p.9
Goals of Financial Managers
What is the primary goal of managers in a firm?
To maximize the wealth of the firm’s owners.
p.8
Definition of Finance and Managerial Finance Function
Why do firms exist?
Because investors want access to risky investment opportunities.
p.2
Goals of Financial Managers
What are some goals that financial managers pursue?
Goals include profitability, liquidity, and risk management.
p.34
Investment, Financing, and Working Capital Decisions
What is the focus of Ann Bach's financial projection?
Her cash flows during October.
p.34
Definition of Finance and Managerial Finance Function
How do individuals typically measure their financial outcomes?
Mainly through cash flows.
p.74
Legal Forms of Business Organization
What are the three legal forms of business organization?
Sole proprietorship, partnership, and corporation.
p.53
Key Principles in Business Decision Making
What does Figure 1.3 illustrate regarding Dan Webster?
It shows his total tax liability, marginal tax rate, and average tax rate for different income levels.
p.73
Key Principles in Business Decision Making
What is a key principle that financial managers must consider when making decisions?
Aligning the interests of managers and shareholders.
p.53
Key Principles in Business Decision Making
What are the three key tax concepts depicted in the figure?
Total tax liability, marginal tax rate, and average tax rate.
p.8
Definition of Finance and Managerial Finance Function
What is a firm?
A business organization that sells goods or services.
p.1
Definition of Finance and Managerial Finance Function
What edition of the Principles of Managerial Finance is referenced?
Sixteenth Edition, Global Edition.
p.4
Definition of Finance and Managerial Finance Function
How can finance be defined?
As the science and art of managing money.
p.69
Definition of Finance and Managerial Finance Function
What is finance?
The science and art of how individuals and firms raise, allocate, and invest money.
p.40
Legal Forms of Business Organization
What are cash dividends?
Periodic distributions of cash to the stockholders of a firm.
p.3
Agency Problems and Agency Costs
What are agency problems?
Conflicts of interest between the principals and agents in a corporation.
p.13
Goals of Financial Managers
What decision would Dukakis recommend to maximize profits?
To invest in Valve rather than Rotor.
p.5
Definition of Finance and Managerial Finance Function
What does finance involve in a business context?
How firms raise money from investors, invest money to earn a profit, and decide whether to reinvest profits or distribute them to investors.
p.3
Principal-Agent Relationship in Corporations
What is the principal-agent relationship in a corporation?
It is the relationship between the owners (principals) and the managers (agents) of the corporation.
p.17
Role of Business Ethics in Finance
What are business ethics?
Standards of conduct or moral judgment that apply to persons engaged in commerce.
p.32
Investment, Financing, and Working Capital Decisions
Did Nassau Corporation collect the $1,000,000 from the customer by year-end?
No, they have yet to collect it.
p.6
Investment, Financing, and Working Capital Decisions
What does finance theory suggest about past stock market performance?
It is a very poor predictor of future performance.
p.7
Key Principles in Business Decision Making
Why are finance professors less influenced by market trends?
Because they understand that past performance does not predict future results.
p.13
Goals of Financial Managers
What is the main criterion for Dukakis's investment recommendation?
Higher total earnings per share.
p.2
Goals of Financial Managers
What is the primary goal of financial managers?
To maximize the wealth of the firm’s owners.
p.12
Definition of Finance and Managerial Finance Function
What type of products does Neptune Manufacturing produce?
Marine engine components.
p.15
Goals of Financial Managers
What is the primary goal of a firm according to the text?
Maximize stakeholders’ welfare.
p.12
Primary Activities of Financial Managers
What does EP S stand for in the context of investments?
Expected Profitability or Earnings Per Share.
p.17
Role of Business Ethics in Finance
What is the goal of business ethics?
To motivate business and market participants to abide by both the letter and the spirit of laws and regulations.
p.15
Goals of Financial Managers
Why is the stakeholder perspective difficult to implement?
Advocates do not typically indicate how managers should carry it out.
p.14
Goals of Financial Managers
What is the primary goal of the firm according to some perspectives?
Maximize stakeholders' welfare.
p.48
Legal Forms of Business Organization
What is ordinary income?
Income earned by a business through the sale of goods or services.
p.26
Key Principles in Business Decision Making
What should guide actions taken in managerial finance?
