MidTerm #1
Review Questions
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What is the primary goal of the financial manager? Why is it
important that we have a clear & unambiguous goal?
What are the three forms in which you might carry on a business
in Canada?
How is income from a sole proprietorship taxed?
How is income from a partnership taxed?
How is income from a corporation taxed?
What liability does a partner in a partnership have for the debts of
the organization? How can you mitigate this risk?
Why is it hard to bring new partners into a partnership?
A business that expects to have a large need for new capital over
the foreseeable future should structure itself as a
______________? Why?
Define the agency problem? In a corporation, who is the principal
& who is the agent?
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What is an example of a direct agency cost?
What is an example of an indirect agency cost?
What is the difference between the money & the capital markets?
What is the difference between the primary & the secondary
markets?
What is the difference between direct & indirect finance? A bank
is an integral component of which form? An investment banker is
an integral component of which form?
How do you calculate Net Working Capital?
How do you define a Current Asset?
What is the firm’s Operating Cycle?
How do you define a Current Liability?
What is an Intangible Asset?
What is the residual security? Why is it called the residual
security?
A classified Balance Sheet is ordered from most ________ to
least ________.
Can a firm be too liquid? Why?
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There are two equivalent methods of calculating Cash Flow from
the Assets (CFFA). What are they?
What is the calculation for Cash Flow to the Bondholders?
What is the calculation for Cash Flow to the Shareholders?
What is the calculation for Operating Cash Flow?
What is the calculation for Net Capital Spending?
What is the calculation for the Increase in Net Working Capital?
How do you define a person’s marginal tax rate?
How do you calculate a person’s average tax rate?
A person has taxable income of $80,000. How much federal
income tax do they pay? How much Alberta income tax do they
pay? What is their average tax rate?
What is the difference between a Progressive and a Regressive
tax system?
What does the acronym CCPC stand for?
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You purchased a painting for $5,000 and sold it for $7,500 a year
later. You live in Alberta and are in the 26% federal income tax
bracket. How much tax will you pay on the capital gain?
You have $10,000 of capital losses incurred in 2005. What are
your options with these losses?
You earned $2,500 in dividends last year. How do you handle
these for tax purposes? Calculate both the taxabel dividend and
the dividend tax credit.
You purchased a taxi to supplement your student income. The
taxi cost $30,000 to purchase. The CCA rate on taxis is 40%.
Calculate the UCC at the beginning of the next four years.
In year three, you sell the taxi for $10,000. It is the only asset in
the asset pool. What are the tax implications?
In a Statement of Cash Flows, all flows are organized into three
major categories. These categories are:
What is a common size income statement? Why is it useful?
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According to the DuPont Identity, ROE = PM*AY*EM. You have a
PM that is too low? What does this tell you? If the AY is too low?
If the EM is too low?
A firm has an ROA of 4%, Net Income of $25,000 and it pays
dividends of $5,000 per year. What is the firm’s Internal Growth
Rate?
In the question above, if the firm’s ROE is 12%, what is the firm’s
Sustainable Growth Rate?