maximize current period profits. True False 6 Volkswagen's issuance of a 2.5 billion euro convertible bond is a financing decision. True False 7 A well-designed compensation package can help a firm achieve its goal of maximizing market value. True False Multiple Choice Questions 8. Which one of the following gives a corporation its permanence? A. Multiple owners B. Limited liability C. Corporation taxation D. Separation of ownership and control 9 Which one of the following would correctly differentiate general partners from limited partners in a limited partnership? A. General partners have more job experience. B. General partners have an ownership interest. C. General partners are subject to double taxation. D. General partners have unlimited personal liability. 10 A. B. C. D. Which of the following is least likely to be discussed in the articles of incorporation? How the firm is to be financed The purpose of the business The price range of the shares of stock How the board of directors is to be structured 1 FINA3313-005 Homework1 Fall 2015 11 When the management of a business is conducted by individuals other than the owners, the business is most likely to be a: A. corporation. B. sole proprietorship. C. partnership. D. general partner. 12 A. B. C. D. Which one of the following is a financial asset? A corporate bond A machine A patent A factory 13 Corporations that issue financial securities such as stock or debt obligations to the public do so primarily to: A. increase sales. B. become profitable. C. increase their access to funds. D. avoid double taxation of their profits. 14 A. B. C. D. The best criterion for success in a capital budgeting decision would be to: minimize the cost of the investment. maximize the number of capital budgeting projects. maximize the value added to the firm. finance all capital budgeting projects with debt. 15 A. B. C. D. Which of the following is a capital budgeting decision? Should the firm borrow money from a bank or sell bonds? Should the firm shut down an unprofitable factory? Should the firm buy or lease a new machine that it is committed to acquiring? Should the firm issue preferred stock or common stock? 16 Which of the firm's financial managers is most likely to be involved with obtaining financing for the firm? A. Treasurer B. Controller C. Chief Operating Officer D. Board of directors 17 A. B. Which one of these determines the minimum acceptable rate of return on a capital investment? The available alternative investment opportunities The profit margin of the existing firm 2 FINA3313-005 Homework1 Fall 2015 C. D. The rate of return on the firm's outstanding shares The rate of return on risk-free debt securities 18 A. B. C. D. The primary goal of corporate management should be to: maximize the number of shareholders. maximize the firm's profits. minimize the firm's costs. maximize the shareholders' wealth. 19 A. B. C. D. Agency problems can least be controlled by: establishing good internal controls and procedures. designing compensation packages that align manager's goals with those of the shareholders. corporate governance. electing senior managers to the board of directors. 20 A. B. C. D. Which one of these statements is correct? A dollar received next year has the same value as a dollar received today. Risky cash flows are more valuable than certain cash flows. Smart investment decisions create more value than smart financing decisions. Corporate governance is irrelevant. Chapter 02 Financial Markets and Institutions True / False Questions 21 The reinvestment of cash back into the firm's operations is an example of a flow of savings to investment. True False 22 Previously issued securities are traded among investors in the secondary markets. True False 23 Hedge fund managers, unlike mutual fund managers, do not receive fund-performance-related fees. True False 24 The derivative market is also a source of financing for corporations. True False 25 The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm's capital investments. True False 3 FINA3313-005 Homework1 Fall 2015 26 The effects of the financial crisis of 2007-2009 were confined to the U.S. and domestic companies. True False Multiple Choice Questions 27 Corporate financing comes ultimately from: A. savings by households and foreign investors. B. cash generated from the firm's operations. C. the financial markets and intermediaries. D. the issue of shares in the firm. 28 A. B. C. D. Financing for public corporations flows through: the financial markets only. financial intermediaries only. derivatives markets. the financial markets, financial intermediaries, or both. 29 A. B. C. D. The primary distinction between securities sold in the primary and secondary markets is the: riskiness of the securities. price of the securities. previous issuance of the securities. profitability of the issuing corporation. 30 A. B. C. D. Which of the following financial assets is least likely to have an active secondary market? Common stock of a large public firm Bank loans made to smaller firms Bonds of a major, multinational corporation Debt issued by the U.S. Treasury 31 A. B. C. D. Which one of these is a money market security? Commercial paper Common stock 2-year bond 20-year bond 32 A. B. C. D. A bond differs from a share of stock in that a bond: represents a claim on the firm. has more risk. has guaranteed returns. has a maturity date. 33 Long-term financing decisions commonly occur in the: 4 FINA3313-005 Homework1 Fall 2015 A. B. C. D. option markets. secondary markets. capital markets. money markets. 