The relationship between marginal benefits and marginal costs.
p.75
Principal-Agent Relationship in Corporations
What is the principal-agent relationship in a corporation?
It is the relationship where shareholders are the principals and managers are the agents.
p.10
Goals of Financial Managers
Why did many firms accelerate dividend payments in 2012?
Due to uncertainty about the renewal of tax cuts in the 2012 election year.
p.10
Goals of Financial Managers
What was the potential consequence of not renewing the tax cuts for dividends?
Shareholders would face higher taxes on dividends.
p.15
Goals of Financial Managers
What must managers assess to maximize shareholder value?
The long-term consequences of their actions.
p.74
Legal Forms of Business Organization
What do stockholders expect to earn from their investment?
Returns through dividends or gains from increases in share price.
p.69
Primary Activities of Financial Managers
What are some tasks performed by financial managers?
Developing a financial plan or budget, extending credit to customers, evaluating proposed large expenditures, and raising money to fund operations.
p.14
Goals of Financial Managers
What does a balanced consideration of stakeholders involve?
Considering the welfare of both shareholders and other stakeholders.
p.7
Key Principles in Business Decision Making
What did the survey reveal about finance professors and trend chasing?
Finance professors did not fall prey to trend chasing when deciding to invest in stocks.
p.7
Key Principles in Business Decision Making
What is one lesson from the book that can help investors?
To make better choices with their own money by avoiding trend chasing.
p.4
Definition of Finance and Managerial Finance Function
What are the key decisions individuals make in personal finance?
How much of their earnings they spend, how much they save, and how they invest their savings.
p.55
Goals of Financial Managers
How is Peter's total tax liability calculated?
By applying different tax rates to income brackets.
p.69
Definition of Finance and Managerial Finance Function
What types of businesses do financial managers administer?
All types, including private and public, large and small, profit-seeking and not-for-profit.
p.75
Principal-Agent Relationship in Corporations
When does the principal-agent relationship work well?
When the agent makes decisions in the principal’s best interest.
p.57
Legal Forms of Business Organization
What is ordinary income?
Income earned by a business through the sale of goods or services.
p.53
Key Principles in Business Decision Making
How does average tax rate differ from marginal tax rate?
Average tax rate is the total tax paid divided by total income, while marginal tax rate applies to the last dollar earned.
How do financial managers contribute to a firm's value?
By using accounting information and other data to make informed business decisions.
p.76
Corporate Governance Mechanisms
What influences a firm's corporate governance structure?
Both internal and external factors.
p.62
Corporate Governance Mechanisms
What are stock options?
Securities that allow managers to buy shares of stock at a fixed price.
p.16
Goals of Financial Managers
What is a flaw in neglecting shareholder wealth maximization?
It can lead to misinterpretation that managers should take any action, including illegal or unethical actions, to increase stock price.
p.62
Corporate Governance Mechanisms
What is restricted stock?
Shares of stock paid out as part of a compensation package that do not fully transfer from the company to the employee until certain conditions are met.
p.66
Corporate Governance Mechanisms
Who are activist investors?
Investors who specialize in influencing management.
p.52
Goals of Financial Managers
What is a common misconception about earning extra income?
That taxpayers can be worse off because it puts them in a higher tax bracket.
p.27
Investment, Financing, and Working Capital Decisions
What investment decision is Justin considering?
Replacing his current soft drink dispenser with a new one.
p.18
Role of Business Ethics in Finance
What is an important consideration regarding moral standards in business actions?
Does the action conform to accepted moral standards?
p.42
Legal Forms of Business Organization
What is a strength of partnerships regarding income taxation?
Income is taxed only on the partner’s personal tax return.
p.9
Goals of Financial Managers
How is maximizing shareholder wealth typically measured?
By maximizing the stock price.
p.26
Key Principles in Business Decision Making
What does marginal cost-benefit analysis involve?
It involves comparing the additional benefits of an action to the additional costs incurred.
p.40
Legal Forms of Business Organization
What does stock represent in a corporation?
An ownership interest in a corporation.
p.2
Primary Activities of Financial Managers
What are the primary activities of a financial manager?
