Exam 1

Question 1

Approximately, what was the dollar value of the US household net worth as of 2020?

Answer 1

$124 Trillion

Question 2

The majority of the dollar value of US household net wealth is derived from real assets (around 72%)

Answer 2

False

Question 3

The role of financial system is to

Answer 3

match and save borrowers

Question 4

The role of the financial system is to provide

Answer 4

key services (risk-sharing, liquidity, information)

Question 5

The financial system is essential to

Answer 5

assure adequate capital formation and economic growth in a modern economy

Question 6

The daily financial operations of a firm are primarily controlled by managing the

Answer 6

working capital

Question 7

In the US, double taxation exists in the income of a

Answer 7

corporation

Question 8

While financial assets generate net income to the economy, real assets simply define the allocation (distribution) of income among investors

Answer 8

False

Question 9

In modern capitalism, the scale of enterprise has grown substantially and owners and managers are not the same people. The potential conflict of interest between a firms owners and its mangers is referred to as which type of conflict.

Answer 9

Principal-agent

Question 10

Limited liability really took hold in ________ with a corporate law in the state of ________ and represented a significant invention

Answer 10

1811, New York

Question 11

From a finance viewpoint the firm is a production function, not-a bundle of risky cash flows

Answer 11

False

Question 12

Which one of the following best matches the primary goal of financial management

Answer 12

Maximizing owners market value of equity

Question 13

Money markets consist of the institutions and procedures that provide for transactions in short-term financial instruments

Answer 13

True

Question 14

Financial markets represent indirect financing

Answer 14

False

Question 15

Almost all financial transactions involve information asymmetries

Answer 15

True

Question 16

The measure of income that is unaffected by the financing aspects of the company’s operations as well as taxation is the

Answer 16

operating income (EBIT)

Question 17

The income (profit/loss) statement is constructed according to the cash-basis accounting principle

Answer 17

False

Question 18

The balance sheet is constructed according to the principle of accrual-basis accounting

Answer 18

False

Question 19

The mission of the _______ is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. It was created in the year____.

Answer 19

SEC, 1934

Question 20

Net working Capital

Answer 20

Current assets- current liabilities

Question 21

According to Bloomberg, as of recently, the wealthiest person in the world is

Answer 21

Elon Musk with a net worth of approx $205 Billion

Question 22

Cash and accounts payable are flow variables whereas sales and interest expense are stock variables

Answer 22

False

Question 23

All else being equal, the higher the operating leverage the higher the business risk for a company

Answer 23

True

Question 24

A trademark

Answer 24

is a long-term intangible asset

Question 25

Dividend payout ratio

Answer 25

Dividends/ Net income

Question 26

Total Stockholders equity

Answer 26

Total Assets- Long-Term Debt- current liabilities

Question 27

Operating profit margin

Answer 27

EBIT/sales

Question 28

Equity= Total liabilities- total assets

Answer 28

False