FINAL EXAM: concepts on practice test | FIN 3310 - Introduction to Financial Management, Quizzes of International Finance and Trade

Download FINAL EXAM: concepts on practice test | FIN 3310 - Introduction to Financial Management and more Quizzes International Finance and Trade in PDF only on Docsity! TERM 1 The primary goal of firms interested in serving their stockholder is to maximize: DEFINITION 1 the price per share of common stock TERM 2 the agency problem faced by stockholders DEFINITION 2 firm's managers want to serve their own interests as well as the interests of the firm's owners TERM 3 The role of an investment banker includes: DEFINITION 3 Providing advice in designing and pricing the securities issue and guaranteeing the issuer a specific minimum amount of proceeds from the sale TERM 4 When an investment bank uses the "best efforts" method to sell a firm's securities... DEFINITION 4 the ISSUING FIRM bears the risk TERM 5 Capital market efficiency DEFINITION 5 in an efficient market, prices adjust quickly and correctly to new information TERM 6 when securities markets are efficient, security prices will.... DEFINITION 6 quickly adjust to maintain equality with their intrinsic (economic) values TERM 7 T/F: Dividends paid are tax-deductible expenses DEFINITION 7 FALSE!The following are tax-deductible: sales commission, advertising expense, and interest expense TERM 8 Common size B/S vs. I/S DEFINITION 8 B/S: everything as percent of total assetsI/S: everything as percent of sales TERM 9 T/F: increases in debt and equity are uses of funds DEFINITION 9 TRUE: uses of funds are : increase in D & E, decrease in ASources of funds are decreases in D & E, increases in A TERM 10 When ROE declines, what is likely to be the cause? DEFINITION 10 decrease in asset turnover TERM 21 unsystematic risk DEFINITION 21 company-specific, can be diversified away TERM 22 slope of SML = DEFINITION 22 RPm TERM 23 what causes the slope of the SML to increase? DEFINITION 23 investors becoming more risk averse TERM 24 The cost of common equity is... DEFINITION 24 the opportunity cost to investors of owning common stock in the firm TERM 25 if you use Rd (after tax) as the discount rate, how can that mess up how you evaluate projects? DEFINITION 25 - possible selection of projects that have negative NPV- possible selection of projects that have IRR < R TERM 26 Operating leverage measures DEFINITION 26 - the responsiveness o EBIT to fluctuations in the volume of sales- the effect of fixed operating costs TERM 27 greater leverage = DEFINITION 27 increase risk and return for firm's stockholders TERM 28 a firm has no fixed operating costs, only has equity. a 10% increase in sales = DEFINITION 28 an increase EPS = 10% TERM 29 if debt financing is used, how is EBIT effected? DEFINITION 29 % change in EBIT < % change in EPS TERM 30 The most conservatively financed firm DEFINITION 30 uses LT financing for all fixed assets, permanent current assets, and a portion of temporary current assets, and uses ST financing for all other temporary current assets.