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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. OTC
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Government; Personal; Corporate
Bond may be redeemed earlier by the issuer
Over the counter

2. The income statement equation
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Revenues - expenses = income
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.
states that: one Dollar today will be worth more in the future

3. Semi Strong Form
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.
Financing: how to get funds; Investing: what to do with funds
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Direct or Private Placement; Public Offering; Rights Issue

4. Capital Structure (or Financial Structure)
Assets pledged as Collateral for non-payment of debt (collateral)
GAAP - cash v. noncash items - time and costs
The mixture of long-term debt and equity maintained by a firm to finance its operations
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

5. Balance sheet identity

6. Money Markets
Short term Debt Instruments only (Less than 1 year maturity)
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)
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
earlier

7. Working Capital Loan
Cost of good sold
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'
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Market where Corporate Debt is sold. Short term/Long term

8. Forms of Government Sponsored Financing
Security; Seniority; Features (putable bond)
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
The mixture of long-term debt and equity maintained by a firm to finance its operations
Weak Form Efficiency - Semi Strong Form - Strong Form

9. The coupon rate of a bond is based off...
Security; Seniority; Features (putable bond)
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Exchange Traded Fund - Mixture of stocks and mutual funds
GAAP - cash v. noncash items - time and costs

10. GAAP (Generally Accepted Accounting Principles)
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
The common set of standards and procedures by which audited financial statements are prepared
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.
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

11. Floating Rate
The mixture of long-term debt and equity maintained by a firm to finance its operations
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
the Coupon rate is periodically adjusted to the current interest rate
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure

12. Head and Shoulder refers to what type of stock analysis?
Technical; Fundamental
Technical
Cash flow to creditors
earlier

13. Limited partnership
FV = PV(1 + r)^t r = interest rate t = # of periods
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.
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Rate of the extra tax you would pay if you earned one more dollar

14. Bridge Financing
Way to maintain liquidity while waiting for an anticipated inflow of cash
The common set of standards and procedures by which audited financial statements are prepared
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
retailer gets inventory which he does not have to pay for until he sells it

15. What affects Bid/Ask Spread?
Bond may be redeemed earlier by the issuer
The study of the relationship between business decisions and the value of the stock in the business
Volatility of price movement; Liquidity of the market; Interest costs
Holder can exchange bond for common stock according to the conversion ratio

16. Bank loans are based on what conditions?
GAAP - cash v. noncash items - time and costs
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Loan from one company to another used to buy goods from the company providing the loan
Technical; Fundamental

17. Securitization
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Weak Form Efficiency - Semi Strong Form - Strong Form
Over the counter
The process of planning and managing a firm's long-term investments

18. Corp. Finance involves
how company raise money; uses money; transfers of money from savers to spenders
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Assets pledged as Collateral for non-payment of debt (collateral)
Over the counter

19. Putable Bonds

20. Different classifications of Financial Markets
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.
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
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
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases

21. Working Capital Management
Equity money provided by investors for start up firms with long term growth potential
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

22. Floor Plan Financing
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
type of risk where interest rate rises and price of bond decreases
Way to maintain liquidity while waiting for an anticipated inflow of cash
To maximize the current value per share fo the existing stock

23. What are Stakeholders?
Revenues - expenses = income
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
A way for seller of goods and services to have third parties sell his goods or services under license
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate

24. Things financial manager should keep in mind when evaluating income statement
GAAP - cash v. noncash items - time and costs
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
To maximize the current value per share fo the existing stock

25. Three types of loans
A financial statement summarizing performance over a period of time.
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Financing: how to get funds; Investing: what to do with funds
Pure discount loans; Interest only loans; Amortized loans

26. Partnership
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Business formed by 2 or more individuals or entities.
Partners receive equal profits and liability
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

27. Aagency costs
The process of planning and managing a firm's long-term investments
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.
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Way to maintain liquidity while waiting for an anticipated inflow of cash

28. Dealer
holds that no investor can beat the market and that doing research is useless
Buys/sells securities for their own benefit - directly with customers -
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

29. Capital Budgeting

30. Bond Risk
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Business formed by 2 or more individuals or entities.
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties

31. What is an Annuity?
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Risk that inflation increases since the bond was issued
Cost of good sold
Technical; Fundamental

32. Bond
Use of debt in a firm's capital structure. more debt = greater degree of leverage
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)
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.

33. Net working capital

34. What makes a Bond Price Change?
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.
later
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
NYSE

35. What is an ETF?
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
More efficient inventory management - increase in AR collections - etc.
Exchange Traded Fund - Mixture of stocks and mutual funds
Technical

36. Two Basic Principles of Finance
Volatility of price movement; Liquidity of the market; Interest costs
Earnings before interest and taxes
Common
Time Value of Money; Risk/Return: Greater risk - Greater returns

37. CFC
Cash flow to creditors
Business formed by 2 or more individuals or entities.
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Substitute for buying an asset

38. Sarbanes-Oxley AKA 'Sarbox'

39. Double Dip Lease
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Cross Border Lease used to arbitrage tax law
Earnings before interest and taxes

40. NWC
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Net working capital
Size of firm; Degree of development of financial markets
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. Capital Market Instruments
Future to Present
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Common Stock; Preferred Stock; Long Term Government Bonds
states that: one Dollar today will be worth more in the future

42. Strong Form
Buys/sells securities for their own benefit - directly with customers -
Technical; Fundamental
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)

43. Corporate Finance
The study of the relationship between business decisions and the value of the stock in the business
Cash flow to creditors
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.
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.

44. Discount rates go from _____ to ______ value
Future to Present
Security; Seniority; Features (putable bond)
The common set of standards and procedures by which audited financial statements are prepared
Risk that the company will not be able to repay the interest or principle

45. Sole Proprietorship

46. Efficient Market Hypothesis
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
holds that no investor can beat the market and that doing research is useless
Make no periodic interest payments - Yield comes from the difference between purchase price and par value

47. Fundamental principles of Finance
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
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.
Common
Time Value of Money; Risk/Return

48. What is the OTC market for stocks called?
The large OTC market is NASDAQ
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Loan from one company to another used to buy goods from the company providing the loan
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

49. Venture Capital
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
the Coupon rate is periodically adjusted to the current interest rate
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.

50. Letters of Credit
Revenues - expenses = income
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Soft Loans; Guarantees; Grants; Taxes; Equity Financing