Activities include budgeting, forecasting, and managing investments.
p.2
Key Principles in Business Decision Making
What key principles do financial managers use in decision making?
Principles include time value of money, risk-return tradeoff, and diversification.
p.55
Goals of Financial Managers
What is the formula used to calculate Peter's total tax liability?
(0.10 × $9,875) + [0.12 × ($40,125 − $9,875)] + [0.22 × ($85,525 − $40,125)] + [0.24 × ($163,300 − $85,525)] + [0.32 × ($207,350 − $163,300)] + [0.35 × ($300,000 − $207,350)].
p.57
Legal Forms of Business Organization
What is a capital gain?
Income earned by selling an asset for more than its cost.
p.16
Goals of Financial Managers
What is the primary goal of the firm?
Maximize stakeholders' welfare.
p.68
Goals of Financial Managers
What type of skills are necessary for handling financial data?
Financial Computing Skills.
p.31
Definition of Finance and Managerial Finance Function
How does the cash basis of accounting differ from the accrual basis?
It recognizes revenues and expenses only with respect to actual inflows and outflows of cash.
p.71
Primary Activities of Financial Managers
What are financing decisions concerned with?
How a company raises the capital it needs to invest.
What does the marginal tax rate represent?
The rate at which the next dollar of income is taxed.
p.70
Goals of Financial Managers
Why is maximizing the wealth of shareholders important?
Because shareholders provide the capital that makes the firm's existence possible.
Do the marginal tax rate and average tax rate usually equal each other under a progressive tax rate structure?
No, they do not usually equal each other.
p.43
Legal Forms of Business Organization
What is a challenge faced by sole proprietors regarding employee opportunities?
Difficult to give employees long-run career opportunities.
p.24
Definition of Finance and Managerial Finance Function
What is the responsibility of the Director of Internal Audit?
To ensure compliance and assess the effectiveness of internal controls.
p.42
Legal Forms of Business Organization
What advantage does a corporation have in terms of size?
Can achieve large size via sale of ownership (stock).
p.43
Legal Forms of Business Organization
What is a tax disadvantage of corporations?
Corporate income is taxed a second time when distributed to shareholders as dividends.
p.1
Definition of Finance and Managerial Finance Function
What is the primary role of managerial finance?
To manage the financial resources of an organization effectively.
p.2
Definition of Finance and Managerial Finance Function
What is the definition of finance?
Finance is the management of money and investments for individuals, businesses, and governments.
p.5
Definition of Finance and Managerial Finance Function
What is managerial finance?
It concerns the duties of the financial manager in a business.
p.10
Goals of Financial Managers
What provision was included in the 2003 tax legislation regarding dividend tax cuts?
The tax cuts would expire in 2013 unless renewed by Congress.
p.69
Definition of Finance and Managerial Finance Function
What does managerial finance focus on?
The duties of the financial manager working in a business.
p.38
Legal Forms of Business Organization
What are partnerships in the context of business organization?
Businesses owned by two or more people and operated for profit.
p.23
Principal-Agent Relationship in Corporations
What is the Principal-Agent Problem?
A problem that arises because the owners of a firm (principals) and its managers (agents) are not the same people, leading agents to fail to act in the interest of the principals.
p.17
Role of Business Ethics in Finance
How do business ethics relate to laws and regulations?
They encourage adherence to both the letter and spirit of laws and regulations concerned with business and professional practice.
p.37
Legal Forms of Business Organization
What is a sole proprietorship?
A business owned by one person and operated for his or her own profit.
p.6
Investment, Financing, and Working Capital Decisions
What should individuals avoid when making investment decisions?
Basing decisions on the market's recent history.
p.71
Primary Activities of Financial Managers
What are the primary activities of a financial manager?
Investment decisions, financing decisions, and working capital decisions.
p.46
Legal Forms of Business Organization
How were corporations taxed prior to 2018?
According to an alternative, mostly progressive rate structure.
p.18
Role of Business Ethics in Finance
What is one ethical guideline to consider in business ethics?
Is the action arbitrary? Does it unfairly single out an individual or group?
p.43
Legal Forms of Business Organization
What is a major weakness of a sole proprietorship?
