WSU MBA 5300 Exam | Questions and Answers

WSU MBA 5300 Exam | Questions and Answers Businesses can be classified into the following forms: a proprietorship, a partnership, a corporation, a limited liability company (LLC), and a limited liability partnership ( ...

WSU MBA 5300 Exam | Questions and Answers Businesses can be classified into the following forms: a proprietorship, a partnership, a corporation, a limited liability company (LLC), and a limited liability partnership (LLP). Different forms of businesses have different characteristics. Which of the following characteristics would apply to a corporation? Check all that apply. Chartered by a state and is its own entity separate from its owners Owners have limited liability Has unlimited life Easier to transfer ownership in the form of stock Businesses can be classified into the following forms: a proprietorship, a partnership, a corporation, a limited liability company (LLC), and a limited liability partnership (LLP). Different forms of businesses have different characteristics. Which of the following characteristics would apply to a limited liability company and a limited liability partnership? Check all that apply. Have corporate ownership structure Owners have limited liability and right to vote Limited financial liability Taxed as a partnership Ryan started a tutoring website. After a few months, a publishing company filed a lawsuit against his company for copyright infringement. Ryan had to shut down his business and lost all his personal assets in the process. What type of business is this? Proprietorship Richard founded and operated a wedding planning agency, which specialized in celebrity weddings. When he died, his business was dissolved because there was no plan for control after his death. Proprietorship Purple consulting has 5 consultants in the firm. The company's annual revenue is around 500k. Income is distributed among all consultants and each is personally liable for claims if the company goes under. What type of business is this? Partnership Brandon and his friend Shirley run a carpet cleaning business. They distribute the profits proportionately and file their individual taxes. Partnership Caesar, the CEO of a beverage company, is required to certify the accuracy of information provided in the company's quarterly reports. Corporation Rock Inc. is a mineral mining company. The CEO of Rock Inc. recently died. The news led to a short-term decline in the company's stock price, but it bounced back after the company announced its quarterly earnings. Corporation Paradigm Media is a company run by a group of new media professionals. The owners of the company do not have any personal liability and file taxes based on individual income. Limited liability partnership/corporation Chris, Brandon, and Jose own an accounting firm in San Francisco. All share in the profits of the firm proportionately and file taxes at an individual level. According to their agreement, none of the owners will be held personally liable for the accounting firm's debt. Limited liability partnership/corporation A filing document, which includes rules made by the founders of a corporation like the directors election process, terms of the positions, stockholder rules, & procedures to amend the bylaws, etc. What is this document called? Corporate Bylaws Businesses in the form of corporations offer their owners several advantages, but the benefits come at a price. For instance, corporations are required to create a charter, set bylaws, and file mandatory reports with state and federal authorities, which can get expensive and time consuming. The filing document, which requires the company to state: (1) the name of the proposed corporation, (2) types of activities the company will be involved in, (3) amount of capital stock, (4) number of directors, and (5) names and addresses of the directors, is called the corporate ___. Charter The owners of a corporation are ___. The primary objective of the corporate management team is to ___ by ___ over the long run. the shareholders of the company maximize the shareholders' wealth maximizing the fundamental price of the company's common stock Wilson bought 225 shares of stock in Krit Corp. The stock price of Krit Corp. is currently trading at $30.00 per share. $6,750.00 225 x 30 = 6,750.00 The intrinsic value of a company's stock, or the stock's ___, refers to the stock's true value based on expected future cash flows and the risks involved. The value perceived by stock market investors determines the market price of a stock. fundamental value A stock trading at a price below its intrinsic value is considered to be ___. A stock trading at a price above its intrinsic value is considered to be ___. Undervalued; overvalued In a state of market equilibrium, the intrinsic value of the stock will be ___ the market price of the stock. Equal to An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $37.32 per share, but Mandalays Inc.'s stock is trading at $45.59 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently: Overvalued The primary objective of the corporate management team is to maximize shareholder wealth. The company's board of directors and the shareholders evaluate and review managerial actions based on the growth in the value of the firm. Based on your understanding of what determines a firm's value, review the following: What does the value of a firm depend on? Option A: The firm's ability to generate positive cash flows now and in the future Option B: The firm's past ability to generate positive cash flows When determining the value of a firm, which of the following statements is true? The timing of cash flows a firm can generate is irrelevant in determining the value of a firm. The timing of cash flows a firm can generate is very important in determining the value of a firm. All else being equal, cash received later is better. The timing of cash flows a firm can generate is very important