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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. Types of Cash Flows
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
Net working capital
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Unique and Highly complex financial service transaction between a Bank and a Company

2. Sole Proprietorship

3. What incentives to managers in large corporations have to maximize share value?
Risk that the company will not be able to repay the interest or principle
Risk that the bond will be called back by bond issuer if interest rates fall to much
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)
Net working capital

4. Strong Form
Partners receive equal profits and liability
Market where Corporate Debt is sold. Short term/Long term
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
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.

5. Call Risk
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'
Risk that the bond will be called back by bond issuer if interest rates fall to much
retailer gets inventory which he does not have to pay for until he sells it
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)

6. Money Markets
Loan from one company to another used to buy goods from the company providing the loan
More efficient inventory management - increase in AR collections - etc.
Short term Debt Instruments only (Less than 1 year maturity)
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

7. What makes a Bond Price Change?
holds that no investor can beat the market and that doing research is useless
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Senior secured; Senior unsecured - Senior Subordinated - Subordinated

8. Security for a bond
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
type of risk where interest rate rises and price of bond decreases
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Assets pledged as Collateral for non-payment of debt (collateral)

9. Forms of Government Sponsored Financing
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
how company raise money; uses money; transfers of money from savers to spenders
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)

10. Corporate Finance
Cost of good sold
The mixture of long-term debt and equity maintained by a firm to finance its operations
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
The study of the relationship between business decisions and the value of the stock in the business

11. Marginal tax rate
Rate of the extra tax you would pay if you earned one more dollar
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

12. Types of finance functions
Cash flow to stockholders
Financing: how to get funds; Investing: what to do with funds
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Overreaction and correction; Delayed reaction; Efficient market reaction

13. OTC
Time Value of Money; Risk/Return: Greater risk - Greater returns
Over the counter
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk

14. What are some of the shortcomings of the goal of profit maximization?
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
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
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

15. Working Capital Loan
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Present to Future
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'
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.

16. Selling on consignment
retailer gets inventory which he does not have to pay for until he sells it
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.
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate

17. Future Value means ______ money on a time line
later
Difference between a firm's current assets and its current liabilities``
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
Tax bill divided by taxable income

18. A Bond offering statement contains...
Assets = Liabilities + Shareholders' Equity
earlier
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 large OTC market is NASDAQ

19. Putable Bonds

20. CFFA
Cash flow from assets
retailer gets inventory which he does not have to pay for until he sells it
Technical; Fundamental
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

21. CFS
states that: one Dollar today will be worth more in the future
Overreaction and correction; Delayed reaction; Efficient market reaction
Cash flow to stockholders
Earnings before interest and taxes

22. Double Dip Lease
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'
Cross Border Lease used to arbitrage tax law
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
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.

23. Securitization
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Pure discount loans; Interest only loans; Amortized loans
Time Value of Money; Risk/Return
Holder can exchange bond for common stock according to the conversion ratio

24. What are Stakeholders?
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Pure discount loans; Interest only loans; Amortized loans
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

25. Internally Generated Fund
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
how company raise money; uses money; transfers of money from savers to spenders
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Holder can exchange bond for common stock according to the conversion ratio

26. Equity Issuance
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Direct or Private Placement; Public Offering; Rights Issue
NYSE

27. Floating Rate
Size of firm; Degree of development of financial markets
Common Stock; Preferred Stock; Long Term Government Bonds
the Coupon rate is periodically adjusted to the current interest rate
More efficient inventory management - increase in AR collections - etc.

28. What are the risks of investing in a Bond?
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
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'
Risk that inflation increases since the bond was issued
Over the counter

29. Money Market Instruments

30. Aagency costs
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
Risk that the company will not be able to repay the interest or principle
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.
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

31. Bank loans are based on what conditions?
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.
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
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)
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)

32. What is an ETF?
Exchange Traded Fund - Mixture of stocks and mutual funds
Financing: how to get funds; Investing: what to do with funds
Risk that the bond will be called back by bond issuer if interest rates fall to much
Use of debt in a firm's capital structure. more debt = greater degree of leverage

33. Important Determinants in choosing types of financing
Size of firm; Degree of development of financial markets
how company raise money; uses money; transfers of money from savers to spenders
holds that no investor can beat the market and that doing research is useless
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

34. Credit Quality Risk
Matches those who wish to buy with those who wish to sell
holds that no investor can beat the market and that doing research is useless
the issuer does something which causes the credit quality to go down
Banks; Insurance Companies; Mutual Funds; Pension Funds

35. Off Balance Sheet Financing
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
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)
NYSE
Moving Average; Cash positions of funds; Amount of short selling

36. Types of Stock Analysis
Assets pledged as Collateral for non-payment of debt (collateral)
The balance sheet
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.
Technical; Fundamental

37. LLC (Limited Liability Corporation)

38. Weak form efficiency
The process of planning and managing a firm's long-term investments
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

39. Auction market
Matches those who wish to buy with those who wish to sell
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
holds that no investor can beat the market and that doing research is useless

40. What is an Annuity?
Loan from one company to another used to buy goods from the company providing the loan
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Common Stock; Preferred Stock; Long Term Government Bonds
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)

41. Financial Statement showing a firm's accounting value on a particular date - a 'snapshot'
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Technical
A way for seller of goods and services to have third parties sell his goods or services under license
The balance sheet

42. Tools used for Technical Analysis
Moving Average; Cash positions of funds; Amount of short selling
type of risk where interest rate rises and price of bond decreases
Where a company sells an asset and then leases it back.
Tax bill divided by taxable income

43. What is the largest auction market in the US?
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
NYSE
Cost of good sold
later

44. Working Capital Management
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
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
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

45. Balance sheet identity

46. What is an agency relationship?
earlier
Substitute for buying an asset
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.
Expenses charged against revenues that do not directly affect cash flow - such as depreciation

47. Franchising
Technical; Fundamental
A way for seller of goods and services to have third parties sell his goods or services under license
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Weak Form Efficiency - Semi Strong Form - Strong Form

48. Joint Venture
Direct or Private Placement; Public Offering; Rights Issue
two companies combining resources in a partnership; i.e Sony-Ericsson
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

49. Operating Lease is...
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
Technical; Fundamental
Matches those who wish to buy with those who wish to sell
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

50. Goal of Financial Management
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
To maximize the current value per share fo the existing stock
Technical; Fundamental
Cross Border Lease used to arbitrage tax law