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Business Corporate Finance

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.

1. Project Finance
One or more of the partners will be subject to liability - others will be limited but not actively involved in management. division of profits is relative.
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
Exchange Traded Fund - Mixture of stocks and mutual funds
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.

2. What is the capital budgeting decision?
More efficient inventory management - increase in AR collections - etc.
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Where a company sells an asset and then leases it back.

3. Levels of Market Efficiency
Weak Form Efficiency - Semi Strong Form - Strong Form
The study of the relationship between business decisions and the value of the stock in the business
Assets pledged as Collateral for non-payment of debt (collateral)
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations

4. Capital Structure (or Financial Structure)
The mixture of long-term debt and equity maintained by a firm to finance its operations
Equity money provided by investors for start up firms with long term growth potential
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
Use of debt in a firm's capital structure. more debt = greater degree of leverage

5. Financial leverage

6. Interest rates go from _____ to _____ value
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
Hybrid of partnership and corporation. operates and taxed like a partnership but retains limited liability for owners - IRS may double tax if too 'corporation-like'
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Present to Future

7. Efficient Market Hypothesis
Assets = Liabilities + Shareholders' Equity
holds that no investor can beat the market and that doing research is useless
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
A security issued by a corporation or a government; represents a promise to pay its bondholder a fixed sum of money (principal) at future maturity date; along with periodic interest payments (coupons)

8. Bank loans are based on what conditions?
retailer gets inventory which he does not have to pay for until he sells it
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
The common set of standards and procedures by which audited financial statements are prepared
Financing: how to get funds; Investing: what to do with funds

9. Why is the corporate form of business organization superior when it comes to raising cash?
Assets = Liabilities + Shareholders' Equity
Size of firm; Degree of development of financial markets
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

10. Types of Cash Flows
Net working capital
Future Value of single payment; Present Value of Single Payment; Future Value of unequal series of Payments; Present Value of unequal series of Payments; Future value of annuity; Present value of annuity
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

11. Letters of Credit
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
retailer gets inventory which he does not have to pay for until he sells it
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer

12. A good financial system must have...
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Present to Future
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

13. Bond
later
Was enacted to protect investors from corporate abuses. among other things - it requires an auditor- and officer-approved assessment of the company's internal control structure and financial reporting in their annual report.
A security issued by a corporation or a government; represents a promise to pay its bondholder a fixed sum of money (principal) at future maturity date; along with periodic interest payments (coupons)
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

14. Floating Rate
Common Stock; Preferred Stock; Long Term Government Bonds
Net working capital
The study of the relationship between business decisions and the value of the stock in the business
the Coupon rate is periodically adjusted to the current interest rate

15. Bond Risk
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Rate of the extra tax you would pay if you earned one more dollar
Matches those who wish to buy with those who wish to sell
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

16. Bridge Financing
Way to maintain liquidity while waiting for an anticipated inflow of cash
Moving Average; Cash positions of funds; Amount of short selling
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
how company raise money; uses money; transfers of money from savers to spenders

17. Fundamental principles of Finance
Time Value of Money; Risk/Return
Assets pledged as Collateral for non-payment of debt (collateral)
GAAP - cash v. noncash items - time and costs
Market where Corporate Debt is sold. Short term/Long term

18. Equity Market
Government; Personal; Corporate
Weak Form Efficiency - Semi Strong Form - Strong Form
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

19. Balance sheet identity

20. Aagency costs
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Example of Agency problem - conflict of interest between the principal and the agent. They come about when the managers take actions to promote their own self interests to the detriment of the shareholders.
Security; Seniority; Features (putable bond)
type of risk where interest rate rises and price of bond decreases

21. Liquidity
Business owned by a single individual. PROs: easy and inexpensive to form - individual retains all profits CONs: individual has unlimited liability to debt - the organization is limited to the life of the owner - capital is often limited to owner'
The common set of standards and procedures by which audited financial statements are prepared
The speed and ease with which an asset can be converted to cash. liquidity reduces financial distress but holding liquid assets are generally less profitable.
Senior secured; Senior unsecured - Senior Subordinated - Subordinated

22. Money Markets
Way to maintain liquidity while waiting for an anticipated inflow of cash
Short term Debt Instruments only (Less than 1 year maturity)
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
The balance sheet

23. Weak form efficiency
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Managers in large corporations have incentive to maximize share value because their compensation is often tied to stock value - and prospects for promotion are tied to performance (or they could be replaced if stock price flounders)
State owned institutions which act as finance companies for private domestic entities conducting business abroad
The mixture of long-term debt and equity maintained by a firm to finance its operations

