FIN 322 Study Guide - Final Guide: Cash Flow, Profit Maximization, Basis Of Accounting

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5 Aug 2019

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The wealth of corporate owners is measured by the share price of the stock. Risk, the magnitude and timing of cash flows are the key determinants of share price, which represent the wealth of the owners in the firm. A higher earnings per share (eps) does not necessarily translate into a higher stock price. The profit maximization goal ignores the timing of returns, does not directly consider cash flows, and ignores risk. When considering a firm"s financial decision alternative, financial managers should accept only those actions that are expected to maximize shareholder value. The primary goal of a financial manager is ________. maximizing wealth. Financial managers evaluating decision alternatives or potential actions must consider ________. risk, return, and the impact on share price. Profits do not necessarily result in cash flows available to the stockholders. An effective ethics program ________. can enhance a corporation"s value. The implementation of a pro active ethics program is expected to result in.

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Since shareholder wealth is the present value of the expected future returns to the owners of the business. The primary normative goal of the firm is to make the most efficient use of the firmâs scarce financial and physical resources and thereby to maximize shareholder value. Thus, realization of the shareholder wealth maximization goal is constrained by social responsibility concerns and problems arising out of agency relationships. Since the class comprises of students spanning different majors we should know that managers can take a variety of actions to influence the magnitude, timing, and risk of the firmâs free cash flows. These actions are often classified in the context of operating, investment, financing, and dividend decisions. Would you agree?

sangriahorse216

25. If a merger is done for __________ reasons, then the combined corporation will be worth more than the two individual corporations (2+2 = 5).

Expropriation
Synergy
Hubris
Wealth Redistribution

26. A(n) __________ is when a parent company sells shares of a subsidiary to the public.

Divestiture
Leveraged Buyout
Joint Venture
Equity Carveout

27. Antitakeover measures primarily protect ______________.

Acquiring firm managers
Acquiring firm shareholders
Target firm shareholders
Target firm managers

28. If investors prefer dividends to capital gains (Bird in the Hand theory is true), then

The cost of equity will decrease as the retention ratio increases
The cost of equity will decrease as the payout ratio decreases
The cost of equity will increase as the retention ratio decreases
The cost of equity will increase as the payout ratio decreases

29. _______________ are when the firm buys back a set number of shares on a set date for a specific price.

Dividend Reinvestment Plans
Tender Offers
Dutch auctions
Clientele Repurchases

30. Any signaling effect of dividends should occur on the ______________.

Declaration Date
Ex-Dividend Date
Record Date
Payment Date

31. Which statement is TRUE?

Dividend rights say that shareholders get any remaining assets after all creditors have been paid in bankruptcy
According to financial theory, shareholder wealth should be unaffected by a two-for-one stock split.
A stock split is a large stock dividend so that you might have twice as many shares with each share being worth half as much.
The stock price should fall by the amount of the dividend on the ex-dividend date.

32. Which statement is FALSE?

In a Stock Swap, the acquiring firm issues shares of stock in order to pay for the acquisition
A conglomerate merger is between unrelated firms
A Leveraged Buyout involves creating a new company out of part of your company and then selling shares of the new company to the public.
In an asset purchase, the acquiring firm does not assume the liabilities of the target firm.

33. Suppose that prior to a merger the stock price of the target company was $50 and the stock price of the acquiring company was $40. If the acquiring firm agrees to pay 1.5 share of their stock for every share of the target firms stock, then what premium are they offering?

a) 10% b) 20% c) 25% d) 33%

34. Which statement is FALSE?

The White Knight defense is when you try to sell yourself to a

magentaraccoon175

1. The ________ considers the project'srisk relative to the firm overall risk.

A. The Objective Approach

B. The Pure Pay Approach

C. The Subjective Approach

D. The Bottom-Up Approach

2. ________ are not tax deductible, so there is no taximpact on the cost of equity.

A. Interest expenses

B. Director's remuneration

C. Dividends

D. All of the above

3. ________ itself is a non-cash expense and it is onlyrelevant because it affects taxes.

A. Depreciation expense

B. Interest expense

C. Capital gain

D. Both A and C

4. Which of the following is correct about AverageAccounting Return

A. Reject the project if the ARR is less than a preset rate

B. Accept the project if the ARR is large than IRR

C. Accept the project if the ARR is greater than a presetrate

D. ARR must be equal to a preset rate for the acceptance of aproject

5. What is the disadvantage of Paybackmethod?

A. Difficult to understand

B. No adjustment for uncertainty of later cash flows

C. Ignores the time value of money

D. Biased again short-term project

6. Which of the following statement is true about NetPresent Value decision rule?

A. If the NPV is negative, reject the project

B. A negative NPV mean the project will increase the wealth ofthe owners

C. If value of the NPV means the amount of value created for thefirm

D NPV rule does not account for the time value of money

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FIN 322 Study Guide - Final Guide: Cash Flow, Profit Maximization, Basis Of Accounting

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