What was the median base salary for a U.S. CEO?
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$5.1 million.
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What was the median base salary for a U.S. CEO?
$5.1 million.
What is the primary goal of managers in a firm?
To maximize the wealth of the firm’s owners.
Does profit maximization always lead to the highest possible share price?
No, it often does not.
Why do firms exist?
Because investors want access to risky investment opportunities.
What was the tax rate on most dividends paid to shareholders after the 2003 legislation?
15%.
What are some goals that financial managers pursue?
Goals include profitability, liquidity, and risk management.
What is the expected increase in net cash flow if Justin purchases the new dispenser?
$27,000 per year.
What is the focus of Ann Bach's financial projection?
Her cash flows during October.
What is the total earnings per share (EPS) for Valve over three years?
$3.00 EPS.
How do individuals typically measure their financial outcomes?
Mainly through cash flows.
Who is the financial manager of Neptune Manufacturing?
Nick Dukakis.
What are the three legal forms of business organization?
Sole proprietorship, partnership, and corporation.
What was the selling price of the yacht sold by Nassau Corporation?
$1,000,000.
What does Figure 1.3 illustrate regarding Dan Webster?
It shows his total tax liability, marginal tax rate, and average tax rate for different income levels.
What is a key principle that financial managers must consider when making decisions?
Aligning the interests of managers and shareholders.
What are the three key tax concepts depicted in the figure?
Total tax liability, marginal tax rate, and average tax rate.
What is a firm?
A business organization that sells goods or services.
What edition of the Principles of Managerial Finance is referenced?
Sixteenth Edition, Global Edition.
How can finance be defined?
As the science and art of managing money.
How much can Justin sell the used dispenser for?
$5,000.
What is finance?
The science and art of how individuals and firms raise, allocate, and invest money.
What are cash dividends?
Periodic distributions of cash to the stockholders of a firm.
What are agency problems?
Conflicts of interest between the principals and agents in a corporation.
What decision would Dukakis recommend to maximize profits?
To invest in Valve rather than Rotor.
What is the total earnings per share (EPS) for Rotor over three years?
$2.80 EPS.
What does finance involve in a business context?
How firms raise money from investors, invest money to earn a profit, and decide whether to reinvest profits or distribute them to investors.
What is Peter Strong's taxable income from his business?
$300,000.
What financial concept do individuals rarely use?
Accrual concepts.
What is the principal-agent relationship in a corporation?
It is the relationship between the owners (principals) and the managers (agents) of the corporation.
What are business ethics?
Standards of conduct or moral judgment that apply to persons engaged in commerce.
Who is responsible for approving strategic goals and plans in a corporation?
The Board of Directors.
Did Nassau Corporation collect the $1,000,000 from the customer by year-end?
No, they have yet to collect it.
What does finance theory suggest about past stock market performance?
It is a very poor predictor of future performance.
What percentage of CEO pay in the U.S. and U.K. comes from stock or stock options?
60%.
Why are finance professors less influenced by market trends?
Because they understand that past performance does not predict future results.
What is the main criterion for Dukakis's investment recommendation?
Higher total earnings per share.
What is the primary goal of financial managers?
To maximize the wealth of the firm’s owners.
What type of products does Neptune Manufacturing produce?
Marine engine components.
What is the primary goal of a firm according to the text?
Maximize stakeholders’ welfare.
What does EP S stand for in the context of investments?
Expected Profitability or Earnings Per Share.
What type of business greatly outnumbers partnerships and corporations in the U.S.?
Sole proprietorships.
What is the goal of business ethics?
To motivate business and market participants to abide by both the letter and the spirit of laws and regulations.
Why is the stakeholder perspective difficult to implement?
Advocates do not typically indicate how managers should carry it out.
What is the primary goal of the firm according to some perspectives?
Maximize stakeholders' welfare.
What is one key skill emphasized for career development?
Critical Thinking.
What is ordinary income?
Income earned by a business through the sale of goods or services.
What is Justin's current net cash flow from the existing dispenser?
$73,000 per year.
What does Justin estimate the net cash flow will be with the new dispenser?
$100,000 per year.
What should guide actions taken in managerial finance?
The relationship between marginal benefits and marginal costs.
What is the principal-agent relationship in a corporation?
It is the relationship where shareholders are the principals and managers are the agents.
Why did many firms accelerate dividend payments in 2012?
Due to uncertainty about the renewal of tax cuts in the 2012 election year.
What was the potential consequence of not renewing the tax cuts for dividends?
