Finance Wk 1 Homework

1. Question : (TCO 1) Which of the following statements is true regarding the goal of financial management?

  Student Answer:   A US company considering international operations will have a different goal than a company that only conducts operations in the US.
     The firm’s structure (i.e. corporation, sole proprietorship, partnership) is not relevant to the goal of financial management.
      A way of aligning management goals to shareholder’s interest is to tie managerial compensation to the market value of the firm’s stock.
     None of the above are true. 

Question 2. Question : (TCO 1) Book values are different to market values because:

  Student Answer:   Book values reflect the value of the asset based on generally-accepted accounting principles.
     Book values are used in the company’s balance sheet.

     Book values do not reflect the amount someone is willing to pay today for an asset.
      All of the above 

Question 3. Question : For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:
Cost of goods sold………………………….          $1.2 million
Administrative expenses……………………          $250,000
Marketing and selling expenses……………          $175,000
Depreciation………………………………….          $500,000
Interest expense…………………………….          $200,000
Dividends paid……………………………….           $150,000
(TCO 1) Suppose that Sports Baseball has 30,000 shares of stock. What is the dividends per share figure?

  Student Answer:    5.0

     8.75

     5.25

     8.50

Question 4. Question : For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:
Cost of goods sold………………………….          $1.2 million
Administrative expenses……………………          $250,000
Marketing and selling expenses……………          $175,000
Depreciation………………………………….          $500,000
Interest expense…………………………….          $200,000
Dividends paid……………………………….           $150,000
(TCO 1) Assuming a tax rate of 30%, the percentage of dividends per net income is approximately ______ and operating cash flow is _________ than net income. 
Hint: You need to calculate the net income and divide dividends by the net income.

  Student Answer:   30% and lower

     60% and lower

     30% and higher

      60% and higher

Question 5. Question : For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows:
Cost of goods sold………………………….          $1.2 million
Administrative expenses……………………          $250,000
Marketing and selling expenses……………          $175,000
Depreciation………………………………….          $500,000
Interest expense…………………………….          $200,000
Dividends paid……………………………….           $150,000
(TCO 1) Select all items that will be included in Sports Baseballs, Inc. Balance Sheet. For this exercise you will be choosing more than one option for your answer:

  Student Answer:    Cash on hand

      Fixed assets

      Net sales

      Administrative expenses

      Taxes

      Long-term debt

      Dividends paid

      Marketing expenses

      Consulting revenues

Question 6. Question : (TCO 1) Which one of the following activities best exemplify working capital management.  For this exercise you will be choosing more than one option for your answer:

  Student Answer:    Identify three good investment opportunities for the firm.

      Obtain a short-term loan to purchase materials.

      Assess the level of inventory to be kept on hand.

      Sale long-term bonds to raise funds for a new machine.

      Determine the return of a potential project.

      Calculate the cash flows for a project.

      Manage payments to suppliers.

Question 7. Question : (TCO 1) Match the following terms with the examples as appropriate:

  Student Answer:      : Managerial compensation     »   3 : incentive to encourage managers to increase share value.
        : Social responsibility     »   5 : McDonald’s work to redesign packaging items with recyclable materials.
        : Sarbanes-Oxley Act     »   2 : established an oversight board responsible for improving auditing standards within companies.
        : Agency relationship     »   4 : The relation between a manager and a owner of the corporation.
        : Antitrust case
   »   1 : Microsoft’s monopolistic behavior.
  Instructor Explanation:   (Chapter 1, pages 12-15 and Lecture)
 

Question 8. Question : (TCO 1) Which incentives do managers have to act in the stockholder’s interest? Name two and explain each in one or two sentences.

  Student Answer:   The two incentives which the managers have to act in the stockholders interest are: 1. Wealth maximization 2. Dividend Wealth maximization is a primary objective of any management as it is the true representation of the firms profit potential. Secondly many management may work to declare better amount of dividend as some investors may seek to have a better return in the form of dividend.
  Instructor Explanation: (Chapter 1, page 13). Possible answers include:
– managerial compensation tied to financial performance
– job prospects
– replacement of management