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Questions and Answers
What is the amount a business earns after deducting what it spends for salaries and other expenses?
What is the amount a business earns after deducting what it spends for salaries and other expenses?
What does the electronic transfer of funds from the business's checking account to the employees' checking account represent?
What does the electronic transfer of funds from the business's checking account to the employees' checking account represent?
The emergence of an information-based economy is an important part of which environment in which businesses operate?
The emergence of an information-based economy is an important part of which environment in which businesses operate?
If the Fed plans to raise the discount rate to 7%, what does this indicate?
If the Fed plans to raise the discount rate to 7%, what does this indicate?
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In order to make an intelligent investment decision, entrepreneurs should what?
In order to make an intelligent investment decision, entrepreneurs should what?
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If the Fed increases interest rates in the U.S., what is likely to happen?
If the Fed increases interest rates in the U.S., what is likely to happen?
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To implement a policy of empowerment, an organization will restructure so that what happens?
To implement a policy of empowerment, an organization will restructure so that what happens?
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As a factor of production, the term capital includes what?
As a factor of production, the term capital includes what?
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Traditionally, banks provide loans to individuals and companies according to what?
Traditionally, banks provide loans to individuals and companies according to what?
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Which of the following represents a nonbank?
Which of the following represents a nonbank?
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A significant decrease in the money supply tends to have what effect?
A significant decrease in the money supply tends to have what effect?
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Which of the following provides the same result as a check?
Which of the following provides the same result as a check?
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Based on the information that the dollar has fallen sharply against the euro, Arturo expects that:
Based on the information that the dollar has fallen sharply against the euro, Arturo expects that:
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World-class businesses attempt to meet the needs of:
World-class businesses attempt to meet the needs of:
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Due to population shifts, what is likely to happen?
Due to population shifts, what is likely to happen?
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Acquiring funds through borrowing represents what?
Acquiring funds through borrowing represents what?
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Which of the following presents an effective technique to improve cash management?
Which of the following presents an effective technique to improve cash management?
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Investment bankers perform what function regarding new issues of bonds or stock?
Investment bankers perform what function regarding new issues of bonds or stock?
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Which of the following represents a disadvantage of issuing bonds?
Which of the following represents a disadvantage of issuing bonds?
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Which of the following represents a capital expenditure?
Which of the following represents a capital expenditure?
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Corporations receive the proceeds from the sale of their stock in which market?
Corporations receive the proceeds from the sale of their stock in which market?
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Dividends on preferred stock are:
Dividends on preferred stock are:
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One of the challenges of effective financial management is:
One of the challenges of effective financial management is:
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When retained earnings are not enough for long-term needs, businesses may raise funds by:
When retained earnings are not enough for long-term needs, businesses may raise funds by:
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Mineral Mining Corporation is utilizing what to provide for an orderly retirement of their bonds?
Mineral Mining Corporation is utilizing what to provide for an orderly retirement of their bonds?
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Which situation represents successful use of financial leverage?
Which situation represents successful use of financial leverage?
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Julia experienced what issue in her failed business?
Julia experienced what issue in her failed business?
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The corporate certificate issued to an investor that has loaned money is called a:
The corporate certificate issued to an investor that has loaned money is called a:
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Buying several different investment alternatives to spread the risk achieves what?
Buying several different investment alternatives to spread the risk achieves what?
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The CFO solicited investments to prevent bankruptcy, representing what kind of financing?
The CFO solicited investments to prevent bankruptcy, representing what kind of financing?
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When companies owe money to creditors and suppliers, these amounts are recorded as:
When companies owe money to creditors and suppliers, these amounts are recorded as:
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The balance sheet shows how the capital is structured in the business, including what?
The balance sheet shows how the capital is structured in the business, including what?
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Net profit refers to:
Net profit refers to:
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The acid test ratio helps determine what?
The acid test ratio helps determine what?