Shareholders would face higher taxes on dividends.
What must managers assess to maximize shareholder value?
The long-term consequences of their actions.
What do stockholders expect to earn from their investment?
Returns through dividends or gains from increases in share price.
What are some tasks performed by financial managers?
Developing a financial plan or budget, extending credit to customers, evaluating proposed large expenditures, and raising money to fund operations.
What type of view does the income statement represent in assessing firm performance?
The accounting view.
What is the primary focus of the Managerial Finance Function?
Emphasis on Cash Flows.
What is the percentage of CEO pay in Germany and France that is paid in equity?
Less than 24%.
What does a balanced consideration of stakeholders involve?
Considering the welfare of both shareholders and other stakeholders.
What did the survey reveal about finance professors and trend chasing?
Finance professors did not fall prey to trend chasing when deciding to invest in stocks.
What is one lesson from the book that can help investors?
To make better choices with their own money by avoiding trend chasing.
Who is the publisher of the Principles of Managerial Finance?
Pearson Education, Ltd.
What are the key decisions individuals make in personal finance?
How much of their earnings they spend, how much they save, and how they invest their savings.
What is Peter's marginal tax rate?
35%.
How is Peter's total tax liability calculated?
By applying different tax rates to income brackets.
What was the original purchase price of the yacht for Nassau Corporation?
$800,000.
What types of businesses do financial managers administer?
All types, including private and public, large and small, profit-seeking and not-for-profit.
What percentage of all business income is generated by sole proprietorships?
10%.
When does the principal-agent relationship work well?
When the agent makes decisions in the principal’s best interest.
What is ordinary income?
Income earned by a business through the sale of goods or services.
How does average tax rate differ from marginal tax rate?
Average tax rate is the total tax paid divided by total income, while marginal tax rate applies to the last dollar earned.
How do financial managers contribute to a firm's value?
By using accounting information and other data to make informed business decisions.
What influences a firm's corporate governance structure?
Both internal and external factors.
What are stock options?
Securities that allow managers to buy shares of stock at a fixed price.
What is a flaw in neglecting shareholder wealth maximization?
It can lead to misinterpretation that managers should take any action, including illegal or unethical actions, to increase stock price.
What is restricted stock?
Shares of stock paid out as part of a compensation package that do not fully transfer from the company to the employee until certain conditions are met.
Who are activist investors?
Investors who specialize in influencing management.
What is a common misconception about earning extra income?
That taxpayers can be worse off because it puts them in a higher tax bracket.
What is a threat to corporate management mentioned in the text?
The threat of takeover.
What investment decision is Justin considering?
Replacing his current soft drink dispenser with a new one.
What is an important consideration regarding moral standards in business actions?
Does the action conform to accepted moral standards?
What is the corporate tax rate for Argaiv Software?
21%.
What is a strength of partnerships regarding income taxation?
Income is taxed only on the partner’s personal tax return.
How is maximizing shareholder wealth typically measured?
By maximizing the stock price.
What does marginal cost-benefit analysis involve?
It involves comparing the additional benefits of an action to the additional costs incurred.
What year was the referenced edition of Principles of Managerial Finance published?
What does stock represent in a corporation?
An ownership interest in a corporation.
What are the primary activities of a financial manager?
Activities include budgeting, forecasting, and managing investments.
What key principles do financial managers use in decision making?
Principles include time value of money, risk-return tradeoff, and diversification.
Over how many years is the expected earnings for each investment calculated?
Three years.
What is the formula used to calculate Peter's total tax liability?
(0.10 × 40,125 − 85,525 − 163,300 − 207,350 − 300,000 − $207,350)].
What is the number of sole proprietorships in millions?
25.3 million.
Who establishes the policies that the CEO carries out?
The board of directors.
What percentage of all firms are sole proprietorships?
73%.
What is a capital gain?
Income earned by selling an asset for more than its cost.
What is the primary goal of the firm?
Maximize stakeholders' welfare.
What type of skills are necessary for handling financial data?
Financial Computing Skills.
How does the cash basis of accounting differ from the accrual basis?
It recognizes revenues and expenses only with respect to actual inflows and outflows of cash.
What are financing decisions concerned with?
How a company raises the capital it needs to invest.
What does the marginal tax rate represent?
The rate at which the next dollar of income is taxed.
What is Dan Webster's share of the partnership's earnings before taxes?
$80,000.
Why is maximizing the wealth of shareholders important?
Because shareholders provide the capital that makes the firm's existence possible.