34 A. B. value. C. D. Which one of these correctly applies to mutual funds? Mutual funds are a costly means of achieving portfolio diversification. Funds are required to limit their annual fees and expenses to less than 1 percent of the portfolio You can generally buy additional shares in the fund at any time. Shareholders sell their shares to other shareholders. 35 Which type of financial institution generally does not accept deposits but does underwrite stock offerings? A. Insurance company B. Mutual fund C. Commercial bank D. Investment bank 36 A. B. C. D. Insurance companies can usually cover the claims of policyholders because: the incidence of claims normally averages out across all policyholders. they issue a very limited number of policies. they are fully insured by the U.S. government. their stockholders will cover any cash shortfalls encountered by the company. 37 A. B. C. D. Which of the following is not typically considered a function of financial intermediaries? Providing a payment mechanism Investing in real assets Accumulating funds from smaller investors Spreading, or pooling risk among individuals 38 A. B. C. D. Which of the following functions does not require financial markets? Transporting of cash across time Provision of liquidity Risk reduction by investment in diversified portfolios Provision of pricing information 39 A. B. C. D. How is the relationship between a bond's credit rating and its interest rate best defined? Inverse relationship Direct relationship Unrelated Logarithmic 5 FINA3313-005 Homework1 Fall 2015 40 Which one of these was a contributing factor to the need for many foreign banks to seek aid from their governments as a result of the financial crisis of 2007-2009? A. Decrease in their exchange rates B. Investments in U.S. subprime mortgages C. Interest rate spikes D. Currency controls Chapter 03 Accounting and Finance True / False Questions 41 An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash. True False 42 Based on generally accepted accounting principles, assets are recorded on the balance at their current market value. True False 43 All items in the common-size balance sheet are expressed as a percentage of total assets. True False 44 One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life. True False 45 Dividends paid are treated as a financing activity on the statement of cash flows. True False 46 The balance sheet presents a snapshot of the firm's assets and liabilities at one particular moment. True False 47 Depreciation charge is a cash payment. True False Multiple Choice Questions 48 A balance sheet portrays the value of a firm's assets and liabilities: A. over an annual period. B. over any stated period of time. C. at any stated point in time. D. only at the end of the calendar year. 6 FINA3313-005 Homework1 Fall 2015 49 A. B. C. D. Which of the following assets is likely to be considered the most liquid? Marketable securities Net fixed assets Accounts payable Inventories 50 If the value of a firm's net fixed assets equals the value of the accumulated depreciation, from an accounting context the fixed assets are: A. new. B. fully depreciated. C. one-half depreciated. D. equal in value to the firm's current assets. 51 If a payment of principal is due in 13 months on a long-term liability, that payment will now appear on the balance sheet as: A. a current liability. B. long-term debt. C. cash. D. interest expense. 52 A. B. C. D. According to GAAP, assets and liabilities are typically recorded on the balance sheet at: historical cost plus depreciation. market value. salvage value. historical cost less depreciation. 53 When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the: A. book value of the asset. B. market value of the asset. C. depreciation expense. D. current asset value. 54 Amy wants to know if inventory is increasing as a percentage of total assets. Which one of these statements most easily provides the information she is seeking? A. Statement of cash flows B. Balance sheet C. Common-size balance sheet D. Income statement 55 A. Which one of the following does not reduce a firm's net income? Income taxes 7 FINA3313-005 Homework1 Fall 2015 B. C. D. Interest expense Dividends Depreciation expense 56 A. B. C. D. In a statement of cash flows, which category includes depreciation expense as a line item? Operations Investments Financing None of these; depreciation is a noncash expense. 57 If a firm's statement of cash flows shows that cash was used for investments, which of the following would seem most likely? A. The inventory balance increased. B. Common stock was repurchased. C. New machines were acquired. D. Cash dividends were paid. 58 A. B. C. D. Which one of these would not be paid from free cash flow? Cash dividends Repayment of principal on a long-term debt Repurchase of outstanding shares of common stock New equipment purchase 59 A. B. C. D. What is the highest marginal rate at which corporate income is taxed? 15% 34% 35% 39% 60 A. B. C. D. Who pays taxes on earnings distributed as dividends? The issuing corporation The shareholder receiving the dividend Both the issuing corporation and the shareholder Neither the issuing corporation nor the shareholder 8