Financial Management 1

1.               The prices that investors pay for securities are determined by:

• The collateral of the firm's liabilities and the profitability of the firm.

• The profits of the firm and the stability of those profits.

• What financial advisors think of the company.

• The cash flows investors expect to receive from owning them.

2.  What is double taxation?

• It is when two separate tax authorities tax the same corporation.

• It is a situation that only affects sole proprietorships.

• It occurs when the business owner pays himself or herself a salary.

• It occurs when earnings are taxed once at the corporate level and then taxed a second time as personal income.

3. 3. Finance has its theoretical roots in ____, but requires a practical understanding of ____.

• accounting, economics

• accounting, the stock market

• mathematics, accounting

• economics, accounting

4. 4. All of the following are characteristics of C Corporations except

• unlimited life.

• unlimited life.

• avoidance of double taxation.

• ease of raising additional capital for expansion.

5. 5. The primary financial goal of a corporation is to maximize:

• shareholders wealth.

• earnings per share.

• stock price.

• All of the above.

6. 6. The income statement is intended to inform the reader of:

• the overall financial condition of the firm at a point in time.

• how much the firm has earned during an accounting period.

• how much income has been distributed to shareholders.

• the cash flow generated by the firm over a period of time.

7. 7. The income statement line item that shows the performance of operating activities without consideration of financing is:

• net income.

• EBIT.

• EBT.

• total assets.

7. 8. Net working capital can be referred to as:

• total assets minus current liabilities.

• current assets minus total liabilities.

• cash minus current liabilities.

• current assets minus current liabilities.

9. Accounting accruals are important in:

• accounting for depreciation.

• providing for unpaid payroll, rent, interest, and other expenses that relate to the current accounting period.

• drawing checks on the last day of the current accounting period to properly reflect expense in that period.

• providing for bad debts that may eventually be deemed uncollectible.

10.Taxable income is

• total income excluding exempt items less deductions and exemptions.

• gross income less deductions

• the sum of everything a person makes

• gross income less state taxes, mortgage interest, and charitable contributions.