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Test your basic knowledge |

Finance Basics

Subject : business-skills
Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. 1 for the IRS - the other for reporting to investors






2. A non-cash charge similar to depreciation except that it is used to write off the costs of intangible assets over their useful life






3. For example - based on 50% probability of failure/success and current bond value of $1000 - a current stock price of $10 and projected new stock price of $2000 if successful






4. Indicates how large a company is. What assets the company owns & who has claims on those assets as of a given date. Displayed in 2 columns with the assets (what the company owns) on the left side and the firms liabilities and equity on the right side






5. Regulates banks and controls the supply of money






6. Accomplished through a combination of current liabilities - long-term debt - and common equity






7. Dividends paid to common shareholders / Common shares outstanding






8. Situation in which the actual market price equals the intrinsic value so investors are indifferent between buying or selling a stock






9. The markets where interest rates - along with stock and bond prices are determined






10. Law passed by Congress that requires CEO's & CFO's to certify their firms financial statements are accurate and deal with the consequences if the statements are not accurate






11. Stock value based on 'perceived' but possibly incorrect information as seen by the marginal investor






12. An estimate of a stock's 'true' value based on accurate risk adn return data - it can be estimated but not measured precisely - estimate by stock analysts - a long term concept - management should maximize this value not the market price






13. An unincorporated business owned by 2 or more persons. 3 advantages - Easy and inexpensive to form - subject to few government regulations - and subject to lower income taxes than corporations. 3 disadvantages - Unlimited personal liability for the






14. Current assets - (Current liabilities - Notes payable)






15. Issued annually by a corporation to its stockholders - containing basic financial statements as well as management's analysis of the firm's past operations and future prospects. Provides 4 basic reports - Balance Sheet - Income Statement - Stateme






16. Net income / Common shares outstanding






17. SE = Paid-in Capital + Retained Earnings or SE = Total Assets - Total Liabilities


18. An individual who targets a corporation for takeover because it is undervalued






19. Current assets - Current liabilities






20. Expected % Gain of Stock Price = Increase of stock $ less original stock $ ($1 - 000 - $10) divided by original stock price (/ $10 x 100%) (100% is a constant)






21. Sales revenues - operating costs (including depreciation & amoritizaton)






22. An investor whose views determine the actual stock price






23. A relatively new type of organization that is a hybrid between a partnership and a corporation. It has limited liability like corporations - but is taxed like partnerships. Investors have votes in proportion to their share of ownership






24. Profit a company would generate if it had no debt and held only operating assets - = EBIT x (1-T)






25. The larger the expected cash flows - and the lower the perceived risk the higher the stock's price






26. Finding the proper values of individual securities






27. The best way to structure portfolios or 'baskets' of stocks and bonds






28. How did sales perform and did it make a profit? A report summarizing a firm's revenues - expenses and profits during a reporting period (generally a quarter or a year)






29. Charge used to reflect the cost of long term assets used up in the production process over their useful life (not a cash outlay). Accelerated generally used for the IRS and straight line for investors






30. Acquisition of a company over the opposition of its management






31. Success (0.5 x $2000) + Failure (0.50 x $0) = $1 - 000 (New Stock Price)






32. Usually considered a debt (fixed charge) by stockholders and equity by bondholders. A hybrid between convertible bonds and long-term leases






33. A legal entity created by a state - separate and distinct from its owners and managers - having unlimited life - easy transferability of ownership an limited liability. Major drawback is double taxation - earnings are taxed and dividends paid out






34. Earnings Before Interest - Taxes - Depreciation & Amoritization = Sales revenues - operating costs






35. Cumulative total of all earnings kept by the company during its life - a claim against assets - they do not represent cash on the balance sheet






36. Receive more when the company does better - often in conflict with bondholders






37. Focuses on decisions relating to how much and what types of assets to acquire - how to raise the capital needed to purchase assets - and how to run the firm so as to maximize its value






38. Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) + Depreciation & Amoritization] - [Capital expenditures






39. 1) Increased globalization of business 2) Ever improving information technology 3) Corporate governance (the way top managers operate and interface with stockholders)






40. Receive fix payments regardless of how well the company does - often in conflict with stockholders






41. Regulates the trading of stocks and bonds in public markets






42. Indicates a rapidly growing company (investing in new assets) which is ok as long as the company eventually utilizes the assets to become profitable and contribute to its FCF






43. A company's attitude and conduct toward its employees - customers - community - and stockholders






44. Financial Management - Capital Markets - & Investments






45. Principal task is to evaluate proposed decisions and judge how they will affect the stock price and thus shareholder wealth. Success or lack thereof of projects can determine the stock prices






46. Investor psychology is examined in an effort to determine if stock prices have been bid up to unreasonable heights in a speculative bubble or driven down to unreasonable lows in a fit of irrational pessimism






47. The value of any asset is the present value or the stream of cash flows that the asset provides to its owners over time. In general the valuation is different if it is the 'market value' or the 'book value'






48. Bears = pessimists - Bulls = optimists






49. The issue of whether stock and bond markets at any given time are 'too high' or 'too low' or 'about right' - Behavioral Finance is a tool often used to aid in this analysis






50. Categorized as current assets because are used & then replaced






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