Do the marginal tax rate and average tax rate usually equal each other under a progressive tax rate structure?
No, they do not usually equal each other.
How much tax does Dan owe on the first $9,875 of his income?
$987.50.
What is the cost of the new soft drink dispenser?
$20,000.
What tax rate applies to the next 9,875?
12%.
What is a challenge faced by sole proprietors regarding employee opportunities?
Difficult to give employees long-run career opportunities.
What is the responsibility of the Director of Internal Audit?
To ensure compliance and assess the effectiveness of internal controls.
What advantage does a corporation have in terms of size?
Can achieve large size via sale of ownership (stock).
What is a tax disadvantage of corporations?
Corporate income is taxed a second time when distributed to shareholders as dividends.
What is the primary role of managerial finance?
To manage the financial resources of an organization effectively.
What is the definition of finance?
Finance is the management of money and investments for individuals, businesses, and governments.
What is managerial finance?
It concerns the duties of the financial manager in a business.
What provision was included in the 2003 tax legislation regarding dividend tax cuts?
The tax cuts would expire in 2013 unless renewed by Congress.
Which legal form of business organization is dominant among large companies?
Corporation.
What does managerial finance focus on?
The duties of the financial manager working in a business.
What are partnerships in the context of business organization?
Businesses owned by two or more people and operated for profit.
What is the Principal-Agent Problem?
A problem that arises because the owners of a firm (principals) and its managers (agents) are not the same people, leading agents to fail to act in the interest of the principals.
How do business ethics relate to laws and regulations?
They encourage adherence to both the letter and spirit of laws and regulations concerned with business and professional practice.
What is a sole proprietorship?
A business owned by one person and operated for his or her own profit.
What should individuals avoid when making investment decisions?
Basing decisions on the market's recent history.
Who bears the agency costs?
Shareholders.
What are the primary activities of a financial manager?
Investment decisions, financing decisions, and working capital decisions.
What percentage of total CEO pay in Japan is equity-based compensation?
10%.
How many corporations are there in millions?
5.8 million.
How were corporations taxed prior to 2018?
According to an alternative, mostly progressive rate structure.
What is one ethical guideline to consider in business ethics?
Is the action arbitrary? Does it unfairly single out an individual or group?
What phrase highlights the importance of liquidity in finance?
Cash Is King.
What is Ann's total inflow for October?
$4,620.
Who are the owners of a corporation?
Stockholders.
In which income tax bracket does Webster fall?
22% income tax bracket.
What is the typical tax exclusion percentage for dividends received by a corporation from stock held in other corporations?
50%.
What is the median pay for French CEOs?
$4.0 million.
What is a major weakness of a sole proprietorship?
The owner has unlimited liability, meaning personal wealth can be taken to satisfy debts.
What is the after-tax income for Argaiv Software?
$237,000.
How can the after-tax interest expense for Debt Co. be calculated?
By multiplying (1 - tax rate) by the interest expense [(1 - 0.21) × $30,000].
What is the tax bill for No-Debt Co.?
$42,000.
What is a strength of partnerships in terms of liability?
Owners have limited liability and cannot lose more than they invested.
What is the economic principle related to financial decisions?
Financial decisions should be made when marginal benefits exceed marginal costs.
What is one way firms can maximize shareholder wealth?
By considering the taxes shareholders must pay on dividends.
What time periods do individuals usually plan and monitor their financial activities?
Typically a month or a year.
What are the legal forms of business organization?
Various structures such as sole proprietorships, partnerships, corporations, and limited liability companies.
What is necessary to ensure that managers act in the best interest of shareholders?
Various kinds of incentives.
What is a flaw in neglecting shareholder wealth maximization?
It does not imply that managers should ignore the interests of everyone else connected to a firm.
What is the total tax liability calculated for Peter?
$79,795.
What is the consequence of 'trend-chasing' behavior in investing?
It often leaves investors worse off than if they had invested consistently over time.
What is the role of the Board of Directors?
To set general policy, guide corporate affairs, and approve major expenditures.
What is double taxation?
A situation where income from a corporation is taxed twice: once at the business level and once at the individual level when distributed to shareholders.
What is the focus of the Managerial Finance Function?
It involves key decisions made by financial managers.
What type of view does the cash flow statement represent in assessing firm performance?
The financial view.
What does the accrual basis of accounting recognize?
Revenue at the time of sale and expenses when they are incurred.
What causes agency costs?
Managers pursuing their own interests.
What was the median pay for CEOs in the United States?
$14.9 million.