The owner has unlimited liability, meaning personal wealth can be taken to satisfy debts.
p.60
Key Principles in Business Decision Making
How can the after-tax interest expense for Debt Co. be calculated?
By multiplying (1 - tax rate) by the interest expense [(1 - 0.21) × $30,000].
p.42
Legal Forms of Business Organization
What is a strength of partnerships in terms of liability?
Owners have limited liability and cannot lose more than they invested.
p.26
Key Principles in Business Decision Making
What is the economic principle related to financial decisions?
Financial decisions should be made when marginal benefits exceed marginal costs.
p.10
Goals of Financial Managers
What is one way firms can maximize shareholder wealth?
By considering the taxes shareholders must pay on dividends.
p.34
Goals of Financial Managers
What time periods do individuals usually plan and monitor their financial activities?
Typically a month or a year.
p.3
Legal Forms of Business Organization
What are the legal forms of business organization?
Various structures such as sole proprietorships, partnerships, corporations, and limited liability companies.
p.73
Principal-Agent Relationship in Corporations
What is necessary to ensure that managers act in the best interest of shareholders?
Various kinds of incentives.
p.15
Goals of Financial Managers
What is a flaw in neglecting shareholder wealth maximization?
It does not imply that managers should ignore the interests of everyone else connected to a firm.
p.6
Investment, Financing, and Working Capital Decisions
What is the consequence of 'trend-chasing' behavior in investing?
It often leaves investors worse off than if they had invested consistently over time.
p.40
Legal Forms of Business Organization
What is the role of the Board of Directors?
To set general policy, guide corporate affairs, and approve major expenditures.
p.48
Legal Forms of Business Organization
What is double taxation?
A situation where income from a corporation is taxed twice: once at the business level and once at the individual level when distributed to shareholders.
p.20
Primary Activities of Financial Managers
What is the focus of the Managerial Finance Function?
It involves key decisions made by financial managers.
p.31
Definition of Finance and Managerial Finance Function
What does the accrual basis of accounting recognize?
Revenue at the time of sale and expenses when they are incurred.
p.61
Agency Problems and Agency Costs
What causes agency costs?
Managers pursuing their own interests.
p.65
Corporate Governance Mechanisms
How do U.S. and U.K. legal systems differ from those in Germany and France regarding CEO compensation?
U.S. and U.K. systems emphasize the duty of managers to shareholders, while others focus more on stakeholders.
p.63
Goals of Financial Managers
How does the median pay of U.S. CEOs compare to non-U.S. companies?
It is nearly three times more.
p.27
Investment, Financing, and Working Capital Decisions
What is Justin Liter's business?
He owns a barbeque restaurant called Game of Bones in Houston.
p.63
Goals of Financial Managers
Which country has the second highest median pay for CEOs?
Britain, with $10.5 million.
p.30
Key Principles in Business Decision Making
Why is the time value of money important in Justin's analysis?
He must pay the costs up front but the benefits come later.
p.35
Investment, Financing, and Working Capital Decisions
What is one way Ann can reduce her outflows?
By cutting discretionary spending such as clothing purchases or dining out.
p.72
Key Principles in Business Decision Making
Why is the price of a company’s stock important?
It is an important signal of how the company is doing.
p.42
Legal Forms of Business Organization
What is a key feature of corporations regarding ownership?
Ownership (stock) is readily transferable.
p.43
Legal Forms of Business Organization
Why do corporations lack secrecy?
Because regulations require firms to disclose financial results.
p.9
Goals of Financial Managers
What are three reasons why profit maximization may not lead to the highest share price?
Timing, Cash Flows, and Risk.
p.73
Goals of Financial Managers
What is the primary responsibility of financial managers?
To act in shareholders' interest.
p.75
Agency Problems and Agency Costs
What can cause agency problems in a corporation?
When the interests of the principal (shareholders) and the agent (managers) differ.
p.19
Role of Business Ethics in Finance
How can an effective ethics program impact corporate value?
By producing positive benefits.
p.36
Relationship to Accounting
What is the primary focus of accountants in the managerial finance function?
Collecting and presenting financial data.
p.53
Key Principles in Business Decision Making
What is the significance of marginal tax rate in tax planning?
It indicates the rate at which the last dollar of income is taxed.
What do financial managers do with accounting information?
