Question: What is the primary economic principle used

> Briefly describe the basic format of the cash budget.

> What is the purpose of the cash budget? What role does the sales forecast play in its preparation?

> What is the financial planning process? Contrast long-term (strategic) financial plans with short-term (operating) financial plans.

> Under what circumstances would the current ratio be the preferred measure of overall firm liquidity? Under what circumstances would the quick ratio be preferred?

> Why is it preferable to compare ratios calculated using financial statements that are dated at the same point in time during the year?

> When performing cross-sectional ratio analysis, the analyst should pay primary attention to what types of deviations from the norm? Why?

> What is the difference between cross-sectional and time-series ratio analysis? What is benchmarking?

> With regard to financial ratio analysis, how do the viewpoints held by the firm’s present and prospective shareholders, creditors, and management differ?

> Angina Inc. has 5 million shares outstanding. The firm is considering issuing an additional 1 million shares. After selling these shares at their $20 per share offering price and netting 95% of the sale proceeds, the firm is obligated by an earlier agree

> How is the current rate (translation) method used to consolidate a firm’s foreign and domestic financial statements?

> Why are the notes to the financial statements important to professional securities analysts?

> What three areas of analysis are combined in the modified DuPont formula? Explain how the manager uses the DuPont system of analysis to dissect the firm’s results and isolate their causes.

> Describe the purpose of each of the four major financial statements.

> Describe how you would use a large number of ratios to perform a complete ratio analysis of the firm.

> Financial ratio analysis is often divided into five areas: liquidity, activity, debt, profitability, and market ratios. Differentiate each of these areas of analysis from the others. Which is of greatest concern to creditors?

> What do the price/earnings (P/E) ratio and the market/book (M/B) ratio reveal about how investors assess a firm’s performance? What caveats must investors keep in mind when evaluating these ratios?

> A firm’s ROE is typically not equal to its ROA. Why? When would a firm’s ROA equal its ROE?

> What would explain a firm having a high gross profit margin and a low net profit margin?

> What three ratios of profitability appear on a common-size income statement?

> Over the past 100 years, the level of government regulation of financial institutions and markets has ebbed and flowed or, as some economists might argue, has ebbed and flooded. Although the laws and regulatory agencies created by the government have var

> What ratio measures the firm’s degree of indebtedness? What ratios assess the firm’s ability to service debts?

> What is financial leverage?

> To assess the firm’s average collection period and average payment period ratios, what additional information is needed, and why?

> In most of the specific firms listed have current ratios that fall below the industry average. Why? One exception to this general pattern is Whole Foods Market, which competes at the very high end of the retail grocery market. Why might Whole Foods Marke

> What roles do GAAP, the FASB, and the PCAOB play in the financial reporting activities of public companies?

> Why do you think that so many pieces of important legislation related to financial markets and institutions were passed during the Great Depression?

> Describe the role of capital markets from the firm’s and investors’ perspectives. What is the efficient market hypothesis?

> What is the capital market? What are broker markets? What are dealer markets? How do they differ?

> What is the money market? What is the Eurocurrency market?

> What is a private placement versus a public offering?

> For what kinds of needs do you think a firm would issue securities in the money market versus the capital market?

> What role do financial markets play in our economy? What are primary and secondary markets? What relationship exists between financial institutions and financial markets?

> Describe the role of commercial banks, investment banks, and the shadow banking system within the financial market environment.

> Which legal form of business organization is most common? Which form do the largest businesses typically take and why?

> Who are the key customers of financial institutions? Who are net suppliers, and who are net demanders of funds?

> Why does a crisis in the financial sector spill over into other industries?

> Why do falling home prices create an incentive for homeowners to default on their mortgages even if they can afford to make the monthly payments?

> How do rising home prices contribute to low mortgage delinquencies?

> What is a mortgage-backed security? What basic risk is associated with mortgage-backed securities?

> What is securitization, and how does it facilitate investment in real estate assets?

> What role does an investment bank play in a public offering? Describe an underwriting syndicate.

> You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design firm. Your firm needs $10 million to expand production. How do you think the process of raising this money will vary if you raise it with the help of a financial instit

> What general procedures must a private firm follow to go public via an initial public offering (IPO)?

> What four ways do VCs use to organize their businesses? How do they structure and price their deals?

