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Course Number: FI 515, Spring 2011

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CHAPTER 3 FINANCIAL STATEMENTS, CASH FLOW, AND TAXES True/False Easy: (3.1) Annual report Answer: a EASY . The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of retained earnings. a. True b. False (3.1) Annual report and expectations Answer: a EASY . The primary reason the annual report is important in finance is that it is used...

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3 CHAPTER FINANCIAL STATEMENTS, CASH FLOW, AND TAXES True/False Easy: (3.1) Annual report Register to View AnswerEASY . The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of retained earnings. a. True b. False (3.1) Annual report and expectations Register to View AnswerEASY . The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows. a. True b. False (3.2) Retained earnings versus cash Register to View AnswerEASY . Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000. Cash $ 50,000 Accounts payable $ 100,000 Inventory 200,000 Accruals 100,000 Accounts receivable 250,000 Total CL $ 200,000 Total CA $ 500,000 Debt 200,000 Net fixed assets $ 900,000 Common stock 200,000 Retained earnings 800,000 Total assets $1,400,000 Total L & E $1,400,000 a. True b. False (3.2) Balance sheet Register to View AnswerEASY . On the balance sheet, total assets must always equal total liabilities and equity. a. True b. False (3.2) Balance sheet: non-cash assets Register to View AnswerEASY . Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books. a. True b. False (3.3) Income statement Register to View AnswerEASY . The income statement shows the difference between a firm's income and its costs--i.e., its profits--during a specified period of time. However, not all reported income comes in the form or cash, and reported costs likewise may not correctly reflect cash outlays. Therefore, there may be a substantial difference between a firm's reported profits and its actual cash flow for the same period. a. True b. False (3.7) Net operating working capital Register to View AnswerEASY . Net operating working capital is equal to operating current assets minus operating current liabilities. a. True b. False (3.7) Total net operating capital Register to View AnswerEASY . Total net operating capital is equal to net fixed assets. a. True b. False (3.7) Net operating profit after taxes (NOPAT) Register to View AnswerEASY . Net operating profit after taxes (NOPAT) is the amount of net income a company would generate from its operations if it had no interest income or interest expense. a. True b. False (3.9) Federal income taxes: interest income Register to View AnswerEASY . The fact that 70% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision. a. True b. False (3.9) Federal income taxes: interest expense Register to View AnswerEASY . If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant. a. True b. False (3.9) Federal income taxes: int expense and dividends Register to View AnswerEASY . The interest and dividends paid by a corporation are considered to be deductible operating expenses, hence they decrease the firm's tax liability. a. True b. False (Comp: 3.2,3.3) Financial statements Register to View AnswerEASY . The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time, while the income statement measures the firm's financial position at a point in time. a. True b. False Medium: (3.4) Retained earnings Register to View AnswerMEDIUM . Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts and, thus, these cash accounts, when added together, will always be equal to the firm's total retained earnings. a. True b. False (3.4) Retained earnings Register to View AnswerMEDIUM . The retained earnings account on the balance sheet does not represent cash. Rather, it represents part of stockholders' claims against the firm's existing assets. This implies that retained earnings are in fact stockholders' reinvested earnings. a. True b. False (3.5) Cash flow and net income Register to View AnswerMEDIUM . In accounting, emphasis is placed on determining net income in accordance with generally accepted accounting principles. In finance, the primary emphasis is also on net income because that is what investors use to value the firm. However, a secondary financial consideration is cash flow, because cash is needed to operate the business. a. True b. False (3.6) Statement of cash flows Register to View AnswerMEDIUM . To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue. a. True b. False (3.7) Future cash flows Register to View AnswerMEDIUM . The current cash flow from existing assets is highly relevant to the investor. However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned. a. True b. False (3.9) Federal income taxes: int exp and dividends Register to View AnswerMEDIUM . Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to encourage the use of debt financing by corporations. a. True b. False (Comp: 3.1-3.3,3.6) Financial stmts: time dimension Register to View AnswerMEDIUM . The time dimension is important in financial statement analysis. The balance sheet shows the firm's financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects changes in the firm's accounts over that period of time. a. True b. False Multiple Choice: Conceptual Easy: (3.1) Financial statements Register to View AnswerEASY . Which of the following statements is CORRECT? a. The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of retained earnings. b. The balance sheet gives us a picture of the firms financial position at a point in time. c. The income statement gives us a picture of the firms financial position at a point in time. d. The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits. e. The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year. (3.2) Balance sheet Register to View AnswerEASY . Which of the following statements is CORRECT? a. The balance sheet for a given year, say 2006, is designed to give us an idea of what happened to the firm during that year. b. The balance sheet for a given year, say 2006, tells us how much money the company earned during that year. c. The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP). d. For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet. e. A typical industrial companys balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. (3.2) Balance sheet Register to View AnswerEASY . Other things held constant, which of the following actions would increase the amount of cash on a companys balance sheet? a. The company repurchases common stock. b. The company pays a dividend. c. The company issues new common stock. d. The company gives customers more time to pay their bills. e. The company purchases a new piece of equipment. (3.2) Current assets Register to View AnswerEASY . Which of the following items is NOT included in current assets? a. Accounts receivable. b. Inventory. c. Bonds. d. Cash. e. Short-term, highly liquid, marketable securities. (3.2) Current liabilities Register to View AnswerEASY . Which of the following items cannot be found on a firms balance sheet under current liabilities? a. Accounts payable. b. Short-term notes payable to the bank. c. Accrued wages. d. Cost of goods sold. e. Accrued payroll taxes. (3.3) Income statement Register to View AnswerEASY . Which of the following statements is CORRECT? a. The focal point of the income statement is the cash account, because that account cannot be manipulated by accounting tricks. b. The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP). c. The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SEC). d. If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow. e. The income statement for a given year, say 2006, is designed to give us an idea of how much the firm earned during that year. Medium: (3.2) Balance sheet Register to View AnswerMEDIUM . Below are the 2005 and 2006 year-end balance sheets for Wolken Enterprises: Assets: 2006 2005 Cash $ 200,000 $ 170,000 Accounts receivable 864,000 700,000 Inventories 2,000,000 1,400,000 Total current assets $ 3,064,000 $2,270,000 Net fixed assets 6,000,000 5,600,000 Total assets $ 9,064,000 $7,870,000 Liabilities and equity: Accounts payable $ 1,400,000 $1,090,000 Notes payable 1,600,000 1,800,000 Total current liabilities $ 3,000,000 $2,890,000 Long-term debt 2,400,000 2,400,000 Common stock 3,000,000 2,000,000 Retained earnings 664,000 580,000 Total common equity $ 3,664,000 $2,580,000 Total liabilities and equity $ 9,064,000 $7,870,000 Wolken has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year non-callable, long-term debt in 2005. As of the end of 2006, none of the principal on this debt had been repaid. Assume that the companys sales in 2005 and 2006 were the same. Which of the following statements must be CORRECT? a. Wolken increased its short-term bank debt in 2006. b. Wolken issued long-term debt in 2006. c. Wolken issued new common stock in 2006. d. Wolken repurchased some common stock in 2006. e. Wolken had negative net income