Evaluate it to influence business decisions and create value for shareholders.
p.37
Legal Forms of Business Organization
What is unlimited liability in the context of a sole proprietorship?
The condition that gives creditors the right to make claims against the owner’s personal assets to recover debts owed by the business.
p.20
Investment, Financing, and Working Capital Decisions
What are Investment Decisions?
Decisions on how a company will spend money on long-term projects.
p.59
Investment, Financing, and Working Capital Decisions
Did No-Debt Co. have any debt or interest expense?
No, No-Debt Co. had no debt and no interest expense.
p.22
Key Principles in Business Decision Making
What is the tradeoff that managers must consider in financial decisions?
The tradeoff between return and risk.
p.70
Goals of Financial Managers
How does maximizing shareholder wealth relate to other stakeholders?
It involves balancing the interests of other stakeholders to create long-term value for the firm.
p.24
Definition of Finance and Managerial Finance Function
What is the role of the CEO in the finance function?
The CEO oversees the overall management of the firm, including financial decisions.
p.22
Key Principles in Business Decision Making
What is crucial for motivating employees and aligning their interests with the firm's goals?
Incentives Are Important.
p.27
Investment, Financing, and Working Capital Decisions
What will the new dispenser allow customers to choose from?
Over 100 different soft drinks.
p.42
Legal Forms of Business Organization
What is a strength of partnerships regarding liability?
Owners who are limited partners have limited liability and cannot lose more than they invested.
p.43
Legal Forms of Business Organization
What is a disadvantage of organizing a corporation?
It is more expensive to organize than other business forms.
p.43
Legal Forms of Business Organization
What type of regulation do corporations face?
Subject to greater government regulation.
p.6
Investment, Financing, and Working Capital Decisions
What behavior do many investors exhibit regarding stock market trends?
They are willing to invest when the market is rising and reluctant when it is falling.
p.3
Corporate Governance Mechanisms
How do corporate governance mechanisms address agency problems?
By implementing structures and policies that align the interests of managers with those of the shareholders.
p.76
Principal-Agent Relationship in Corporations
What is the principal-agent relationship in a corporation?
It is the relationship between the owners (shareholders) and the managers of the corporation.
p.62
Corporate Governance Mechanisms
What is corporate governance?
The rules, processes, and laws by which companies are operated, controlled, and regulated.
p.20
Investment, Financing, and Working Capital Decisions
What are Financing Decisions?
Decisions on how companies raise the money needed for investment opportunities.
p.70
Goals of Financial Managers
What are some alternative goals that firms might pursue?
Maximizing market share, profits, employee retention, ethics, or environmental sustainability.
p.20
Investment, Financing, and Working Capital Decisions
What are Working Capital Decisions?
Decisions that refer to the management of a firm’s short-term resources.
p.30
Key Principles in Business Decision Making
What factors has Justin not considered in his analysis?
Time value of money and tax implications.
p.22
Key Principles in Business Decision Making
What principle refers to the efficiency and competitiveness of financial markets?
Competitive Financial Markets.
p.72
Key Principles in Business Decision Making
What does the time value of money imply?
Money is more valuable today than in the future due to the opportunity to earn a return on it.
p.39
Legal Forms of Business Organization
What forms can ownership in a corporation take?
Common stock or, less frequently, preferred stock.
p.18
Role of Business Ethics in Finance
What should be evaluated about alternative actions in business ethics?
Are alternative actions less likely to cause harm?
p.35
Investment, Financing, and Working Capital Decisions
How can Ann cover her $215 shortfall?
By borrowing $215 or withdrawing from her savings.
p.43
Legal Forms of Business Organization
What inhibits growth in a sole proprietorship?
Limited fund-raising power.
p.24
Definition of Finance and Managerial Finance Function
What is the role of the Director of Investor Relations?
To manage communication between the company and its investors.
p.56
Legal Forms of Business Organization
What is the effect of double taxation on corporate income?
The combined tax bill is higher compared to sole proprietorship.
p.42
Legal Forms of Business Organization
What is a strength of a sole proprietorship regarding organizational costs?
Low organizational costs.
p.42
Legal Forms of Business Organization
What is a benefit of corporations in terms of financing?
