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Flashcards About Week 10 –

question

Which of the following represents a capital expenditure?
answer

purchasing a building to be used for office space Capital expenditures are major investments in long-term assets such as land, buildings, and equipment; or, intangible assets such as patents.
question

Dividends represent a portion of a firm’s profits that are distributed to bondholders first then stockholders.
answer

False
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Although companies that issue bonds are required to pay interest, companies issuing stock are not required to pay dividends.
answer

True
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One of the criticisms of the Dow Jones Industrial Average is that it does not include enough stocks to provide a good representation of the entire stock market.
answer

True Some analysts prefer to watch other indexes such as the Standard & Poor’s 500, or the NASDAQ average.
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By issuing bonds, a firm’s debt level increases, which may adversely affect the firm’s image in the financial community.
answer

True
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Financial managers are responsible for controlling cash flows.
answer

True
question

Zach purchased 200 shares of Fast Track Corporation last year. This year, he plans to hire an attorney to go after the company for failure to pay dividends. If Zach follows through with his plan, he will probably win the lawsuit because companies are obligated to pay their stockholders dividends for owning and holding the firm’s stock.
answer

False Although companies will offer shareholders dividends if they have earnings after taxes, they are under no legal obligation to pay dividends. High-growth companies will often retain their earnings and further expand the business.
question

Private investors benefit from securities markets primarily by:
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having a place to buy and sell stocks and bonds.
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A bull market occurs when overall stock prices increase.
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True
question

An investor who purchases stock in a company becomes a(n):
answer

Owner
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Both stocks and bonds represent temporary sources of funding for a firm. Eventually they must be repaid.
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False
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Financial managers are responsible for budgeting, auditing, and advising top management on financial matters.
answer

True
question

White Palace operates a chain of restaurants specializing in hamburgers. The corporation plans to expand to new communities. The acquisition of land and construction of new restaurants represent major capital expenditures.
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True Capital expenditures are major investments in tangible, long-term assets, such as land, buildings, and equipment, as well as intangible assets such as patents, trademarks, and copyrights.
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One step in the financial planning process is to establish financial control procedures that allow managers to monitor the organization’s performance.
answer

True
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Changes in investor trust and confidence strongly influence stock market prices.
answer

True
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Only government employees represent institutional investors.
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False
question

__________ provide financing to new or emerging companies with high profit potential. In return, these organizations expect a share of ownership in the company.
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Venture capital firms
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By selling shares of ownership in their company, California Scientific acquires the funds needed to finance their research and development projects. California Scientific provides for their long-term funding needs through ________ financing.
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Equity Equity financing is generated through the sale of stock. It is also generated when a firm retains its earnings and reinvests those earnings back into the company.
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A loan backed by collateral represents a(n):
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Secured loan
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From an investor’s point of view, corporate bonds offer less risk than government bonds.
answer

False
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A secured loan means the borrower has the security of knowing repayment is not due for several years.
answer

False
question

Issuing ________ increases a firm’s debt and may adversely affect the financial community’s perception of the firm.
answer

Bonds
question

Carolina Financial Services is considering the purchase and installation of an expensive computer network. This is the type of expenditure that would be included in a(n):
answer

capital budget The capital budget highlights a firm’s spending plans for major asset purchases that often require large sums of money.
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Corporations sell a new issuance of securities in the Primary Market.
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True
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A capital budget highlights a firm’s spending plans for major assets, such as property, buildings, and equipment.
answer

True
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Trade credit means the seller will sell and deliver products and/or services to the buyer, with the understanding that the buyer will pay for these products and/or services at a later date.
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True
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Finance managers need funds for capital purchases, but seldom for the day-to-day operations.
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False
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Effective financial managers evaluate customers’ ability to pay for merchandise purchased on credit.
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True
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Examples of institutional investors are pension funds, mutual funds, and insurance companies.
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True
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A company’s capital budget helps management plan for cash shortages or surpluses.
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False A capital budget highlights the firm’s planned spending on fixed assets such as buildings and equipment. It is the cash budget that provides managers with information regarding projected cash balances.