in 2006. (3.2) Balance sheet Register to View AnswerMEDIUM . On its 2007 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year. Assuming that no earnings restatements were issued, which of the following statements is CORRECT? a. If the company lost money in 2007, they must have paid dividends. b. The company must have had zero net income in 2007. c. The company must have paid out half of its earnings as dividends. d. The company must have paid no dividends in 2007. e. Dividends could have been paid in 2007, but they would have had to equal the earnings for the year. (3.2) Balance sheet Register to View AnswerMEDIUM . Below is the common equity section (in millions) of Teweles Technologys last two year-end balance sheets: 2006 2005 Common stock $2,000 $1,000 Retained earnings 2,000 2,340 Total common equity $4,000 $3,340 Teweles has never paid a dividend to its common stockholders. Which of the following statements is CORRECT? a. The companys net income in 2006 was higher than in 2005. b. Teweles issued common stock in 2006. c. The market price of Teweles' stock doubled in 2006. d. Teweles had positive net income in both 2005 and 2006, but the companys net income in 2006 was lower than it was in 2005. e. The company has more equity than debt on its balance sheet. (3.3) EPS, DPS, BVPS, and stock price Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. Typically, a firms DPS should exceed its EPS. b. Typically, a firms EBIT should exceed its EBITDA. c. If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share. d. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation. e. The more depreciation a firm has in a given year, the higher its EPS, other things held constant. (3.5) Depreciation, amortization, and net cash flow Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. The more depreciation a firm reports, the higher its tax bill, other things held constant. b. People sometimes talk about the firms net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line. c. Depreciation reduces a firms cash balance, so an increase in depreciation would normally lead to a reduction in the firms net cash flow. d. Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges. e. Depreciation and amortization are not cash charges, so neither of them has an effect on a firms reported profits. (3.5) Changes in depreciation Register to View AnswerMEDIUM . Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes. a. Companies net operating profits after taxes (NOPAT) would decline. b. Companies physical stocks of fixed assets would increase. c. Companies net cash flows would increase. d. Companies cash positions would decline. e. Companies reported net incomes would decline. (3.6) Net cash flow Register to View AnswerMEDIUM . Which of the following factors could explain why Dellva Energy had a negative net cash flow last year, even though the cash on its balance sheet increased? a. The company sold a new issue of bonds. b. The company made a large investment in new plant and equipment. c. The company paid a large dividend. d. The company had high amortization expenses. e. The company repurchased 20% of its common stock. (3.6) Net cash flow Register to View AnswerMEDIUM . Analysts who follow Howe Industries recently noted that, relative to the previous year, the companys operating net cash flow increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation? a. The company cut its dividend. b. The company made a large investment in a profitable new plant. c. The company sold a division and received cash in return. d. The company issued new common stock. e. The company issued new long-term debt. (3.6) Net cash flow and net income Register to View AnswerMEDIUM . A security analyst obtained the following information from Prestopino Products financial statements: Retained earnings at the end of 2006 were $700,000, but retained earnings at the end of 2007 had declined to $320,000. The company does not pay dividends. The companys depreciation expense is its only non-cash expense; it has no amortization charges. The company has no non-cash revenues. The companys net cash flow (NCF) for 2007 was $150,000. On the basis of this information, which of the following statements is CORRECT? a. Prestopino had negative net income in 2007. b. Prestopinos depreciation expense in 2007 was less than $150,000. c. Prestopino had positive net income in 2007, but its income was less than its 2006 income. d. Prestopino's NCF in 2007 must be higher than its NCF in 2006. e. Prestopinos cash on the balance sheet at the end of 2007 must be lower than the cash it had on the balance sheet at the end of 2006. (3.6) Net cash flow and net income Register to View AnswerMEDIUM . Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance? a. The companys operating income declined. b. The companys expenditures on fixed assets declined. c. The companys cost of goods sold increased. d. The companys depreciation and amortization expenses declined. e. The companys interest expense increased. (3.6) Statement of cash flows Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. b. The statement of cash flows shows where the firms cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit. c. The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital. d. The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock. e. The statement of cash flows shows how much the firms cash--the total of currency, bank deposits, and short-term liquid securities (or cash equivalents)--increased or decreased during a given year. (3.6) Statement of cash flows Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash. b. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity. c. In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. d. In the statement of cash flows, depreciation charges are reported as a use of cash. e. In the statement of cash flows, a decrease in inventories is reported as a use of cash. (3.7) Modifying acct data for managerial purposes Register to View AnswerMEDIUM . For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT? a. The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements. b. The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units. c. The standard statements provide useful information on the firms individual operating units, but management needs more information on the firms overall operations than the standard statements provide. d. The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP. e. The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to adjust the results to make earnings look better. (3.7) Depreciation, amortization, and free cash flow Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. Operating cash flow (OCF) is defined as follows: OCF = EBIT(1-T) - Depreciation and Amortization. b. Changes in working capital have no effect on free cash flow. c. Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T) + Depreciation and Amortization - Capital expenditures required to sustain operations - Required changes in net operating working capital. d. Free cash flow (FCF) is defined as follows: FCF = EBIT(1-T)+ Depreciation and Amortization + Capital expenditures. e. Operating cash flow is the same as free cash flow (FCF). (3.8) MVA and EVA Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses. b. MVA gives us an idea about how much value a firms management has added during the last year. c. MVA stands for market value added, and it is defined as follows: MVA = (Shares outstanding)(Stock price) + Book value of common equity. d. EVA stands for economic value added, and it is defined as follows: EVA = EBIT(1-T) (Investor-supplied op. capital) x (A-T cost of capital). e. EVA gives us an idea about how much value a firms management has added over the firms life. (3.9) Federal income tax system Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies debt ratios to be lower than they would be if interest and dividends were both deductible. b. Interest paid to an individual is counted as income for tax purposes and taxed at the individuals regular tax rate, which in 2006 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. c. The maximum federal tax rate on corporate income in 2006 was 50%. d. Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes. e. The maximum federal tax rate on personal income in 2006 was 50%. (3.9) Federal income tax system Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes. Thus, the federal government receives no tax revenue from these businesses. b. All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code. c. Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firms income as personal income and pay taxes on that income. d. Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the income and stockholders were taxed again on the income when it was paid to them as dividends. e. All corporations other than non-profit corporations are subject to corporate income taxes, which are 15% for the lowest amounts of income and 35% for the highest amounts of income. (Comp: 3.6,3.7) NCF, FCF, and cash Register to View AnswerMEDIUM . Last year, Tucker Technologies had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation? a. The company had a sharp increase in its inventories. b. The company had a sharp increase in its accrued liabilities. c. The company sold a new issue of common stock. d. The company made a large capital investment early in the year. e. The company had a sharp increase in its depreciation and amortization expenses. (Comp: 3.2,3.3,3.6,3.9) Changes in depreciation Register to View AnswerMEDIUM . Assume that Congress recently passed a provision that will enable Bev's Beverages Inc. (BBI) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate. Prior to the new provision, BBIs net income after taxes was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BBIs financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. a. The provision will reduce the companys net cash flow. b. The provision will increase the companys tax payments. c. Net fixed assets on the balance sheet will increase. d. The provision will increase the companys net income. e. Net fixed assets on the balance sheet will decrease. (Comp: 3.2,3.3,3.6,3.9) Changes in depreciation Register to View AnswerMEDIUM . The Nantell Corporation just purchased an expensive piece of equipment. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. a. Nantells taxable income will be lower. b. Nantells net fixed assets as shown on the balance sheet will be higher at the end of the year. c. Nantells cash position will improve (increase). d. Nantells reported net income after taxes for the year will be lower. e. Nantells tax liability for the year will be lower. (Comp: 3.2,3.3,3.6) Changes in depreciation Register to View AnswerMEDIUM . Assume that Pappas Company commenced operations on January 1, 2007, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2007 management realized that the assets would last for only 10 years. The firm's accountants plan to report the 2007 financial statements based on this new information. How would the new depreciation assumption affect the companys financial statements? a. The firms reported net fixed assets would increase. b. The firms EBIT would increase. c. The firm's reported 2007 earnings per share would increase. d. The firm's cash position in 2007 and 2008 would increase. e. The firms net liabilities would increase. (Comp: 3.2,3.3,3.9) Changes in depreciation Register to View AnswerMEDIUM . A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change? a. The firms operating income (EBIT) would increase. b. The firms taxable income would increase. c. The firms net cash flow would increase. d. The firms tax payments would increase. e. The firms reported net income would increase. (Comp: 3.1-3.3,3.6) Financial statements Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. Dividends paid reduce the net income that is reported on a companys income statement. b. If a company uses some of its bank deposits to buy short-term, highly liquid marketable securities, this will cause a decline in its current assets as shown on the balance sheet. c. If a company issues new long-term bonds during the current year, this will increase its reported current liabilities at the end of the year. d. Accounts receivable are reported as a current liability on the balance sheet. e. If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance. (Comp: 3.5,3.6,3.8) EVA, CF, and net income Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital. b. If a firm reports positive net income, its EVA must also be positive. c. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free. d. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital. e. Actions that increase reported net income will always increase net cash flow. (Comp: 3.2,3.3,3.6) Retained earnings Register to View AnswerMEDIUM . Which of the following statements is CORRECT? a. Since depreciation is a source of funds, the more depreciation a company has, the larger its retained earnings will be, other things held constant. b. A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments. c. Common equity includes common stock and retained earnings, less accumulated depreciation. d. The retained earnings account as shown on the balance sheet shows the amount of cash that is available for paying dividends. e. If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative. Medium/Hard: (Comp: 3.2,3.3,3.9) Changes in leverage Register to View AnswerMEDIUM/HARD . The CFO of Shalit Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur? a. The companys taxable income would fall. b. The companys interest expense would remain constant. c. The company would have less common equity than before. d. The companys net income would increase. e. The company would have to pay less taxes. Hard: (3.6) Net cash flow Register to View AnswerHARD . Last year Roussakis Companys operations provided a negative net cash flow, yet the cash shown on its balance sheet increased. Which of the following statements could explain the increase in cash, assuming the companys financial statements were prepared under generally accepted accounting principles? a. The company repurchased some of its common stock. b. The company dramatically increased its capital expenditures. c. The company retired a large amount of its long-term debt. d. The company sold some of its fixed assets. e. The company had high depreciation expenses. Multiple Choice: Problems Easy: A good bit of relatively simple arithmetic is involved in some of these problems, and although the calculations are simple, it will take students some time to set up the problem and do the arithmetic. We allow for this when assigning problems for a timed test. Also, students must use a number of definitions to answer some of the questions, and to avoid excessive memorization, we provide students with a list of formulas and definitions for use on exams. (3.2) Balance sheet: market value vs. book value Register to View AnswerEASY . Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ? a. $27.50 b. $28.88 c. $30.32 d. $31.83 e. $33.43 (3.2) Balance sheet: change in BVPS from RE addition Register to View AnswerEASY . Hunter Manufacturing Inc.'s December 31, 2006 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding. During 2007, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/07, assuming that Hunter neither issued nor retired any common stock during 2007? a. $20.90 b. $22.00 c. $23.10 d. $24.26 e. $25.47 (3.3) Income statement: EBIT Register to View AnswerEASY . Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT? a. $3,462 b. $3,644 c. $3,836 d. $4,038 e. $4,250 (3.3) Income statement: taxable income Register to View AnswerEASY . Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's taxable income, or earnings before taxes (EBT)? a. $3,230.00 b. $3,400.00 c. $3,570.00 d. $3,748.50 e. $3,935.93 (3.5) Net cash flow Register to View AnswerEASY . JBS Inc. recently reported net income of $4,750 and depreciation of $885. How much was its net cash flow, assuming it had no amortization expense and sold none of its fixed assets. a. $4,831.31 b. $5,085.59 c. $5,353.25 d. $5,635.00 e. $5,916.75 (3.7) Net operating working capital Register to View AnswerEASY . Swinnerton Clothing Company's balance sheet showed total current assets of $2,250, all of which were required in operations. Its current liabilities consisted of $575 of accounts payable, $300 of 6% short-term notes payable to the bank, and $145 of accrued wages and taxes. What was its net operating working capital that was financed by investors? a. $1,454 b. $1,530 c. $1,607 d. $1,687 e. $1,771 (3.8) MVA Register to View AnswerEASY . Over the years, Janjigian Corporation's stockholders have provided $15,250 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the firm's earnings. The firm now has 1,000 shares of common stock outstanding, and it sells at a price of $42.00 per share. How much value has Janjigian's management added to stockholder wealth over the years, i.e., what is Janjigian's MVA? a. $21,788 b. $22,935 c. $24,142 d. $25,413 e. $26,750 Easy/Medium: (3.3) Income statement: net after-tax income Register to View AnswerEASY/MEDIUM . Meric Mining Inc. recently reported $15,000 of sales, $7,500 of operating costs other than depreciation, and $1,200 of depreciation. The company had no amortization charges, it had outstanding $6,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm's net income after taxes? Meric uses the same depreciation expense for tax and stockholder reporting purposes. a. $3,284.55 b. $3,457.42 c. $3,639.39 d. $3,830.94 e. $4,022.48 (3.4) Statement of retained earnings: dividends Register to View AnswerEASY/MEDIUM . On 12/31/07, Heaton Industries Inc. reported retained earnings of $675,000 on its balance sheet, and it reported that it had $172,500 of net income during the year. On its previous balance sheet, at 12/31/06, the company had reported $555,000 of retained earnings. No shares were repurchased during 2007. How much in dividends did Heaton pay during 2007? a. $47,381 b. $49,875 