How do U.S. and U.K. legal systems differ from those in Germany and France regarding CEO compensation?
U.S. and U.K. systems emphasize the duty of managers to shareholders, while others focus more on stakeholders.
How does the median pay of U.S. CEOs compare to non-U.S. companies?
It is nearly three times more.
What is Justin Liter's business?
He owns a barbeque restaurant called Game of Bones in Houston.
Which country has the second highest median pay for CEOs?
Britain, with $10.5 million.
Why is the time value of money important in Justin's analysis?
He must pay the costs up front but the benefits come later.
How much will the new soft drink dispenser cost?
$20,000.
What is the marginal benefit calculated by Justin?
$27,000.
What is the median pay for Japanese CEOs?
$1.5 million.
What is one way Ann can reduce her outflows?
By cutting discretionary spending such as clothing purchases or dining out.
Why is the price of a company’s stock important?
It is an important signal of how the company is doing.
What is the marginal cost after selling the old dispenser?
$15,000.
What is a key feature of corporations regarding ownership?
Ownership (stock) is readily transferable.
Why do corporations lack secrecy?
Because regulations require firms to disclose financial results.
What is a strength of sole proprietorships in terms of decision-making?
Independence.
What are three reasons why profit maximization may not lead to the highest share price?
Timing, Cash Flows, and Risk.
What is the primary responsibility of financial managers?
To act in shareholders' interest.
What are the two investments Nick Dukakis is considering?
Rotor and Valve.
What can cause agency problems in a corporation?
When the interests of the principal (shareholders) and the agent (managers) differ.
Who are the owners of a corporation?
Stockholders.
How can an effective ethics program impact corporate value?
By producing positive benefits.
What is the primary focus of accountants in the managerial finance function?
Collecting and presenting financial data.
What is the significance of marginal tax rate in tax planning?
It indicates the rate at which the last dollar of income is taxed.
What do financial managers do with accounting information?
Evaluate it to influence business decisions and create value for shareholders.
What is unlimited liability in the context of a sole proprietorship?
The condition that gives creditors the right to make claims against the owner’s personal assets to recover debts owed by the business.
What are Investment Decisions?
Decisions on how a company will spend money on long-term projects.
What principle emphasizes the importance of the value of money over time?
Time Value of Money.
Did No-Debt Co. have any debt or interest expense?
No, No-Debt Co. had no debt and no interest expense.
What is the tradeoff that managers must consider in financial decisions?
The tradeoff between return and risk.
What does Justin recognize about his analysis?
It is still incomplete.
Why is cash flow important for a company like Nassau Corporation?
To meet its obligations.
How does maximizing shareholder wealth relate to other stakeholders?
It involves balancing the interests of other stakeholders to create long-term value for the firm.
What is the role of the CEO in the finance function?
The CEO oversees the overall management of the firm, including financial decisions.
What is crucial for motivating employees and aligning their interests with the firm's goals?
Incentives Are Important.
What is Ann's net cash flow for October?
-$215.
How much tax does Argaiv Software pay on $300,000 in earnings?
$63,000.
What will the new dispenser allow customers to choose from?
Over 100 different soft drinks.
What is the tax owed on the income between 80,000?
$8,772.50.
What is a strength of partnerships regarding liability?
Owners who are limited partners have limited liability and cannot lose more than they invested.
What is a disadvantage of organizing a corporation?
It is more expensive to organize than other business forms.
What type of regulation do corporations face?
Subject to greater government regulation.
What behavior do many investors exhibit regarding stock market trends?
They are willing to invest when the market is rising and reluctant when it is falling.
How do corporate governance mechanisms address agency problems?
By implementing structures and policies that align the interests of managers with those of the shareholders.
What is the principal-agent relationship in a corporation?
It is the relationship between the owners (shareholders) and the managers of the corporation.
What was the earnings before interest and taxes for both Debt Co. and No-Debt Co.?
$200,000.
What is corporate governance?
The rules, processes, and laws by which companies are operated, controlled, and regulated.
What percentage of all business income do partnerships account for?
26%.
What are Financing Decisions?
Decisions on how companies raise the money needed for investment opportunities.
What was the median base salary for a German CEO?
$4.1 million.
What are some alternative goals that firms might pursue?
Maximizing market share, profits, employee retention, ethics, or environmental sustainability.
What are Working Capital Decisions?
Decisions that refer to the management of a firm’s short-term resources.
What factors has Justin not considered in his analysis?
Time value of money and tax implications.
What principle refers to the efficiency and competitiveness of financial markets?