Has better access to financing.
p.75
Corporate Governance Mechanisms
What is the role of corporate governance mechanisms?
To manage agency problems between owners and managers.
p.41
Legal Forms of Business Organization
What is the role of the President or Chief Executive Officer (CEO) in a corporation?
Responsible for managing the firm’s day-to-day operations and carrying out the policies established by the board of directors.
p.61
Agency Problems and Agency Costs
What are agency costs?
Costs that shareholders bear due to managers’ pursuit of their own interests.
p.14
Goals of Financial Managers
Who are considered stakeholders in a firm?
Employees, suppliers, customers, and local community members.
p.68
Goals of Financial Managers
Which skill is essential for effective teamwork and information sharing?
Communication and Collaboration.
p.66
Corporate Governance Mechanisms
What is the purpose of the Sarbanes-Oxley Act of 2002?
To eliminate corporate disclosure and conflict of interest problems.
p.11
Goals of Financial Managers
What action did The Washington Post Company take regarding its dividends in December 2012?
It announced it would pay out the entire $9.80 per share dividend planned for 2013.
p.76
Agency Problems and Agency Costs
What are agency problems in a corporation?
Issues that arise when managers do not act in the best interests of shareholders.
p.18
Role of Business Ethics in Finance
What should be assessed regarding the rights of individuals or groups in business actions?
Does the action violate the moral or legal rights of any individual or group?
p.58
Legal Forms of Business Organization
What tax benefit do dividends received by corporations get?
They usually receive a special tax break.
p.51
Goals of Financial Managers
What is the total tax liability calculation for Dan Webster's business income?
(0.10 × $9,875) + [0.12 × ($40,125 − $9,875)] + [0.22 × ($80,000 − $40,125)] = $13,390.
p.72
Key Principles in Business Decision Making
What do market prices reflect according to financial managers?
Market prices reflect information gathered by many different investors.
p.43
Legal Forms of Business Organization
What is a weakness of general partners in a partnership?
They have unlimited liability and may have to cover debts of other partners.
p.38
Legal Forms of Business Organization
What is the purpose of the Articles of Partnership?
To formally establish a business partnership through a written contract.
p.76
Corporate Governance Mechanisms
What is the purpose of a firm's corporate governance structure?
To ensure that managers act in the best interests of the firm's shareholders and other stakeholders.
p.48
Legal Forms of Business Organization
What are capital gains?
Income earned by selling an asset for more than its cost.
p.47
Legal Forms of Business Organization
How are proprietorships and partnerships taxed after the Tax Cuts and Jobs Act of 2018?
They are still taxed according to a revised progressive rate structure.
p.66
Corporate Governance Mechanisms
What does the Sarbanes-Oxley Act contain provisions about?
Corporate financial disclosures and relationships among corporations, analysts, auditors, attorneys, directors, officers, and shareholders.
p.59
Investment, Financing, and Working Capital Decisions
How do the after-tax earnings of Debt Co. and No-Debt Co. compare?
Debt Co.'s earnings will be lower due to interest expense, while No-Debt Co. will have higher after-tax earnings.
p.16
Goals of Financial Managers
What misconception might arise from the goal of maximizing shareholder wealth?
That managers should engage in any action, regardless of legality or ethics, to boost stock prices.
p.64
Goals of Financial Managers
How do base salaries of CEOs compare internationally?
They are surprisingly similar despite large differences in total compensation.
How is the average tax rate calculated?
Taxes paid divided by taxable income.
p.52
Goals of Financial Managers
What is the income range for the 22% tax bracket?
Greater than $40,125 but less than $85,525.
p.27
Investment, Financing, and Working Capital Decisions
What is the current soft drink dispenser's offering?
Seven different drink flavors.
p.58
Legal Forms of Business Organization
What can corporations deduct when calculating their taxes?
Operating expenses and interest expenses paid to lenders.
p.29
Key Principles in Business Decision Making
Why is Justin inclined to buy the new dispenser?
Because the marginal benefit exceeds the marginal cost.
p.42
Legal Forms of Business Organization
What is a strength of corporations in terms of management?
Can hire professional managers.
p.57
Legal Forms of Business Organization
How are ordinary income and capital gains treated for tax purposes in corporations?
