1 - Intro to Financial Management

Question 1

System that includes the circulation of money, granting of credit, making of investments, and provision of banking facilities.

Answer 1

Finance

Question 2

Areas of finance

Answer 2

1. Financial management
2. Capital markets
3. Investments

Question 3

Focuses on decision to how much and what type of assets to acquire and how to maximize the firm’s value

Answer 3

Financial management

Question 4

Also called Corporate Finance

Answer 4

Financial management

Question 5

Relate to the markets where interest rates & stock and bond prices are determined

Answer 5

Capital markets

Question 6

Studies also the financial institution that supply capital to the business

Answer 6

Capital markets

Question 7

Banks, investment banks, stockbrokers, etc. bring together ____ who have money to invest & entities who need capital

Answer 7

‘savers’

Question 8

(Federal Reserve System) Regulates banks & control the supply of money

Answer 8

Government organizations

Question 9

Decisions concerning stocks & bonds

Answer 9

Investments

Question 10

Number of activities in Investment:

Answer 10

1. Security Analysis
2. Portfolio theory
3. Market analysis

Question 11

Finding proper values of individual securities (stocks & bonds)

Answer 11

Security analysis

Question 12

Best way to structure portfolios of stocks & bonds; and very important because investors want to hold diversified portfolios

Answer 12

Portfolio theory

Question 13

Portfolios are also known as

Answer 13

‘Baskets’

Question 14

Issue of whether stock and bond markets at any given time are too high, too low, or about right.

Answer 14

Market analysis

Question 15

Investor psychology is examined to determine whether stock prices have been bid up to unreasonable heights

Answer 15

Behavioral finance

Question 16

What is the hierarchy of organizational chart?

Answer 16

BOD - CEO - COO - CFO

Question 17

Top governing body, chairperson, highest-ranking individual

Answer 17

Board of Directors (BOD)

Question 18

Next to BOD (but BOD often serves as the CEO - Sole proprietorship)

Answer 18

Chief Executive Officer (CEO)

Question 19

Firm’s president

Answer 19

Chief Operating Officer (COO)

Question 20

Senior VP; 3rd-ranking officer

Answer 20

Chief Financial Officer (CFO)

Question 21

What does COO do?

Answer 21

Marketing
Production
HR
& Other Operating Departments

Question 22

What does CFO do?

Answer 22

Accounting
Treasury
Credit Legal
Capital Budgeting
Investor Relations

Question 23

If firm is publicly owned ____ and ____ must certify to the SEC that the annual report are accurate

Answer 23

CEO and CFO

Question 24

If proven that inaccurate, the CEO and CFO may be

Answer 24

fined or even jailed

Question 25

Passed by Congress that requires CEO and CFO to certify that their firm's financial statements are accurate

Answer 25

Sarbanes-Oxley Act of 2002

Question 26

An unincorporated business owned by 1 individual; easy & inexpensive and subject to lower income taxes than corporations. But also subject to unlimited personal liability.

Answer 26

Proprietorship

Question 27

An unincorporated business owned by 2 or more persons; income is allocated on a pro rata basis as well as taxes. If a partner is unable to fulfill his share of the liability, the other partner will be held responsible.

Answer 27

Partnership

Question 28

Legal entity created by a state distinct from its owners and have unlimited life, easy transferability of ownership.

Answer 28

Corporation

Question 29

Corporation’s earnings are taxed, and then when its after-tax earnings are paid out as dividends, those earnings are taxed again as personal income to stockholders.

Answer 29

Double taxation

Question 30

Allows small businesses that meet qualifications to be taxed as if they were a proprietorship/partnership rather than corporation

Answer 30

S Corporations

Question 31

S Corporations can have no more than how many stockholders

Answer 31

100 stockholders

Question 32

Larger corporations are called?

Answer 32

C Corporations

Question 33

Popular type of organization that is hybrid between a partnership and a corporation

Answer 33

Limited Liability Company (LLC)

Question 34

Similar to an LLC but used for professional firms in the fields of accounting, law, and architecture and taxed as a partnership

Answer 34

Limited Liability Partnership (LLP)

Question 35

What is the main financial goal

Answer 35

Create value for investors

Question 36

Represent individuals and organizations who have chosen to invest their hard-earned cash into the company for a return on investment

Answer 36

Company's stockholders

Question 37

Investors like higher expected cash flows but dislike

Answer 37

risk

Question 38

The larger the expected cash flow, lower perceived risk,

Answer 38

higher the stock's price

Question 39

Cash flows & risk that investors would expect if they had all of the information that existed about a company.

Answer 39

"True"

Question 40

What investors expect, given the limited information they have

Answer 40

"Perceived"

Question 41

Estimate of a stock's 'true' value based on accurate risk & return data

Answer 41

Intrinsic value

Question 42

Intrinsic value can be estimated, but not measured

Answer 42

precisely.

Question 43

Stock value based on perceived but possible incorrect information

Answer 43

Market price

Question 44

Investor whose views determine the actual stock price

Answer 44

Marginal investor

Question 45

Actual market price equals the intrinsic value; no pressure for a change in the stock's price.

Answer 45

Equilibrium

Question 46

Easy to determine - can be found on the Internet and published in newspapers every day

Answer 46

Actual stock prices

Question 47

Have the best information about the firm's future prospects

Answer 47

Firm's managers

Question 48

Establishment of rules & practices by BOD to ensure that managers act in shareholders' interest while balancing need of other key constituencies

Answer 48

Corporate Governance

Question 49

Requires holding managers accountable for poor performance

Answer 49

Effective governance

Question 50

Motivate managers to act in their stockholders' best interest

Answer 50

Effective executive compensation plans

Question 51

Effective executive compensation plans consists of:

Answer 51

1. reasonable compensation packages 2. firing managers who don't perform well 3. threat of hostile takeovers

Question 52

Sufficient to attract and retain able managers but should not go beyond what is needed. Structured so managers are rewarded on basis of stock's performance over the long run, not stock's price on an option exercise date.

Answer 52

Compensation packages

Question 53

Individuals who target corporations for takeover because they are undervalued

Answer 53

Corporate Raiders

Question 54

Acquisition of a company over the opposition of its management

Answer 54

Hostile Takeover

Question 55

Primary financial goal for managers of publicly owned companies; implies that decisions should be made to maximize long-run value of firm's common stock

Answer 55

Shareholder Wealth Maximization

Question 56

Business ethics was coined by

Answer 56

former New York Attorney General & former Governor Elliot Spitzer

Question 57

To prevent reckless actions that would cause another financial crisis

Answer 57

Dodd-Frank Act

Question 58

"Standards of conduct or moral behavior"

Answer 58

Ethics

Question 59

Company’s attitude and conduct toward its employees, customers, community, and stockholders.

Answer 59

Business Ethics