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BUSINESS FINANCE - PEREGRINE SECTION REVIEW QUESTIONS
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BUSINESS FINANCE - PEREGRINE SECTION REVIEW QUESTIONS
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BUSINESS FINANCE - PEREGRINE SECTION REVIEWQUESTIONS
A company's balance sheet shows the value of assets, liabilities, and stockholders'
equity _____.
A. for any given period of time
B. at a specific point in time
C. at the end of the fiscal year - answer- B. at a specific point in time
The Income Statement - answer- EBIT: Other income, earned on transactions directly
related to producing and/or selling the firm's products, is added to operating income to
yield earnings before interest and taxes (EBIT). When a firm has no "other income," its
operating profit and EBIT are equal.
Net Income: The firm subtracts interest expense - representing the cost of debt
financing - from EBIT to find its pretax income. The final step is to subtract taxes from
pretax income to arrive at net income, or net profits after taxes. Net income is the
proverbial "bottom line" and the single most important accounting number for both
corporate managers and external financial analysts.
Earnings Available for Common Stockholders and EPS: If a firm has preferred stock, it
deducts preferred stock dividends from net income. Net income less preferred stock
dividends is earnings available for common stockholders. Dividing earnings available for
common stockholders by the number of shares of common stock outstanding results in
earnings per share (EPS).
The Sustainable Growth Model: - answer- gives managers a shorthand projection that
ties together growth objectives and financing needs.
provides hints about the levers that managers must pull in order to achieve growth
beyond the sustainable rate.
identifies some financial benefits of growing more slowly than the sustainable rate.
A _________________ is a long-term guide driven by competitive forces - answer-
strategic plan
Financing Strategies
Conservative strategy
Aggressive strategy
Matching strategy - answer- Conservative strategy: Use more expensive long-term
financing to finance both permanent assets and temporary assets
, Aggressive strategy: Use less expensive but riskier short-term debt to finance both
seasonal peaks and part of long-term growth in sales and assets
Matching strategy: Finance permanent assets with long-term funding sources and
temporary asset requirement with short-term financing.
On what key input does a cash budget rely?
A. Production Expenses (cash outflows)
B. Sales forecast (cash inflows) - answer- B. Sales forecast (cash inflows)
Typical Financial Assets Issued or Held by Corporations
- Treasury Bills
- Repurchase Agreements
- Federal Funds
- Bankers Acceptances
- Commercial Papers
- Eurodollars
- Negotiable Certificate of Deposit
- Money Market Funds
- Treasury Notes and Bonds
- Municipal Bonds
- Term Loans
- Corporate Bonds
- Preferred Stock
- Common Stock - answer- - Treasury Bills: Short-term debt obligation backed by the
U.S. government with a maturity of less than one year
- Repurchase Agreements: Contract for a future transaction between two parties to be
concluded on a known deal dateMatch the ratios to their ratio type.
A. Debt Ratios
B. Activity Ratios
C. Market Ratios
D. Liquidity Ratios
E. Profitability Ratios
Current Ratio & Quick (Acid Test) Ratio
Turnover ratios & Collection/Payment Period
Debt-to-Equity Ratio & Times Interest Earned (TIE)
Profit Margin & Return on Assets
Price/Earnings (P/E) Ratio & Market-to-Book Ratio - answer- A. Debt Ratios: Debt-to-
Equity Ratio & Times Interest Earned (TIE)
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