c. $52,500 d. $55,125 e. $57,881 (3.4) Statement of retained earnings: NI Register to View AnswerEASY/MEDIUM . During 2007, Bascom Bakery Inc. paid out $21,750 of common dividends. It ended the year with $187,500 of retained earnings versus the prior years retained earnings of $132,250. How much net income did the firm earn during the year? a. $77,000 b. $80,850 c. $84,893 d. $89,137 e. $93,594 (3.7) Total operating capital Register to View AnswerEASY/MEDIUM . NNR Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets. All of these assets were required in operations. The firm's current liabilities consisted of $475,000 of accounts payable, $375,000 of 6% short-term notes payable to the bank, and $150,000 of accrued wages and taxes. Its remaining capital consisted of long-term debt and common equity. What was NNR's total investor-provided operating capital? a. $4,694,128 b. $4,941,188 c. $5,201,250 d. $5,475,000 e. $5,748,750 Medium: (3.3) Income statement: change in net income Register to View AnswerMEDIUM . Last year Tiemann Technologies reported $10,500 of sales, $6,250 of operating costs other than depreciation, and $1,300 of depreciation. The company had no amortization charges, it had $5,000 of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $750. By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes. a. -463.13 b. -487.50 c. -511.88 d. -537.47 e. -564.34 (3.7) Free cash flow Register to View AnswerMEDIUM . TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the justcompleted year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year? a. $383 b. $425 c. $468 d. $514 e. $566 (3.7) Net operating working capital Register to View AnswerMEDIUM . Rao Corporation has the following balance sheet. How much net operating working capital does the firm have? Cash $ 10 Accounts payable $ 20 Short-term investments Accruals 20 Accounts receivable 50 Notes payable 50 Inventory 40 Current liabilities $ 90 Current assets $130 Long-term debt 0 Net fixed assets 100 Common equity 30 Retained earnings 50 Total assets $230 Total liab. & equity $230 a. $54.00 b. $60.00 c. $66.00 d. $72.60 e. $79.86 (3.7) Net operating profit after taxes (NOPAT) Register to View AnswerMEDIUM . Bae Inc. has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have? Sales $2,000.00 Costs 1,200.00 Depreciation 100.00 EBIT $ 700.00 Interest expense 200.00 EBT $ 500.00 Taxes (35%) 175.00 Net income $ 325.00 a. $370.60 b. $390.11 c. $410.64 d. $432.25 e. $455.00 (3.7) Net operating profit after (NOPAT) Answer: taxes c MEDIUM . EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have? Sales $1,800.00 Costs 1,400.00 Depreciation 250.00 EBIT $ 150.00 Interest expense 70.00 EBT $ 80.00 Taxes (40%) 32.00 Net income $ 48.00 a. $81.23 b. $85.50 c. $90.00 d. $94.50 e. $99.23 (3.7) Return on invested capital (ROIC) Register to View AnswerMEDIUM . Tibbs Inc. had the following data for the year ending 12/31/06: Net income = $300; Net operating profit after taxes (NOPAT) = $400; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,300. What was its return on invested capital (ROIC)? a. 14.91% b. 15.70% c. 16.52% d. 17.39% e. 18.26% (3.7) Total operating capital Register to View AnswerMEDIUM . Zumbahlen Inc. has the following balance sheet. How much total operating capital does the firm have? Cash $ 20.00 Accounts payable $ 30.00 Short-term investments 50.00 Accruals 50.00 Accounts receivable 20.00 Notes payable 30.00 Inventory 60.00 Current liabilities $110.00 Current assets $150.00 Long-term debt 70.00 Gross fixed assets $140.00 Common stock 30.00 Accumulated deprec. 40.00 Retained earnings 40.00 Net fixed assets $100.00 Total common equity $ 70.00 Total assets $250.00 Total liab. & equity $250.00 a. $114.00 b. $120.00 c. $126.00 d. $132.30 e. $138.92 (3.8) Economic Value Added (EVA) Register to View AnswerMEDIUM . Barnes Brothers has the following data for the year ending 12/31/07: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100. Barnes' weighted average cost of capital is 10%. What is its economic value added (EVA)? a. $399.11 b. $420.11 c. $442.23 d. $465.50 e. $490.00 (Comp: 3.3,3.5) Income statement: net cash flow Register to View AnswerMEDIUM . Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow? a. $3,284.75 b. $3,457.63 c. $3,639.61 d. $3,831.17 e. $4,032.81 (Comp: 3.3,3.7) Income statement: free cash flow Register to View AnswerMEDIUM . Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Wells generate? a. $1,770.00 b. $1,858.50 c. $1,951.43 d. $2,049.00 e. $2,151.45 Hard: (3.8) EVA Register to View AnswerHARD . HHH Inc. reported $12,500 of sales and $7,025 of operating costs (including depreciation). The company had $18,750 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 9.5%, and the federal-plus-state income tax rate was 40%. What was HHH's Economic Value Added (EVA), i.e., how much value did management add to stockholders' wealth during the year? a. $1,357.13 b. $1,428.56 c. $1,503.75 d. $1,578.94 e. $1,657.88 (Comp: 3.3,3.7) Changes in net income and NCF Register to View AnswerHARD . Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $725. By how much will the depreciation change cause the firm's net after-tax income and its net cash flow to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes. a. -$383.84; $206.68 b. -$404.04; $217.56 c. -$425.30; $229.01 d. -$447.69; $241.06 e. -$471.25; $253.75 . (Comp: 3.3,3.7) Income stmt: FCF vs. net income Register to View AnswerHARD Bartling Energy Systems recently reported $9,250 of sales, $5,750 of operating costs other than depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow? a. $673.27 b. $708.70 c. $746.00 d. $783.30 e. $822.47 CHAPTER 3 ANSWERS AND SOLUTIONS CHAPTER 1 AN OVERVIEW OF FINANCIAL MANAGEMENT AND THE FINANCIAL ENVIRONMENT True/False Easy: 1. (1.2) Firm organization Register to View AnswerEASY The form of organization for a business is not an important issue, as this decision has very little effect on the income and wealth of the firm's owners. a. b. True False 2. (1.2) Firm organization Register to View AnswerEASY The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not. a. b. True False 3. (1.2) Partnership Register to View AnswerEASY There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size. a. b. True False 4. (1.2) Proprietorship Register to View AnswerEASY Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts. a. b. True False 5. (1.2) Limited liability Register to View AnswerEASY One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value. a. b. True False Chapter 1: Overview True/False Page 1 6. (1.3) Value maximization Register to View AnswerEASY If a firm's goal is to maximize its earnings per share, this is the best way to maximize the price of the common stock and thus shareholders' wealth. a. b. True False 7. (1.4) Financial intermediaries Register to View AnswerEASY If Firm A's business is to obtain savings from individuals and then invest them in financial assets issued by other firms or individuals, Firm A is a financial intermediary. a. b. True False 8. (1.7) Financial markets Register to View AnswerEASY If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction. a. b. True False 9. (1.7) Financial markets Register to View AnswerEASY Recently, Hale Corporation announced the sale of 2.5 million newly issued shares of its stock at a price of $21 per share. Hale sold the stock to an investment banker, who in turn sold it to individual and institutional investors. This is a primary market transaction. a. b. True False 10. (1.10) Stock market transactions Register to View AnswerEASY One of the functions of NYSE specialists is to facilitate trading by keeping an inventory of shares of the stocks in which they specialize, buying when investors want to sell and selling when they want to buy. They change the bid and ask prices of the securities so as to keep supply and demand in balance. a. b. True False Page 2 True/False Chapter 1: Overview Medium: 11. (1.2) Partnership Register to View AnswerMEDIUM The disadvantages associated with a proprietorship are similar to those under a partnership. One exception relates to the more formal nature of the partnership agreement and the commitment of all partners' personal assets. As a result, partnerships do not have difficulty raising large amounts of capital. a. b. True False 12. (1.2) Proprietorship Register to View AnswerMEDIUM The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business. a. b. True False Multiple Choice: Conceptual Easy: 13. (1.2) Firm organization Which of the following statements is CORRECT? a. b. c. d. e. Register to View AnswerEASY One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. Sole proprietorships are subject to more regulations than corporations. In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. Corporations of all types are subject to the corporate income tax. Register to View AnswerEASY 14. (1.2) Firm organization Which of the following statements is CORRECT? a. b. c. d. e. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer ones ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., one person, one vote. Corporations of all types are subject to the corporate income tax. Conceptual Questions Page 3 Chapter 1: Overview 15. (1.2) Firm organization Which of the following statements is CORRECT? a. b. c. d. e. Register to View AnswerEASY It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. Corporations face fewer regulations than sole proprietorships. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 16. (1.2) Firm organization Register to View AnswerEASY Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT? a. b. c. d. e. Assuming Cheers is profitable, less of its income will be subject to federal income taxes. Cheers will now be subject to fewer regulations. Cheers shareholders (the ex-partners) will now be exposed to less liability. Cheers investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. Cheers will find it more difficult to raise additional capital. Register to View AnswerEASY 17. (1.2) Firm organization Which of the following statements is CORRECT? a. b. c. d. e. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. Corporate shareholders are exposed to unlimited liability. Corporations generally face fewer regulations than sole proprietorships. Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation. There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small. Page 4 Conceptual Questions Chapter 1: Overview 18. (1.2) Corporate form of organization Register to View AnswerEASY Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? a. b. c. d. e. Corporations generally find it relatively difficult to raise large amounts of capital. Less of a corporations income is generally subjected to taxes than would be true if the firm were a partnership. Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization. Corporate investors are exposed to unlimited liability. Corporations generally face relatively few regulations. 19. (1.4) Financial transactions Register to View AnswerEASY You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction? a. b. c. d. e. This This This This This is is is is is an an an an an example example example example example of of of of of an exchange of physical assets. a primary market transaction. a direct transfer of capital. a money market transaction. a derivatives market transaction. Register to View AnswerEASY 20. (1.5) Interest rates Which of the following statements is CORRECT? a. b. c. d. e. If expected inflation increases, interest rates are likely to increase. If individuals in general increase the percentage of their income that they save, interest rates are likely to increase. If companies have fewer good investment opportunities, interest rates are likely to increase. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. Chapter 1: Overview Conceptual Questions Page 5 21. (1.6) Hedge funds Which of the following statements is CORRECT? a. b. c. d. e. Register to View AnswerEASY Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States. Hedge funds have more in common with commercial banks than with any other type of financial institution. Hedge funds have more in common with investment banks than with any other type of financial institution. Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia. The justification for the "light" regulation of hedge funds is that only sophisticated investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary due diligence on their own rather than have it done by the SEC or some other regulator. Register to View AnswerEASY 22. (1.7) Money markets Money markets are markets for a. b. c. d. e. Foreign stocks. Consumer automobile loans. U.S. stocks. Short-term debt securities. Long-term bonds. 23. (1.7) Financial markets Which of the following is a primary market transaction? a. b. c. d. e. Register to View AnswerEASY You sell 200 shares of IBM stock on the NYSE through your broker. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction. You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of IBM shares on the NYSE. Register to View AnswerEASY 24. (1.7) Financial markets Which of the following statements is CORRECT? a. b. c. d. e. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. If you purchased 100 shares of Disney stock from your brother-inlaw, this would be an example of a primary market transaction. The IPO market is a subset of the secondary market. Only institutions, and not individuals, can participate in derivatives market transactions. As they are generally defined, money market transactions involve debt securities with maturities of less than one year. Page 6 Conceptual Questions Chapter 1: Overview 25. (1.7) Financial markets Register to View AnswerEASY You recently sold to your brother 200 shares of Disney stock, and the transfer was made through a broker, and the trade occurred on the NYSE. This is an example of: a. b. c. d. e. A futures market transaction. A primary market transaction. A secondary market transaction. A money market transaction. An over-thecounter market transaction. Register to View AnswerEASY 26. (Comp: 1.6-1.8) Financial markets Which of the following statements is CORRECT? a. b. c. d. e. The New York Stock Exchange is an auction market with a physical location. Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks. If an investor sells shares of stock through a broker, then this would be a primary market transaction. Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market. While the distinctions are blurring as investment banks are today buying commercial banks, and vice versa, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. Register to View AnswerEASY 27. (Comp: 1.6-1.8) Financial markets Which of the following statements is CORRECT? a. b. c. d. e. Capital market instruments include both long-term debt and common stocks. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift. The NYSE does not exist as a physical location; rather, it represents a loose collection of dealers who trade stocks electronically. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors. Chapter 1: Overview Conceptual Questions Page 7 28. (Comp: 1.6-1.8) Financial markets Which of the following statements is CORRECT? a. b. c. d. e. Register to View AnswerEASY While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. A liquid security is a security whose value is derived from the price of some other underlying asset. Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks. Money markets are markets for long-term debt and common stocks. The NYSE operates as an auction market, whereas the Nasdaq is a dealer market. Medium: 29. (1.2) Corporate form of organization Register to View AnswerMEDIUM One drawback of switching from a partnership to the corporate form of organization is the following: a. b. c. d. e. It subjects the firm to additional regulations. It cannot affect the amount of the firm's operating income that goes to taxes. It makes it more difficult for the firm to raise additional capital. It makes the firms investors subject to greater potential personal liabilities. It makes it more difficult for the firms investors to transfer their ownership interests. Register to View AnswerMEDIUM 30. (1.2) Corporate form of organization Which of the following statements is CORRECT? a. b. c. d. e. A hostile takeover is the main method of transferring ownership interest in a corporation. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization. A corporation is a legal entity that is generally created by a state, and it has a life and existence that is separate from the lives of its individual owners and managers. Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization. Although its stockholders are insulated by limited legal liability, the legal status of the corporation does not protect the firms managers in the same way, i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions. Page 8 Conceptual Questions Chapter 1: Overview 31. (1.2) Partnership form of organization Which of the following statements is CORRECT? a. b. Register to View AnswerMEDIUM c. d. e. In a regular partnership, liability for other partners misdeeds is limited to the amount of a particular partners investment in the business. Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests. A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company. In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business. Also, the limited partners are individually responsible, on a pro rata basis, for the firms debts in the event of bankruptcy. A major disadvantage of all partnerships relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself. Register to View AnswerMEDIUM 32. (1.2) Partnership form of organization Which of the following statements is CORRECT? a. b. c. d. e. Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned. In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business. A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company. Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership. A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation. Chapter 1: Overview Conceptual Questions Page 9 33. (1.2) Firm organization Which of the following statements is CORRECT? a. Register to View AnswerMEDIUM b. c. d. e. Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate in one of these forms rather than as a corporation. However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships. Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations. Due to legal considerations related to ownership transfers and limited liability, most business (measured by dollar sales) is conducted by corporations in spite of large corporations often less favorable tax treatment. Large corporations are taxed more favorably than sole proprietorships. Corporate stockholders are exposed to unlimited liability. 34. (1.2) Firm organization Register to View AnswerMEDIUM Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field. She will be the sole owner, and she has enough funds to finance the operation. The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years. However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established. Which of the legal forms of business organization would probably best suit her needs? a. b. c. d. e. Proprietorship, because of ease of entry. S corporation, to gain some tax advantages and also to obtain limited liability. Partnership, but only if she needs additional capital. Regular corporation, because of the limited liability. In this situation, the various forms of organization seem equally desirable. Page 10 Conceptual Questions Chapter 1: Overview 35. (1.2) Corporate charter and bylaws Which of the following statements is CORRECT? a. Register to View AnswerMEDIUM b. c. d. e. The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations in the state, and their purpose is to ensure that the firms managers run the firm in accordance with state laws. The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firms managers run the firm in accordance with state laws. Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter. Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted. Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws. The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors. 36. (1.3) Business ethics Register to View AnswerMEDIUM With which of the following statements would most people in business agree? a. b. c. A corporations short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation. Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. Although peoples moral characters are probably developed before they get into a business school, it is still useful for business schools to cover ethics, including giving students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation. It is not useful for a large corporation to develop a formal set of rules defining ethical and unethical behavior. Such rules generally can't be applied in many specific instances, so it is better to deal with ethical issues on a caseby-case basis. Whistle blowers, because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees. d. e. Chapter 1: Overview Conceptual Questions Page 11 37. (1.3) Goal of firm Register to View AnswerMEDIUM The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to a. b. c. d. e. Maximize the stock price per share over the long run, which is the stocks intrinsic value. Maximize the firm's expected EPS. Minimize the chances of losses. Maximize the firm's expected total income. Maximize the stock price on a specific target date. Register to View AnswerMEDIUM 38. (1.3) Corporate goals and control Which of the following statements is CORRECT? a. b. c. d. e. The proper goal of the financial manager should be to attempt to maximize the firms expected cash flows, because this will add the most to the wealth of the individual shareholders. The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year. The riskiness inherent in a firms earnings per share (EPS) depends on the characteristics of the projects the firm selects, and thus on the firms assets. However, EPS is not affected by the manner in which those assets are financed. Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favorable to themselves rather than the stockholders. Large, publicly-owned firms like AT&T and GM are controlled by their management teams. Ownership is generally widely dispersed, hence managers have great freedom in how they manage the firm. Managers may operate in stockholders best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there is no way to either force or motivate them to act in the stockholders best interests. 39. (1.5) Security prices and interest rates Register to View AnswerMEDIUM Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates? a. b. c. d. e. Prices and interest rates would both rise. Prices would rise and interest rates would decline. Prices and interest rates would both decline. There would be no changes in either prices or interest rates. Prices would decline and interest rates would rise. Page 12 Conceptual Questions Chapter 1: Overview 40. (1.5) Interest rates Register to View AnswerMEDIUM Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy? a. b. c. d. e. Households start saving a larger percentage of their income. The economy moves from a boom to a recession. The level of inflation begins to decline. Corporations step up their expansion plans and thus increase their demand for capital. The Federal Reserve uses monetary policy in an attempt to stimulate the economy. 41. (1.5) Interest rates Register to View AnswerMEDIUM Which of the following factors would be most likely to lead to an increase in interest rates in the economy? a. b. c. d. e. Households reduce their consumption and increase their savings. The Federal Reserve decides to try to stimulate the economy. There is a decrease in expected inflation. The economy falls into a recession. Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. Register to View AnswerMEDIUM 42. (Comp: 1.7,1.8,1.10) Financial transactions Which of the following statements is CORRECT? a. b. c. d. e. If General Electric were to issue new stock this year it would be considered a secondary market transaction since the company already has stock outstanding. Capital market transactions only include preferred stock and common stock transactions. The distinguishing feature between spot markets versus futures markets transactions is the maturity of the investments. That is, spot market transactions involve securities that have maturities of less than one year, whereas futures markets transactions involve securities with maturities greater than one year. Both Nasdaq "dealers" and NYSE specialists hold inventories of stocks. An electronic communications network (ECN) is a physical location exchange. Chapter 1: Overview Conceptual Questions Page 13 43. (Comp: 1.2,1.3) Miscellaneous concepts Which of the following statements is CORRECT? a. Register to View AnswerMEDIUM b. c. d. e. Corporations generally are subject to fewer regulations and more favorable tax treatment than sole proprietorships and partnerships. This is why corporations do most of the business in the United States. Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers. One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm. Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations. Bond covenants are an effective way to resolve conflicts between shareholders and managers. Register to View AnswerMEDIUM 44. (Comp: 1.2,1.3) Miscellaneous concepts Which of the following statements is CORRECT? a. b. c. d. e. A good goal for a firms management is maximization of expected EPS. Most business in the U.S. is conducted by corporations, and corporations popularity results primarily from their favorable tax treatment. Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. The potential exists for agency conflicts between stockholders and managers. Page 14 Conceptual Questions Chapter 1: Overview 45. (Comp: 1.2,1.3) Miscellaneous concepts Which of the following statements is CORRECT? a. b. c. d. e. Register to View AnswerMEDIUM One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of new asset investments a firm makes. Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. Relative to sole proprietorships, corporations generally face fewer regulations, and this makes it easier for corporations to raise capital. Medium/Hard: 46. (1.7) Ownership and going public Register to View AnswerWhich of the following statements is NOT CORRECT? a. b. c. d. e. MEDIUM/HARD When a corporations shares are owned by a few individuals and are not traded on public markets, we say that the firm is closely, or privately, held." Going public establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firms shares. When stock in a closely held corporation is offered to the public for the first time, the transaction is called going public, and the market for such stock is called the new issue market. Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC. It is possible for a firm to go public and yet not raise any additional new capital at the time. Chapter 1: Overview Conceptual Questions Page 15 CHAPTER 1 ANSWERS AND SOLUTIONS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. (1.2) Firm organization (1.2) Firm organization (1.2) Partnership (1.2) Proprietorship (1.2) Limited liability (1.3) Value maximization (1.4) Financial intermediaries (1.7) Financial markets (1.7) Financial markets (1.10) Stock market transactions (1.2) Partnership (1.2) Proprietorship (1.2) Firm organization Register to View AnswerRegister to View AnswerRegister to View AnswerAnswer a Register to View AnswerRegister to View AnswerAnswer a Register to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerEASY EASY EASY EASY EASY EASY EASY EASY EASY EASY MEDIUM MEDIUM EASY Sole proprietorships and partnerships pay personal income tax, but they avoid the corporate income tax. Small corporations that meet certain requirements can elect to be classified as S Corporations, and then the business is taxed as a partnership. 14. 15. (1.2) Firm organization (1.2) Firm organization Register to View AnswerRegister to View AnswerEASY EASY Corporations have limited liability; however, they face more regulations than the other forms of organization. 16. 17. (1.2) Firm organization (1.2) Firm organization Register to View AnswerRegister to View AnswerEASY EASY If ownership in a proprietorship or partnership is transferred, the basic documents under which the firm operates must be rewritten, whereas for a corporation the seller simply sells shares to a buyer, and the corporation records the transfer on its books. 18. 19. 20. (1.2) Corporate form of organization (1.4) Financial transactions (1.5) Interest rates Answers Register to View AnswerRegister to View AnswerRegister to View AnswerEASY EASY EASY Page 16 Chapter 1: Overview 21. 22. 23. (1.6) Hedge funds (1.7) Money markets (1.7) Financial markets Register to View AnswerRegister to View AnswerRegister to View AnswerEASY EASY EASY Statement b is a primary market transaction, since the money and the security pass directly between the issuing firm and the investor. 24. 25. (1.7) Financial markets (1.7) Financial markets Register to View AnswerRegister to View AnswerEASY EASY It is a secondary market transaction because the stock is transferred from one investor to another. 26. 27. 28. 29. 30. 31. 32. 33. 34. (Comp: 1.6-1.8) Financial markets (Comp: 1.6-1.8) Financial markets (Comp: 1.6-1.8) Financial markets Register to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerEASY EASY EASY MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM (1.2) Corporate form of organization (1.2) Corporate form of organization (1.2) Partnership form of organization (1.2) Partnership form of organization (1.2) Firm organization (1.2) Firm organization The S corporation would allow her to take early losses as deductions against her other income, hence save some taxes. Then, when the firm became profitable, she would receive dividends and pay taxes on them, but the firm itself would avoid corporate taxes and double taxation. 35. 36. (1.2) Corporate charter and bylaws (1.3) Business ethics Register to View AnswerRegister to View AnswerMEDIUM MEDIUM It is important to have a specific set of rules that all employees are expected to follow. This helps constrain actions, and it is also important to "prove" that the company is trying to do right if some employee does something wrong. 37. 38. 39. 40. (1.3) Goal of firm (1.3) Corporate goals and control (1.5) Security prices and interest rates (1.5) Interest rates Register to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerMEDIUM MEDIUM MEDIUM MEDIUM Chapter 1: Overview Answers Page 17 41. (1.5) Interest rates Register to View AnswerMEDIUM An increase in the demand for capital by businesses will increase interest rates in the economy. 42. 43. 44. 45. 46. (Comp: 1.7,1.8,1.10) Financial transactions (Comp: 1.2,1.3) Miscellaneous concepts (Comp: 1.2,1.3) Miscellaneous concepts (Comp: 1.2,1.3) Miscellaneous concepts (1.7) Ownership and going public Register to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerRegister to View AnswerMEDIUM MEDIUM MEDIUM MEDIUM MEDIUM/HARD Page 18 Answers Chapter 1: Overview

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Keller Graduate School of Management - FI - 515
CHAPTER 12 CAPITAL BUDGETING:DECISION CRITERIA(Difficulty: E = Easy, M = Medium, and T = Tough)True-False Easy:Capital budget Answer: b Diff: E 1. A firm should never undertake an investment if acceptingthe project would cause an increase in the firm
Keller Graduate School of Management - FI - 515
5-1a.A bond is a promissory note issued by a business or a governmental unit.Treasury bonds, sometimes referred to as government bonds, are issued by the Federal governmentand are not exposed to default risk.Corporate bonds are issued by corporations
Keller Graduate School of Management - FI - 515
Grade Details 1. Question:Which of the following statements is incorrect?Your Answer:A. Assuming a project has normal cash flows, the NPV will beCORRECTpositive if the IRR is less than than the cost of capital.B. If the muliple IRR problem does not
Keller Graduate School of Management - FI - 515
Week 2: Financial Statements, Cash flows, Taxes and Risk - SelfQuizHelpScript for displaying headers.Script to run spell checker.1. Other things held constant, which of the following actions would increase the amount of cashon a company's balance s
Keller Graduate School of Management - FI - 515
1. You work for Athens Inc., and you must estimate the Year 1 operating cash flow for a projectwith the following data. What is the Year 1 operating cash flow?Sales revenues$15,000Depreciation$4,000Other operating costs$6,000Tax rate35%(Points:
Albion College - MATHEMATIC - 1001
Shape & SpaceGCSE Maths TutorAngleswww.gcsemathstutor.comtopic notesinfo@gcsemathstutor.comThe parts of angles and how angles are namedThe names of anglesAngles around a point add up to 360 degrees.GCSE Maths Tutorwww.gcsemathstutor.cominfo@gcs
Waterloo - BIOL - 140
B IOL 140 Complete NotesModule 1: IntroductionLecture 1 MaterialWhy Study Microbiology? Firstly, what is microbiology? How old is this field? And what did this study give rise to?o It is the science of microorganisms (organisms that are very small an
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The Fourth Amendment, Terrorism and Cyber Crime.After the September 11 attacks on the World Trade Centers, the American governmenthas been in a quandary about how to gather intelligence from suspected terroristindividuals and groups located with the Un
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Effects of PunishmentPUNISHMENT AND SENTENCINGEffects of Punishment and Sentencing1Effects of Punishment2Effects of Punishment and SentencingIn the United States, many have challenged the court systems way of handing downsentences and punishments
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The purpose of jails in todays society is a great source of debate for the politicalpowers that be. Prisons are designed primarily to incarcerate those inmates who commitfelonies that carry a lengthy sentence. Jails however, are used to detain those off
University of Phoenix - CJS - 200
The Prison SystemPRISON SYSTEMS TODAYThe Prison System Today1The Prison System2The Prison System TodayAs long as man has been able to produce goods, and exchange money for those goods,there has been crime. If one man has something that the other m
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UC Davis - CHEM - 2A
2A Online LabsLab access is available for students starting at 12:00 am (midnight) on June 15th.The direct link for students which can also be added to SmartSite ishttp:/chemelements.ucdavis.edu/CHE2A/SSI2011/Login/caslogin.cfmThe following are due fo
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Motivation and Work Related RewardsComplete the following three exercises.1. Motivation: Describe three times in your life that you were highly motivated andidentify the factors that contributed to these feelings of high motivation. Now, describethree
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MusicThe Importance of MusicCOM 159, Basic Presentation SkillsTammie Hertel, InstructorSylvia DeSormeauApril 14, 20111Music2When we think of basic human functions, we often forget to include art and music. Thearts need us as much as we need the
University of Phoenix - IT - 330
ERPERPIT-330-6993-Emerging TechnologiesSylvia DeSormeauJanuary 18, 20101ERP2Enterprise Resource Planning, ERP, is yet another of those three-letter acronyms thathave become so common. The best way to describe an ERP system in a simple way would b
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Presidium1Security, Privacy, and EthicsIT 330 Emerging TechnologiesTom Stinson, InstructorSylvia DeSormeauFebruary 8, 2011Presidium2The company I work for was called Presidium Inc. Presidium is an education servicesmanagement company and partner t
University of Phoenix - IT - 330
