BCOR 2204 Finance Quiz 1 Answers and Explanations for 2024 Update, Exams of Banking and Finance

Download BCOR 2204 Finance Quiz 1 Answers and Explanations for 2024 Update and more Exams Banking and Finance in PDF only on Docsity! BCOR 2204 Fin ance Quiz 1 Exam Questions and Answers for 2024 Update. The objective of finance - Correct answer Maximize profit Finance - Correct answer the science (accounting) and the art (tradeoff and risk) of valuing and managing money NPV Model - Correct answer Consists of PV, FV, PMT, N, and I Intrinsic value - Correct answer the value of any security is the market value Expected blue - Correct answer Future cash flows Careers in finance - Correct answer Wall Street professions are all about intermediation Balance sheet - Correct answer Investment and finance decisions Goal of the firm - Correct answer Maximize shareholder wealth Profit maximization may not lead to the highest possible share price (3 reasons) - Correct answer 1. Timing 2. Profits do not necessarily result in cash flows available 3. Profit maximization fails to account for risk Corporate governance - Correct answer the rules, processes, and laws by which companies are operated, controlled, and regulated Principal-agent relationship - Correct answer an arrangement in which an agent acts on behalf of a principal Agency problems - Correct answer Arise when managers place personal goals ahead of the goals of shareholders Agency costs - Correct answer Arise from agency problems that are borne by shareholders and represent a loss of shareholder wealth Management compensation plans - Correct answer must ensure managers' interests are aligned with shareholders 2 ways to ensure managers' interested are aligned with shareholders - Correct answer 1. Incentive plans 2. Performance plans Incentive plans - Correct answer Management compensation plans that tie management compensation to share price Ex) granting of stock options Performance plans - Correct answer Tie management compensation to measures such as EPS or growth in EPS Ex) performance shares and/or cash bonuses CQ: implementation of a pro-active ethics program results in.... - Correct answer Increase in share price DuPont model - Correct answer ROE Financial statement analysis - Correct answer to help a manager understand what is happening in a company ROE is determined by... - Correct answer ROA and FLM The DuPont system - Correct answer Used to dissect the firm's financial statements and to assess its financial condition Liquidity ratios - Correct answer the quick (acid-test) ratio excludes inventory *we do NOT want liabilities > assets Turnover/activity ratios - Correct answer TAT Average collection period - Correct answer the average amount of time needed to collect accounts receivable Operating profit model - Correct answer Measures the % of each sales dollar remaining after all costs and expenses (other than interest, taxes, and preferred stock dividends) are deducted Net profit margin - Correct answer Measures the % of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends deducted Times interest earned ratio - Correct answer Measures ability to make contracted and required debt payments out of operational activity Financial leverage multiplier (FLM) - Correct answer Measures the firm's ability to make contractual interest payments