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Business Corporate Finance

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
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. EBIT
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Volatility of price movement; Liquidity of the market; Interest costs
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Earnings before interest and taxes

2. Two types of stocks
Senior security provided for companies in financial distress or under bankruptcy
Present to Future
Preferred; Common
Cash flow to stockholders

3. Time Value of Money
states that: one Dollar today will be worth more in the future
Over the counter
Common
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

4. Call Risk
Risk that the bond will be called back by bond issuer if interest rates fall to much
Security; Seniority; Features (putable bond)
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
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

5. Noncash items
how company raise money; uses money; transfers of money from savers to spenders
Equity money provided by investors for start up firms with long term growth potential
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

6. Goal of Financial Management
To maximize the current value per share fo the existing stock
The common set of standards and procedures by which audited financial statements are prepared
Business formed by 2 or more individuals or entities.
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

7. GAAP (Generally Accepted Accounting Principles)
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
Senior security provided for companies in financial distress or under bankruptcy
The common set of standards and procedures by which audited financial statements are prepared
Cash flow from assets

8. How might a companies' change in NWC be negative in a given year?
Moving Average; Cash positions of funds; Amount of short selling
More efficient inventory management - increase in AR collections - etc.
The study of the relationship between business decisions and the value of the stock in the business
Cross Border Lease used to arbitrage tax law

9. What makes a Bond Price Change?
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
holds that no investor can beat the market and that doing research is useless
The process of planning and managing a firm's long-term investments
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk

10. Leases
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
More efficient inventory management - increase in AR collections - etc.
GAAP - cash v. noncash items - time and costs
Substitute for buying an asset

11. Money Markets
Short term Debt Instruments only (Less than 1 year maturity)
Direct or Private Placement; Public Offering; Rights Issue
Risk that inflation increases since the bond was issued
Exchange Traded Fund - Mixture of stocks and mutual funds

12. CFFA
Risk that the company will not be able to repay the interest or principle
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)
Cash flow from assets
Cross Border Lease used to arbitrage tax law

13. Which type of stocks carry voting rights?
Cash flow to creditors
how company raise money; uses money; transfers of money from savers to spenders
the Coupon rate is periodically adjusted to the current interest rate
Common

14. Bridge Financing
type of risk where interest rate rises and price of bond decreases
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Present to Future
Way to maintain liquidity while waiting for an anticipated inflow of cash

15. Commercial Paper
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Common Stock; Preferred Stock; Long Term Government Bonds
Revenues - expenses = income
Expenses charged against revenues that do not directly affect cash flow - such as depreciation

16. Liquidity
Common
Senior security provided for companies in financial distress or under bankruptcy
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.
Unexpected information; Information that effects the risk or return of an asset

17. Export Credit Agencies
Direct or Private Placement; Public Offering; Rights Issue
State owned institutions which act as finance companies for private domestic entities conducting business abroad
To maximize the current value per share fo the existing stock
Cross Border Lease used to arbitrage tax law

18. What is the OTC market for stocks called?
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.
Over the counter
The large OTC market is NASDAQ
Pure discount loans; Interest only loans; Amortized loans

19. Off Balance Sheet Financing
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

20. Equity Market
Short term Debt Instruments only (Less than 1 year maturity)
Common
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

21. Structured Finance
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.
Unique and Highly complex financial service transaction between a Bank and a Company
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'
Tax bill divided by taxable income

22. What is an ETF?
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Exchange Traded Fund - Mixture of stocks and mutual funds
Where a company sells an asset and then leases it back.