Competitive Financial Markets.
What does the time value of money imply?
Money is more valuable today than in the future due to the opportunity to earn a return on it.
What forms can ownership in a corporation take?
Common stock or, less frequently, preferred stock.
What should be evaluated about alternative actions in business ethics?
Are alternative actions less likely to cause harm?
How can Ann cover her $215 shortfall?
By borrowing $215 or withdrawing from her savings.
What inhibits growth in a sole proprietorship?
Limited fund-raising power.
What is the role of the Director of Investor Relations?
To manage communication between the company and its investors.
What was the total tax bill on $300,000 of business income under the sole proprietorship structure?
$79,795.
What is the effect of double taxation on corporate income?
The combined tax bill is higher compared to sole proprietorship.
What is a strength of a sole proprietorship regarding organizational costs?
Low organizational costs.
What is a benefit of corporations in terms of financing?
Has better access to financing.
What is the role of corporate governance mechanisms?
To manage agency problems between owners and managers.
What is the role of the President or Chief Executive Officer (CEO) in a corporation?
Responsible for managing the firm’s day-to-day operations and carrying out the policies established by the board of directors.
What is Nassau Corporation's financial situation in accounting terms?
It is profitable.
What are agency costs?
Costs that shareholders bear due to managers’ pursuit of their own interests.
Who are considered stakeholders in a firm?
Employees, suppliers, customers, and local community members.
Which skill is essential for effective teamwork and information sharing?
Communication and Collaboration.
What is the purpose of the Sarbanes-Oxley Act of 2002?
To eliminate corporate disclosure and conflict of interest problems.
What action did The Washington Post Company take regarding its dividends in December 2012?
It announced it would pay out the entire $9.80 per share dividend planned for 2013.
What are agency problems in a corporation?
Issues that arise when managers do not act in the best interests of shareholders.
How is interest received by corporations taxed?
As ordinary income.
What should be assessed regarding the rights of individuals or groups in business actions?
Does the action violate the moral or legal rights of any individual or group?
What tax benefit do dividends received by corporations get?
They usually receive a special tax break.
What is Ann's total outflow for October?
$4,835.
What is the total tax liability calculation for Dan Webster's business income?
(0.10 × 40,125 − 80,000 − 13,390.
How much more interest expense did Debt Co. have compared to No-Debt Co.?
$30,000.
What tax rate does Webster pay on the first $9,875 he earns?
10%.
What do market prices reflect according to financial managers?
Market prices reflect information gathered by many different investors.
What is Peter's capital gains tax rate on the dividend income?
15%.
What is a weakness of general partners in a partnership?
They have unlimited liability and may have to cover debts of other partners.
What is the total tax liability for Argaiv Software and its owner?
$99,956.
What is the purpose of the Articles of Partnership?
To formally establish a business partnership through a written contract.
What is necessary for achieving the firm's goal of owner wealth maximization?
Ethical behavior.
What percentage of the number of businesses do corporations account for in the U.S.?
17%.
What is the purpose of a firm's corporate governance structure?
To ensure that managers act in the best interests of the firm's shareholders and other stakeholders.
How much interest did Debt Co. pay?
$30,000.
What are capital gains?
Income earned by selling an asset for more than its cost.
How are proprietorships and partnerships taxed after the Tax Cuts and Jobs Act of 2018?
They are still taxed according to a revised progressive rate structure.
What does the Sarbanes-Oxley Act contain provisions about?
Corporate financial disclosures and relationships among corporations, analysts, auditors, attorneys, directors, officers, and shareholders.
How do the after-tax earnings of Debt Co. and No-Debt Co. compare?
Debt Co.'s earnings will be lower due to interest expense, while No-Debt Co. will have higher after-tax earnings.
What misconception might arise from the goal of maximizing shareholder wealth?
That managers should engage in any action, regardless of legality or ethics, to boost stock prices.
What is the relationship between marginal and average tax rates under a flat tax?
They are equal.
How do base salaries of CEOs compare internationally?
They are surprisingly similar despite large differences in total compensation.
How is the average tax rate calculated?
Taxes paid divided by taxable income.
What is the cash flow with the old soft drink dispenser?
$73,000.
What is the income range for the 22% tax bracket?
Greater than 85,525.
What is the current soft drink dispenser's offering?
Seven different drink flavors.
What can corporations deduct when calculating their taxes?
Operating expenses and interest expenses paid to lenders.
What amount is included in Ann's miscellaneous expenses?
$425.
What is the net investment tax rate that Peter pays on income exceeding $200,000?