in determining the value of a firm. All else being equal, cash received sooner is better. Managers strive to increase the value of a firm. An increase in the intrinsic value of the firm's stocks is a good measure of the increase in the value of the firm. Intrinsic value of a firm's stock price is determined by calculating the present values of its free cash flows (FCF) discounted at a rate called the weighted average cost of capital (WACC). Tyler is a team member in Corporate Finance at a digital-content production company. He is required to forecast the free cash flows that the company will be able to generate in the next three years. Tyler takes into account only the following equation in his calculation: FCF=Sales Revenues - Operating Costs - Operating Taxes Will his calculation be an appropriate estimate of the FCF? Why or why not? Check all that apply. No. Because his calculation fails to include the value of the debt that the firm carries on its balance sheet Because his calculation fails to include the costs of the firm's interest and dividend payments Because his calculation fails to include both the working capital and capital expenditures necessary to sustain the company's operations When determining the value of a firm, which of the following statements is true? Investors are risk averse. Other things being equal, they prefer to pay more for stocks that are less risky and that have relatively more certain cash flows than other stocks The ___ involves the transfer of capital among different entities that include individuals, small businesses, banks, financial intermediaries, companies, mutual funds, and other market participants. In a developed market economy, capital flows freely between entities that want to supply capital to those who want it. This flow of capital can be classified in three ways. capital allocation process Identify the capital transfer given in the scenario with its appropriate classification: ...... California Public Employees' Retirement System (CalPERS) manages pension and health benefits of California public employees and retirees. CalPERS collects money from its participants and creates a pool of assets. It manages these assets by making investments across domestic and international markets. Indirect Transfers through Financial Intermediaries Shylock, a moneylender in Shakespeare's play The Merchant of Venice, lends his own money to Antonio, who needs 3,000 ducats to help his friend. - W2 Corp. needs capital to finance a new product line. It borrows money in the form of long-term bonds underwritten by an investment bank. Indirect Transfers through Investment Banks Entrepreneurs often start businesses by seeking financial help from family and friends. Direct Transfers Financial instruments are assets that have a monetary value or record a monetary transaction. To coordinate the exchange of capital between borrowers and lenders, financial instruments trade in the financial markets. These financial instruments can be categorized on the basis of their issuers, maturity, risk, and other factors. Identify the financial instruments based on the following descriptions. in the following questions ___ typically have specified payments and a specified maturity. For example, an Alcoa bond might promise to pay 10% interest for 30 years, at which time it promises to make a $1,000 principal payment. If debt matures in more than a year, it is called a ___ Thus, the Alcoa bond in this example is a capital market security. Debt instruments capital market security. If the debt matures in less than a year, it is a ___. For example, Home Depot might expect to receive $300,000 in 75 days, but it needs cash now. Home Depot might issue commercial paper, which is essentially an IOU. In this example, Home Depot might agree to pay $300,000 in 75 days in exchange for $297,000 today. Thus, commercial paper is a money market security. money market security ___ are a claim upon a residual value. For example, Alcoa's stockholders are entitled to the cash flows generated by Alcoa after its bondholders, creditors, and other claimants have been satisfied. Equity instruments Backed by the U.S. government, these financial instruments are fixed-rate debt securities with a maturity of more than one year. They are considered default free but are subject to interest rate risk. U.S. Treasury notes and bonds. -Maturity>1 year -fixed-rate debt securities -considered default free -subject to interest rate risk Issued by a nonfinancial firm, these financial instruments are guaranteed by a bank. There is less risk involved because of bank backing. Bankers' acceptances These financial instruments are investment pools that buy such short-term debt instruments as Treasury bills (T-bills), certificates of deposit (CDs), and commercial paper. They can be easily liquidated. Money market mutual funds Issued by corporations, these financial instruments give their holders a class ownership in a company. They are riskier than bonds but less risky than the general class of ownership. Preferred stocks Which of the following instruments are traded in the capital markets? Check all that apply. Preferred stocks Common stocks Everyone uses money, and it is important to understand what factors affect the cost of money. Consider the following scenario: Due to recent political and economic events, general prices of goods and services are expected to increase significantly over the next five years. You were about to purchase a five-year bond. You now require a higher return on the bond than you did before you found out about these expected price increases. Determine which of these fundamental factors is affecting the cost of money in the scenario described: Inflation Roberto recently started a new business with money that he collected from his friends and family. All other factors being equal, which of the following financing options has a higher cost for someone who needs capital to start a business?