> Describe the roles of, and the relationships among, the major parties in a corporation: stockholders, board of directors, and managers. How are corporate owners rewarded for the risks they take?

> What different aspects of financial markets do the Securities Act of 1933 and the Securities Exchange Act of 1934 regulate?

> What are financial institutions? Describe the role they play within the financial market environment.

> If managers do not act in the best interests of shareholders, what role might incentives play in explaining that behavior?

> What are the major differences between accounting and finance with respect to emphasis on cash flows and decision making?

> Why is it important that managers recognize that a tradeoff exists between risk and return? Why does that tradeoff exist?

> How can you determine the unknown number of periods when you know the present and future values—single amount or annuity—and the applicable rate of interest?

> What does it mean when we say that individuals as a group are net suppliers of funds for financial institutions? What do you think the consequences might be for financial markets if individuals consumed more of their incomes and thereby reduced the suppl

> Describe the procedure used to amortize a loan into a series of equal periodic payments.

> How can you determine the size of the equal, end-of-year deposits necessary to accumulate a certain future sum at the end of a specified future period at a given annual interest rate?

> For what three main reasons is profit maximization potentially inconsistent with wealth maximization?

> How do market forces—both shareholder activism and the threat of takeover—prevent or minimize the agency problem? What role do institutional investors play in shareholder activism?

> You are responsible for managing your company’s short-term investments and you know that the compounding frequency of investment opportunities is quite important. Using the information provided at MyLab Finance, calculate the future value of an investmen

> Differentiate between a nominal annual rate and an effective annual rate (EAR). Define annual percentage rate (APR) and annual percentage yield (APY).

> What two characteristics make a security marketable? Why are the yields on nongovernment marketable securities generally higher than the yields on government issues with similar maturities?

> What are three mechanisms of cash concentration? What is the objective of using a zero-balance account (ZBA) in a cash concentration system?

> What are the three main advantages of cash concentration?

> What are the firm’s objectives with regard to collection float and to payment float?

> Ross Company, a manufacturer of pharmaceuticals, has pretax ordinary income of $500,000 and has just sold for $150,000 an asset purchased 2 years ago for $125,000. Using Table 1.2, calculate the tax liability for the company this year. Table

> What is float, and what are its three components?

> What are some of the major reasons for the rapid expansion in international mergers and joint ventures of firms?

> Outline the changes to be undertaken in intra-MNC accounts if a subsidiary’s currency is expected to depreciate in value relative to the currency of the parent MNC.

> Discuss the steps to be followed in adjusting a subsidiary’s accounts relative to third parties when that subsidiary’s local currency is expected to appreciate in value in relation to the currency of the parent MNC.

> What is the Eurocurrency market? What are the main factors determining foreign exchange rates in that market? Differentiate between the nominal interest rate and the effective interest rate in this market.

> What are the long-run advantages of having more local debt and less MNC-based equity in the capital structure of a foreign subsidiary?

> Describe the difference between foreign bonds and Eurobonds. Explain how each is sold, and discuss the determinant(s) of their interest rates.

> Briefly discuss some of the international factors that cause the capital structures of MNCs to differ from those of purely domestic firms.

> Indicate how NPV can differ depending on whether it is measured from the parent MNC’s point of view or from that of the foreign subsidiary, when cash flows may be blocked by local authorities.

> Discuss macro and micro political risk. What is the emerging third path to political risk? Describe some techniques for dealing with political risk.

> Recently, some branches of Donut Shop, Inc., have dropped the practice of allowing employees to accept tips. Customers who once said, “Keep the change,” now have to get used to waiting for their nickels. Management even instituted a policy of requiring t

> Explain how differing inflation rates between two countries affect their exchange rate over the long term.

> Define spot exchange rate and forward exchange rate. Define and compare accounting exposures and economic exposures to exchange rate fluctuations.

> Under FASB No. 52, what are the translation rules for financial statement accounts? How does the temporal method differ from these rules?

> Discuss the major reasons for the growth of the Euro market. What is an offshore center? Name the major participants in the Euro market.

> From the point of view of a U.S.-based MNC, what key tax factors need to be considered?

> What is a joint venture? Why is it often essential to use this arrangement? What effect do joint-venture laws and restrictions have on the operation of foreign-based subsidiaries?

> What are the important international trading blocs? What is the European Union, and what is its single unit of currency? What is GATT? What is the WTO?

> All-Stores Inc. is a holding company that has voting control over both General Stores and Star Stores. All-Stores owns General Stores and Star Stores common stock valued at $15,000 and $12,000, respectively. General’s balance sheet lists $130,000 of tota

> Phylum Plants’ stock is currently trading at a price of $55 per share. The company is considering the acquisition of Taxonomy Central, whose stock is currently trading at $20 per share. The transaction would require Phylum to swap its shares for those of

> Willow Enterprises is considering the acquisition of Steadfast Corp. in a stock swap transaction. Currently, Willow’s stock is selling for $45 per share. Although Steadfast’s shares are currently trading at $30 per share, the firm’s asking price is $60 p

> You have been made treasurer for a day at AIMCO, which develops technology for video conferencing. A manager of the satellite division has asked you to authorize a capital expenditure in the amount of $100,000. The manager states that this expenditure is

> Santana Music is a U.S.-based MNC whose foreign subsidiary had pretax income of $55,000; all after-tax income is available in the form of dividends to the parent company. The local tax rate is 40%, the foreign dividend withholding tax rate is 5%, and the

> Based on the facts and results of Problems 30-32, determine Relix's change in net deferred tax asset or net deferred tax liability for the current year. Provide the journal entry to record this amount. Data from Problem 30: Relix, Inc., is

> Based on the facts and results of Problem 30 and the beginning-of-the-year book-tax basis differences listed below, determine the change in Relix's deferred tax liabilities for the current year. Data from Problem 30: Relix, Inc., is a domes

> Based on the facts and results of Problem 30 and the beginning-of-the year book-tax basis differences listed below, determine the change in Relix's deferred tax assets for the current year. Data from Problem 30: Relix, Inc., is a domestic corporation

> Relix, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Based on this information, determine Relix's net deferred tax asset or net deferred tax liability at year-end. Assume a 21% Federal

> Continue with the results of Problem 28. Prepare the GAAP journal entries for Willingham's income tax expense. Data from Problem 28: Willingham, Inc., an accn1al basis C corporation, reports pretax book income of $1.6 million. At the beginning of the t

> Rubio, Inc., an accrual basis C corporation, reports tl1e following amounts for tl1e tax year. The applicable income tax rate is 30%. Compute Rubio's taxable income. Book income, including the items below $80,000 Increase in book allowance for antic

> Continue with the results of Problem 24. Prepare the GAAP journal entries for Britton's year 1 income tax expense. Data from Problem 24: Britton, Inc., an accrual basis C corporation, sells widgets on credit. Its book and taxable income for year 1 tota

> Britton, Inc., an accrual basis C corporation, sells widgets on credit. Its book and taxable income for year 1 totals $60,000 before accounting for bad debts. Britton's book allowance for uncollectible accounts increased for year 1 by $10,000, but none o

> Continue with the results of Problem 22. Prepare the GAAP journal entries for Phillips's year 1 income tax expense. Data from Problem 22: Phillips, Inc., a cash basis C corporation, completes $100,000 in sales for year 1, but only $75,000 of this amoun

> In the current year, Dickinson, Inc., reports an effective tax rate of 36%, and Badger, Inc., reports an effective tax rate of 21%. Both companies are don1estic and operate in the same industry. Your initial examination of the financial statements of the

> Five years ago, Bridget decided to purchase a limited partnership interest in a fast-food restaurant conveniently located near the campus of Southeast State University. The general partner of the restaurant venture promised her that the investment would

> HippCo and HoppCo operate in the same industry and report the following tax rate reconciliations in their tax footnotes. Compare and contrast the effective tax rates of these two con1panies. HippCo НoppCo Hypothetical tax at U.S. rate 35.0% 35.0% St

> Jill i5 the CFO of PorTech, Inc. PorTech's tax advisers have recommended two tax Decision Making planning ideas that will each provide $5 million of current-year cash tax savings. One idea is based on a timing difference and is expected to reverse in ful

> You saw on the Business News Today blog that YoungCo has "released one third of its valuation allowances because of an upbeat forecast for sales of its tablet computers over the next 30 months." What effect does such a release likely have on YoungCo's cu