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Although accounting has several uses, its overall purpose can be summarized as:
Although accounting has several uses, its overall purpose can be summarized as:
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An evaluation and unbiased opinion about the accuracy of a firm's financial statements is called a:
An evaluation and unbiased opinion about the accuracy of a firm's financial statements is called a:
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Leverage ratios indicate the extent to which what has been used to fund a business's operations?
Leverage ratios indicate the extent to which what has been used to fund a business's operations?
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The three important financial statements prepared by accountants are:
The three important financial statements prepared by accountants are:
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What is the net worth (owners equity) for the business if assets total $3.5 million and liabilities total $1.3 million?
What is the net worth (owners equity) for the business if assets total $3.5 million and liabilities total $1.3 million?
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The balance sheet reflects which fundamental accounting equation?
The balance sheet reflects which fundamental accounting equation?
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Study Notes
Profit and Financial Concepts
- Profit is the amount earned by a business after deducting expenses such as salaries.
- Direct Deposit is an electronic transfer of funds from a business's account to employees, representing a cashless payday.
- The technological environment influences businesses with the emergence of an information-based economy.
- A planned increase in the discount rate indicates banks will pay 7% on borrowed funds from the Federal Reserve.
Investment Strategies and Market Conditions
- Entrepreneurs should compare risks and potential profits to make informed investment choices.
- An increase in U.S. interest rates can lead foreign investors to increase their investments in the U.S.
- Empowerment within organizations involves employees assuming greater responsibility for decisions.
- Capital as a production factor comprises tools, machinery, and buildings essential for business operations.
Banking and Financial Tools
- Loans are traditionally granted by banks based on the recipient's creditworthiness.
- Non-banking financial entities include life insurance companies, which provide investment alternatives.
- A significant decrease in the money supply can lead to an economic recession.
- A debit card functions like a check by withdrawing directly from a checking account.
Economic Trends and Stakeholder Considerations
- A declining dollar against the euro implies Spanish wines may become cheaper in the U.S.
- World-class businesses aim to satisfy all stakeholders, balancing the interests of customers, employees, and owners.
- Shifts in population demographics increase demand for services that cater to older consumers.
Financing and Fundraising
- Debt financing is the process of acquiring funds through borrowing, distinct from equity financing.
- Effective cash management is achieved by speeding up collections while slowing down payments.
- Investment bankers underwrite new bond or stock issues for firms.
- Issuing bonds creates additional debt on a firm’s balance sheet.
Capital Expenditures and Market Structures
- A capital expenditure example is purchasing office space or a building.
- Corporations sell stock primarily in the primary market, where they receive proceeds.
- Preferred stock dividends are typically fixed, ensuring reliability for investors.
Challenges in Financial Management
- Effective financial management requires maintaining enough cash on hand without hindering investment potential.
- When internal funds suffice, businesses can raise funds through selling common stock.
- Regular deposits accrued to retire bonds are part of a sinking fund strategy.
Financial Leverage and Risk Management
- Financial leverage is effectively used when a firm borrows at a lower interest rate than the return earned on investments.
- An example of undercapitalization occurs when a lack of funds hampers business promotion efforts.
- A bond signifies a loan from an investor to a corporation or government entity.
- Diversification in investments spreads risk across several alternatives.
Accounting Principles
- Liabilities are listed on the balance sheet as outstanding amounts owed to creditors.
- The balance sheet illustrates the capital structure of a business, covering assets and debts at a given time.
- Net profit refers to the earnings remaining after all expenses are deducted, including taxes.
- The acid test ratio assesses a company's ability to cover short-term debts without relying on inventory sales.
Financial Statements and Reporting
- The three essential financial statements used in accounting are the balance sheet, income statement, and statement of cash flows.
- Calculating net worth, owners equity results from total assets minus liabilities.
- The foundational accounting equation states that assets = liabilities + owners’ equity.
Audit and Financial Clarity
- An independent report provides unbiased evaluations of a firm's financial statements.
- Leverage ratios highlight the degree to which a company has used debt for operational funding.
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