3.8%.
Why is Justin inclined to buy the new dispenser?
Because the marginal benefit exceeds the marginal cost.
What is a strength of corporations in terms of management?
Can hire professional managers.
What problem does Nassau Corporation face despite being profitable?
A lack of cash flow.
What percentage of all business income is earned by corporations?
Almost two-thirds.
What is the amount of uncollected accounts receivable for Nassau Corporation?
$1,000,000.
How are ordinary income and capital gains treated for tax purposes in corporations?
They are treated the same.
What can happen to Nassau Corporation without adequate cash inflows?
The firm will not survive.
What is the corporate tax rate established by the Tax Cuts and Jobs Act of 2018?
A flat rate of 21%.
What primarily caused the variations in total CEO pay?
Differences in the use of equity-based compensation.
Why did companies like Washington Post accelerate their dividend payments?
To help shareholders save on taxes and increase their wealth.
What is the net cash flow with the new soft drink dispenser?
$100,000.
What is the median pay for German CEOs?
$5.4 million.
Who is responsible for managing the firm's financial activities?
The CFO (Chief Financial Officer).
What effect does the dividend exclusion have on tax liability?
It eliminates much of the potential tax liability from dividends received.
How much less are Debt Co.'s earnings after taxes compared to No-Debt Co.?
$23,700.
What is the tax savings for Debt Co. due to its interest expense deduction?
$6,300.
What is Peter's total personal tax liability on his dividend income?
$36,956.
What is a strength of partnerships in terms of resources?
More available brain power and managerial skill.
How were proprietorships and partnerships taxed prior to 2018?
According to the same progressive rate structure as individual taxpayers.
What is the primary goal of financial managers?
To maximize the wealth of the firm's owners.
What does the mix of funding sources imply?
It has important implications for a company's financial structure.
What percentage of all firms are corporations?
17%.
What are corporations?
Legal business entities with rights and duties similar to individuals but with a distinct legal identity from their owners.
What percentage of all business income do corporations account for?
64%.
Which other companies are mentioned as accelerating dividend payments?
Expedia, Inc. and Coach, Inc.
What is the difference between individual and institutional investors?
Individual investors invest their own money, while institutional investors manage funds for others.
What initial conclusion does Justin reach about buying the new dispenser?
It looks like a good decision at first glance.
What should managers focus on more: cash flow or accounting profit?
Managers should focus more on cash flow.
What does a Controller do?
Oversees accounting and financial reporting.
How is the tax savings calculated for Debt Co.?
By multiplying the tax rate (21%) by the interest expense ($30,000).
What is the net benefit from buying the new dispenser?
$12,000.
How do sole proprietorships compare to corporations in terms of income generation?
Sole proprietorships generate the lowest level of income despite being the most numerous.
What do investment decisions involve?
How a company invests its capital to generate wealth for shareholders.
What was the market reaction to The Washington Post's decision to accelerate dividends?
Washington Post shares rose by $5.
How do corporate governance mechanisms address agency problems?
By implementing structures and policies that align the interests of managers with those of shareholders.
What does the difference in equity-based CEO compensation reflect?
The differing legal systems and their emphasis on shareholders versus stakeholders.
What do working capital decisions refer to?
The day-to-day management of a firm’s short-term resources such as cash, receivables, inventory, and payables.
What is the flat tax rate faced by both firms?
21%.
What tradeoff must managers consider when making investment decisions?
The tradeoff between risk and return.
What is the primary responsibility of a Treasurer?
To manage the organization's cash flow and financial assets.
What is the tax owed on the income between 40,125?
$3,630.
How does the tax deductibility of expenses affect corporations?
It reduces their after-tax cost.
What is a key strength of a sole proprietorship?
The owner receives all profits and sustains all losses.
What is the tax bill for Debt Co.?
$35,700.
What is limited liability?
A legal provision that limits stockholders’ liability for a corporation’s debt to the amount they initially invested by purchasing stock.
What proceeds does Justin expect from the sale of the old dispenser?
$5,000.
How much of Webster's earnings is subject to the 22% tax rate?
$39,875.
What happens to a partnership when a partner dies?
The partnership is dissolved.
What does a Foreign Exchange Manager do?
Manages the firm's exposure to foreign currency risks.
What is a financial advantage of a sole proprietorship?
Income is taxed only on the proprietor’s personal tax return.
What is a strength of sole proprietorships regarding dissolution?
Ease of dissolution.
What is a long-term advantage of corporations?
Long life of firm.