24. Equity Issuance
two companies combining resources in a partnership; i.e Sony-Ericsson
A way for seller of goods and services to have third parties sell his goods or services under license
Moving Average; Cash positions of funds; Amount of short selling
Direct or Private Placement; Public Offering; Rights Issue

25. Marginal tax rate
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Rate of the extra tax you would pay if you earned one more dollar
Overreaction and correction; Delayed reaction; Efficient market reaction

26. Operating Lease is...
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Managers in large corporations have incentive to maximize share value because their compensation is often tied to stock value - and prospects for promotion are tied to performance (or they could be replaced if stock price flounders)
Moving Average; Cash positions of funds; Amount of short selling
The mixture of long-term debt and equity maintained by a firm to finance its operations

27. Working Capital

28. A Bond offering statement contains...
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
retailer gets inventory which he does not have to pay for until he sells it
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Business created as a distinct legal entity composed of one or more individuals or entities; a legal "person" separate and distinct from its owners; complicated to form - subject to taxes

29. Risks of Financial Theories
One or more of the partners will be subject to liability - others will be limited but not actively involved in management. division of profits is relative.
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
two companies combining resources in a partnership; i.e Sony-Ericsson

30. Corporate Finance
NYSE
Government; Personal; Corporate
Cost of good sold
The study of the relationship between business decisions and the value of the stock in the business

31. How to calculate FV of a single payment?
the issuer does something which causes the credit quality to go down
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
FV = PV(1 + r)^t r = interest rate t = # of periods
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

32. Discount rates go from _____ to ______ value
Future to Present
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Cost of good sold

33. Things financial manager should keep in mind when evaluating income statement
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
GAAP - cash v. noncash items - time and costs
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Cash flow from assets

34. Credit Quality Risk
the issuer does something which causes the credit quality to go down
Risk that the company will not be able to repay the interest or principle
Cash flow to stockholders
type of risk where interest rate rises and price of bond decreases

35. CFC
Cash flow to creditors
Overreaction and correction; Delayed reaction; Efficient market reaction
Partners receive equal profits and liability
Direct or Private Placement; Public Offering; Rights Issue

36. The income statement equation
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Over the counter
Revenues - expenses = income

37. Selling on consignment
The balance sheet
retailer gets inventory which he does not have to pay for until he sells it
later
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information

38. Limited partnership
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Matches those who wish to buy with those who wish to sell
One or more of the partners will be subject to liability - others will be limited but not actively involved in management. division of profits is relative.
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties

39. Corp. Finance involves
how company raise money; uses money; transfers of money from savers to spenders
Unexpected information; Information that effects the risk or return of an asset
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
More efficient inventory management - increase in AR collections - etc.

40. Venture Capital
The process of planning and managing a firm's long-term investments
Was enacted to protect investors from corporate abuses. among other things - it requires an auditor- and officer-approved assessment of the company's internal control structure and financial reporting in their annual report.
Equity money provided by investors for start up firms with long term growth potential
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

41. Head and Shoulder refers to what type of stock analysis?
Cash flow from assets
Technical
GAAP - cash v. noncash items - time and costs
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.

42. Auction market
The large OTC market is NASDAQ
Security; Seniority; Features (putable bond)
Assets = Liabilities + Shareholders' Equity
Matches those who wish to buy with those who wish to sell

43. Present value means _____ money on a time line
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
earlier
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Government; Personal; Corporate

44. CFS
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Cash flow to stockholders
Cash flow to creditors

45. Working Capital Loan
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Equity money provided by investors for start up firms with long term growth potential
Assets pledged as Collateral for non-payment of debt (collateral)
Time Value of Money; Risk/Return

46. CFFA
Cash flow from assets
Government; Personal; Corporate
holds that no investor can beat the market and that doing research is useless
Technical

47. Putable Bonds

48. Double Dip Lease
Cross Border Lease used to arbitrage tax law
Difference between a firm's current assets and its current liabilities``
Holder can exchange bond for common stock according to the conversion ratio
The process of planning and managing a firm's long-term investments

49. Franchising
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Expressed on balance sheet but generally not what the assets are worth. market value is the true value of a firm's worth. standard accounting principles focus on historical costs bc they can be precisely measured where market is difficult to estimate
A way for seller of goods and services to have third parties sell his goods or services under license
Unexpected information; Information that effects the risk or return of an asset

50. NWC
Net working capital
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Business owned by a single individual. PROs: easy and inexpensive to form - individual retains all profits CONs: individual has unlimited liability to debt - the organization is limited to the life of the owner - capital is often limited to owner'
The speed and ease with which an asset can be converted to cash. liquidity reduces financial distress but holding liquid assets are generally less profitable.