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 Amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows/ how much cash a firm can distribute to its investors - [ EBIT x (1-T) +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






3. 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






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






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






6. Focuses on decisions concerning stocks and bonds and includes a number of activities - 1) Security Analysis - 2) Portfolio Theory - & 3) Market Analysis






7. 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






8. 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






9. Finding the proper values of individual securities






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






11. 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






12. Dividends paid to common shareholders / Common shares outstanding






13. 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






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






15. Shows the amount of equity the stockholders had at the start of the year - the items that increased or decreased it and the equity at the end of the year


16. 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






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






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






19. 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






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






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






22. 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






23. A special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation - exempt from corporate tax - must have less than 100 stockholders to qualify






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






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






26. Current assets - (Current liabilities - Notes payables)






27. The primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long-run value of the firm's common stock. Corporate social responsibility is not inconsistent with maximizing shareholder value






28. 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






29. Financial Management - Capital Markets - & Investments






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


31. Represents the amount that stockholders paid the company when shares were purchased and the amount or earnings the company has retained since its origination


32. What investors would expect if they had all of the information that existed about a company






33. Total common equity / Common shares outstanding






34. Regulates banks and controls the supply of money






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






36. Similar to an LLC but used for professional firms in the fields of accounting - law - and architecture. It has limited liability like corporations - but is taxed like partnerships.Investors have votes in proportion to their share of ownership






37. What investors DO expect given the limited information they actually have






38. An uninicorporated business owned by one individual. 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 bu






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






40. Debt securities that give the bondholder an option to exchange their bonds for shares of common stock






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






42. 1) Limited liability reduces the risks borne by investors - the lower the risk - the higher the value. 2) Firm's value is dependent on its growth opportunities - less risk easier to attract investor - more money more growth opportunities. 3) Valu






43. 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






44. Bears = pessimists - Bulls = optimists






45. Sole Proprietorships - Partnerships - Corporations (incl. S Corp. and Non-profits - Limited Liability Companies (LLC) and Limited Liability Partnerships






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






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






48. An investor whose views determine the actual stock price






49. 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






50. 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)