They are treated the same.
p.33
Goals of Financial Managers
What can happen to Nassau Corporation without adequate cash inflows?
The firm will not survive.
p.64
Goals of Financial Managers
What primarily caused the variations in total CEO pay?
Differences in the use of equity-based compensation.
p.11
Goals of Financial Managers
Why did companies like Washington Post accelerate their dividend payments?
To help shareholders save on taxes and increase their wealth.
p.24
Definition of Finance and Managerial Finance Function
Who is responsible for managing the firm's financial activities?
The CFO (Chief Financial Officer).
p.58
Legal Forms of Business Organization
What effect does the dividend exclusion have on tax liability?
It eliminates much of the potential tax liability from dividends received.
p.42
Legal Forms of Business Organization
What is a strength of partnerships in terms of resources?
More available brain power and managerial skill.
p.46
Legal Forms of Business Organization
How were proprietorships and partnerships taxed prior to 2018?
According to the same progressive rate structure as individual taxpayers.
p.70
Goals of Financial Managers
What is the primary goal of financial managers?
To maximize the wealth of the firm's owners.
p.20
Investment, Financing, and Working Capital Decisions
What does the mix of funding sources imply?
It has important implications for a company's financial structure.
p.39
Legal Forms of Business Organization
What are corporations?
Legal business entities with rights and duties similar to individuals but with a distinct legal identity from their owners.
p.11
Goals of Financial Managers
Which other companies are mentioned as accelerating dividend payments?
Expedia, Inc. and Coach, Inc.
p.66
Corporate Governance Mechanisms
What is the difference between individual and institutional investors?
Individual investors invest their own money, while institutional investors manage funds for others.
p.30
Key Principles in Business Decision Making
What initial conclusion does Justin reach about buying the new dispenser?
It looks like a good decision at first glance.
p.72
Key Principles in Business Decision Making
What should managers focus on more: cash flow or accounting profit?
Managers should focus more on cash flow.
p.24
Definition of Finance and Managerial Finance Function
What does a Controller do?
Oversees accounting and financial reporting.
p.60
Key Principles in Business Decision Making
How is the tax savings calculated for Debt Co.?
By multiplying the tax rate (21%) by the interest expense ($30,000).
p.44
Legal Forms of Business Organization
How do sole proprietorships compare to corporations in terms of income generation?
Sole proprietorships generate the lowest level of income despite being the most numerous.
p.71
Primary Activities of Financial Managers
What do investment decisions involve?
How a company invests its capital to generate wealth for shareholders.
p.11
Goals of Financial Managers
What was the market reaction to The Washington Post's decision to accelerate dividends?
Washington Post shares rose by $5.
p.76
Corporate Governance Mechanisms
How do corporate governance mechanisms address agency problems?
By implementing structures and policies that align the interests of managers with those of shareholders.
p.65
Corporate Governance Mechanisms
What does the difference in equity-based CEO compensation reflect?
The differing legal systems and their emphasis on shareholders versus stakeholders.
p.71
Primary Activities of Financial Managers
What do working capital decisions refer to?
The day-to-day management of a firm’s short-term resources such as cash, receivables, inventory, and payables.
p.72
Key Principles in Business Decision Making
What tradeoff must managers consider when making investment decisions?
The tradeoff between risk and return.
p.24
Definition of Finance and Managerial Finance Function
What is the primary responsibility of a Treasurer?
To manage the organization's cash flow and financial assets.
p.58
Legal Forms of Business Organization
How does the tax deductibility of expenses affect corporations?
It reduces their after-tax cost.
p.42
Legal Forms of Business Organization
What is a key strength of a sole proprietorship?
The owner receives all profits and sustains all losses.
p.39
Legal Forms of Business Organization
What is limited liability?
A legal provision that limits stockholders’ liability for a corporation’s debt to the amount they initially invested by purchasing stock.
p.43
Legal Forms of Business Organization
What happens to a partnership when a partner dies?
The partnership is dissolved.
p.24
Definition of Finance and Managerial Finance Function
What does a Foreign Exchange Manager do?
Manages the firm's exposure to foreign currency risks.
p.42
Legal Forms of Business Organization
What is a financial advantage of a sole proprietorship?
Income is taxed only on the proprietor’s personal tax return.