Technology1Technology Adoption and DeploymentIT 330 Emerging TechnologiesTom Stinson, InstructorSylvia DeSormeauFebruary 3, 2011Technology2In order for businesses to be successful, there must be growth. If a business isineffective, there will not
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TheFutureofTechnology1The Future of Technology: Cell PhonesIT 330 Emerging TechnologiesTom Stinson, InstructorSylvia DeSormeauFebruary 21, 2011TheFutureofTechnology2Cell phone technology has evolved greatly over the years. Where at one timeeveryon
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The following data (in thousands of dollars) have been taken from the accounting records ofKarlana Corporation for the just-completed year.Sales $910Raw materials, inventory, beginning $80Raw materials, inventory, ending $20Purchases of raw materials
UCSD - MAE - 130A
3 in.80 N15 in.B4.94 Two transmission belts pass over sheaves welded to an axle supported4.94 Two transmission belts pass over sheaves welded to an axle supportedFig. P4.65A8.iesCby bearings at B and D. The sheave at A has a radius of 2.5 in.,
CUNY Hunter - EARTH SCIE - 334
Chapter 2: The Earths Mobile CrustContinental Drift-Plate Tectonics continents had once been together Alfred Wegener 1920s Rejected (gravity Earth, Moon, Sun)Plate Tectonics The Earths interior Plate Boundaries Continental Margins Tectonic Classificatio
CUNY Hunter - EARTH SCIE - 334
Chapter 3: Sediments and Rocks: materials of coastal environmentsRock Types Sediment Properties Relevance to coastal dynamics and coastal processes Igneous:Rock TypesComprise most of the crust Formed from magma within the mantle Silicate minerals (cati
CUNY Hunter - EARTH SCIE - 334
Chapter 4: Sea Level ChangesTectonic Causes Climatic Causes Sediment Compaction & Fluid Withdrawal Isostasy Changes in Ocean Volume Current and Projected Sea Level ChangesTectonic Sea Level Change: Changing size and shape of container Local & Regional C
CUNY Hunter - EARTH SCIE - 334
Chapter 5: Weather SystemsNorwegian Cyclone Model: Polar Front Theory Mid Latitude Cyclones: extratropical cyclones, Noreasters Hurricanes Storm SurgeMid-latitude Cyclone: -primary weather producers -low pressure systems, 1000 km dia. -counterclockwise
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Chapter 6: WavesCoastal Geomorphology & Coastal Dynamics Spring 2007 Field Trip Schedule MontaukWave properties, propagation, particle motion Types of Waves Distribution & Transfer of Energy Tsunamis, Standing Waves Wave Generated CurrentsSaturday Marc
CUNY Hunter - EARTH SCIE - 334
Chapter 7: Beaches & Nearshore EnvironmentGeneral beach-nearshore profile Basic Beach Types and Sediments Seasonal Beach Cycles Predicting Erosion and AccretionGeneral Beach-Nearshore Profile Beach-General Beach-Nearshore Profile Beach-General Beach-N
CUNY Hunter - EARTH SCIE - 334
Chapter 8: Barrier Systems General Description of Morphology Distribution & Coastal Setting Barrier Types Evolution (Prograding, Retrograding, or Aggrading) Barrier Stratigraphy LI Barrier SystemPhysical Description Wave built accumulations of sand Waves
CUNY Hunter - EARTH SCIE - 334
Coastal DunesBasic Terminology of Dune Morphology Formation Restoration and artificial stabilization Example Dune CoastsWind Deposition Coasts - Dunes a. Sand dunes are common features along sandy coastlines around the world b. The only climatic zone la
CUNY Hunter - EARTH SCIE - 334
The TidesTide-Generating Forces Equilibrium Tidal Theory Dynamic Tidal Theory Analysis of Tidal Signaltide - rhythmic oscillation of the ocean surface due to gravitational & centrifugal forces between the Earth, Moon and Sun. tidal cycle one low tide an
CUNY Hunter - EARTH SCIE - 334
Chapter 12: Tidal InletsBasic Morphology Distribution Formation Sand Transport Influence on Barrier Island Inlet RelationshipsInlet: conduit through which there is a direct exchange between ocean and bay waterTidal InletsTidal Inlet: the depth of the
CUNY Hunter - EARTH SCIE - 334
Chapter 14: Coastal WetlandsCoastal Wetland: vegetated intertidal environmentWetlandsSalt Marshes Mangroves Vegetation Distribution Classification Global Climate ChangeLow energy environmentsWhy Study Coastal WetlandsCoastal wetlands currently make
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Chapter 17: Glaciated CoastsGlaciers: formation, movement, types Pleistocene Glaciation: Effects on Coastlines: Examples: Cape Cod, LIGlaciersLocated on most continents Occur as narrow ribbons of flowing ice in high mountain regions Occur as thick ice
CUNY Hunter - EARTH SCIE - 180
GEOL 180 - Winter 2008 Syllabus Introduction to Oceanography Instructor: Email: Phone Office hours: Lecture hours: Frank Buonaiuto fbuonaiu@hunter.cuny.edu (212) 650-3092 Rm 1049 HN Mon, Wed 4:45 - 5:45 pm Rm 511 HW Mon - Thu 1:00 - 4:45 pmRequired Text:
CUNY Hunter - EARTH SCIE - 180
Chapter 2 OriginsFormation of Universe, Solar System and Earth Creation of OceansOrigin of a Galaxy1Huge rotating aggregation of stars, dust, gas and other debris held together by 4 gravity.Formation of the UniverseBig Bang, 13*109 years ago Formati
CUNY Hunter - EARTH SCIE - 180
Chapter 3 Earth StructureGeologic Structure of Earth - The interior of the Earth is layered. Concentric layers: crust, mantle, liquid outer core and solid inner core. Evidence (indirect) for this structure comes from studies of Earths dimensions, density
CUNY Hunter - EARTH SCIE - 180
Chapter 4 Continental Margins and Ocean Basins Bathymetry of Sea Floor Continental Margins and Ocean Basins Submarine Canyons Hydrothermal Vents TrenchesBathymetry: a map of the ocean floorEarly bathymetric studies were often performed using a weighted
CUNY Hunter - EARTH SCIE - 180
Chapter 5 - Sediments Distribution of sediments on the seafloor Seabed ResourcesStudy of Sediments is important to oceanography because:1. Sediments and volcanism are the most important agents of physical change on the deep-ocean floor 2. Study of sed
CUNY Hunter - EARTH SCIE - 180
Chapter 6 Water and Ocean StructureSome basic concepts: Compounds substances that contain two or more different elements in fixed proportions Element a substance composed of identical particles that cannot be chemically broken down into simpler substance
CUNY Hunter - EARTH SCIE - 180
Chapter 7 Ocean ChemistryAbout solutions and mixtures A solution is made of two components, with uniform (meaning `the same everywhere') molecular properties: The solvent, which is usually a liquid, and is the more abundant component. The solute, often a
CUNY Hunter - EARTH SCIE - 180
Chapter 8 Circulation of the AtmosphereSolar Radiation - initial source of energy to the Earth. It can be absorbed, reflected and reradiated. The redistribution of this energy controls the structure and dynamics of the Atmosphere and Oceans.The Atmosphe
CUNY Hunter - EARTH SCIE - 180
Chapter 9 Circulation of the OceanSurface Currents Are Driven by the WindsA combination of four forces surface winds, the sun's heat, the Coriolis effect, and gravity circulates the ocean surface clockwise in the Northern Hemisphere and counterclockwise
CUNY Hunter - EARTH SCIE - 180
Capillary Waves, Wind Waves,Anatomy of a Wavemore like a real waveChapter 10 WavesTsunamis, Internal wavesbig waves huge waves rogue waves small wavesmore like a sine waveWave direction Wavewave energy NOT the water particles moves across the surf
CUNY Hunter - EARTH SCIE - 180
CUNY Hunter - EARTH SCIE - 180
5/17/201112.1 Major Zones Coastal area: land edge that borders the sea Width variesChapter 12 Coasts, Beaches,and EstuariesGeographyClimateVegetationSocial customs and culture Shore: outer limit of wave action on the bottom to the limit ofthe w
CUNY Hunter - EARTH SCIE - 180
5/17/2011PlanktonandMaybeSomeMarinePlantsPlanktonCollectionMethodsDepend ontheOrganisms SizePlankton driftofswimweakly,unable tomoveconsistentlyagainstwavesorcurrentflowPlanktonisanartificialcategory;notbasedonevolutionaryrelationship butratheronash
CUNY Hunter - EARTH SCIE - 180
5/17/2011Chapter18:TheOceanandTheEnvironmentHumanImpactontheworldOcean:IntroductiontoMarineEnvironmental IssuesNaturalandManmade MarinePollutantsImpactofDisturbed HabitatsonOrganismsProsperityHumanActivityandGlobalOceanicChange17 data sets: shippin
CUNY Hunter - EARTH SCIE - 130
PGEOG 130 - Spring 2008 Syllabus Weather and Climate Instructor: Email: Phone Office hours: Lecture hours: Frank Buonaiuto fbuonaiu@hunter.cuny.edu (212) 650-3092 Rm 1049 N Tue & Thu, 7:00 - 8:00 pm Rm 0714 W Tue & Thu, 5:35 - 6:50 pmClimate = generaliza
CUNY Hunter - EARTH SCIE - 130
Chapter 2 Heating Earth's Surface and AtmosphereI. EarthSun Relationships A. Earth's 2 Principal Motions 1. Rotation 2. Revolution : spinning about the axis : orbit around the sunRevolution a. Perihelion b. Aphelion :earth closest to sun :earth farthest
CUNY Hunter - EARTH SCIE - 130
Chapter 3: TemperatureElements of WAC (Basic Measurable Properties) 1. Temperature of Air 2. Humidity of Air 3. Cloud Cover (type and amount) 4. Precipitation (type and amount) 5. Air Pressure 6. Wind Speed and DirectionI. Air Temperature Data Daily mea