23. Equity Issuance
Present to Future
Assets = Liabilities + Shareholders' Equity
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
Direct or Private Placement; Public Offering; Rights Issue

24. What are the risks of investing in a Bond?
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Substitute for buying an asset
Net working capital

25. General partnership
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'
Holder can exchange bond for common stock according to the conversion ratio
Partners receive equal profits and liability
The common set of standards and procedures by which audited financial statements are prepared

26. Types of finance functions
Pure discount loans; Interest only loans; Amortized loans
states that: one Dollar today will be worth more in the future
Financing: how to get funds; Investing: what to do with funds
Cost of good sold

27. Net working capital

28. Why might revenue and cost figures shown on an income statement not be representative of the actual cashflow?
states that: one Dollar today will be worth more in the future
Tax bill divided by taxable income
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
State owned institutions which act as finance companies for private domestic entities conducting business abroad

29. Debtor in Possession (DIP)
Cross Border Lease used to arbitrage tax law
Senior security provided for companies in financial distress or under bankruptcy
Loan from one company to another used to buy goods from the company providing the loan
type of risk where interest rate rises and price of bond decreases

30. What is the capital budgeting decision?
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
The study of the relationship between business decisions and the value of the stock in the business
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.

31. Floating Rate
Time Value of Money; Risk/Return: Greater risk - Greater returns
Volatility of price movement; Liquidity of the market; Interest costs
the Coupon rate is periodically adjusted to the current interest rate
Partners receive equal profits and liability

32. A Bond offering statement contains...
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Market where Corporate Debt is sold. Short term/Long term
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Technical; Fundamental

33. Type of information that affects Stock Price greatly
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
Cash flow to stockholders
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

34. Types of Financing: Sale and Leaseback
The study of the relationship between business decisions and the value of the stock in the business
Where a company sells an asset and then leases it back.
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Banks; Insurance Companies; Mutual Funds; Pension Funds

35. Dealer
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Holder can exchange bond for common stock according to the conversion ratio
Future to Present

36. Discount rates go from _____ to ______ value
Moving Average; Cash positions of funds; Amount of short selling
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Future to Present
retailer gets inventory which he does not have to pay for until he sells it

37. Different Types of Investing Analysis
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'
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Revenues - expenses = income

38. What is the largest auction market in the US?
NYSE
The balance sheet
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Weak Form Efficiency - Semi Strong Form - Strong Form

39. What is a dealer market?
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Buys/sells securities for their own benefit - directly with customers -
Technical; Fundamental

40. Strong Form
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Banks; Insurance Companies; Mutual Funds; Pension Funds
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
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'

41. Stock Prices adjust to new information in these ways...
Market where Corporate Debt is sold. Short term/Long term
Overreaction and correction; Delayed reaction; Efficient market reaction
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Cash flow to creditors

42. Efficient Market Hypothesis
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
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
Exists whenever someone (the principal) hires another (the agent) to represent his or her interests. In a corporation - the stockholders are the principal - and management is the agent of the stockholders.
holds that no investor can beat the market and that doing research is useless

43. Balance sheet identity

44. Default Risk
The balance sheet
Size of firm; Degree of development of financial markets
Risk that the company will not be able to repay the interest or principle
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

45. What is an agency relationship?
Risk that the bond will be called back by bond issuer if interest rates fall to much
Exists whenever someone (the principal) hires another (the agent) to represent his or her interests. In a corporation - the stockholders are the principal - and management is the agent of the stockholders.
Rate of the extra tax you would pay if you earned one more dollar
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)

46. Double Dip Lease
Common Stock; Preferred Stock; Long Term Government Bonds
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
The large OTC market is NASDAQ
Cross Border Lease used to arbitrage tax law

47. Weak form efficiency
Short term Debt Instruments only (Less than 1 year maturity)
Assets = Liabilities + Shareholders' Equity
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

48. Capital Market Instruments
Earnings before interest and taxes
Government; Personal; Corporate
Common Stock; Preferred Stock; Long Term Government Bonds
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

49. Why is the corporate form of business organization superior when it comes to raising cash?
how company raise money; uses money; transfers of money from savers to spenders
Ease of transferring ownership - limited liability to debt - unlimited life of the business
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'
two companies combining resources in a partnership; i.e Sony-Ericsson

50. A good financial system must have...
type of risk where interest rate rises and price of bond decreases
Technical
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases