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Business Corporate Finance

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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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. Security for a bond
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Unique and Highly complex financial service transaction between a Bank and a Company
Assets pledged as Collateral for non-payment of debt (collateral)
The common set of standards and procedures by which audited financial statements are prepared

2. Types of Finance
Way to maintain liquidity while waiting for an anticipated inflow of cash
Bond may be redeemed earlier by the issuer
Government; Personal; Corporate
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

3. Time Value of Money
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.
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
states that: one Dollar today will be worth more in the future
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

4. Corporate Finance (defined)
The study of the relationship between business decisions and the value of the stock in the business
Direct or Private Placement; Public Offering; Rights Issue
A financial statement summarizing performance over a period of time.
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties

5. Principle Financial Intermediaries
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
the Coupon rate is periodically adjusted to the current interest rate
More efficient inventory management - increase in AR collections - etc.
Banks; Insurance Companies; Mutual Funds; Pension Funds

6. NWC
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Net working capital
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Cross Border Lease used to arbitrage tax law

7. Working Capital

8. Why is the corporate form of business organization superior when it comes to raising cash?
Loan from one company to another used to buy goods from the company providing the loan
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

9. COGS
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Cost of good sold
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
The study of the relationship between business decisions and the value of the stock in the business

10. What incentives to managers in large corporations have to maximize share value?
Where a business sells its account receivables
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)
Way to maintain liquidity while waiting for an anticipated inflow of cash
Direct or Private Placement; Public Offering; Rights Issue

11. Different Types of Investing Analysis
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Preferred; Common
The study of the relationship between business decisions and the value of the stock in the business

12. Structured Finance
Bond may be redeemed earlier by the issuer
Pure discount loans; Interest only loans; Amortized loans
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)
Unique and Highly complex financial service transaction between a Bank and a Company

13. Three types of loans
Cash flow to creditors
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Pure discount loans; Interest only loans; Amortized loans
Common Stock; Preferred Stock; Long Term Government Bonds

14. Vendor Financing
More efficient inventory management - increase in AR collections - etc.
Loan from one company to another used to buy goods from the company providing the loan
Government; Personal; Corporate
the Coupon rate is periodically adjusted to the current interest rate

15. Present value means _____ money on a time line
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Common Stock; Preferred Stock; Long Term Government Bonds
earlier
Financing: how to get funds; Investing: what to do with funds

16. What is an ETF?
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Exchange Traded Fund - Mixture of stocks and mutual funds
Size of firm; Degree of development of financial markets
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties

17. Different classifications of Financial Markets
Difference between a firm's current assets and its current liabilities``
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
The balance sheet
Common

18. Corporation
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Size of firm; Degree of development of financial markets
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 large OTC market is NASDAQ

19. Bond Risk
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
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
Bond may be redeemed earlier by the issuer

20. GAAP (Generally Accepted Accounting Principles)
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
The common set of standards and procedures by which audited financial statements are prepared
Senior security provided for companies in financial distress or under bankruptcy
earlier

21. How might a companies' change in NWC be negative in a given year?
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
Cross Border Lease used to arbitrage tax law
More efficient inventory management - increase in AR collections - etc.

22. Future Value means ______ money on a time line
Cost of good sold
Cash flow to stockholders
The large OTC market is NASDAQ
later

23. Capital Market Instruments
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Common Stock; Preferred Stock; Long Term Government Bonds
Assets = Liabilities + Shareholders' Equity
Tax bill divided by taxable income

24. Which type of stocks carry voting rights?
The balance sheet
Pure discount loans; Interest only loans; Amortized loans
Common
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

25. What are the risks of investing in a Bond?
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Buys/sells securities for their own benefit - directly with customers -
Where a company sells an asset and then leases it back.
states that: one Dollar today will be worth more in the future

26. CFC
The study of the relationship between business decisions and the value of the stock in the business
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
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 to creditors

27. Corporate Finance
The balance sheet
The common set of standards and procedures by which audited financial statements are prepared
Overreaction and correction; Delayed reaction; Efficient market reaction
The study of the relationship between business decisions and the value of the stock in the business

28. The income statement equation
Technical
type of risk where interest rate rises and price of bond decreases
earlier
Revenues - expenses = income

29. Goal of Financial Management
Direct or Private Placement; Public Offering; Rights Issue
To maximize the current value per share fo the existing stock
State owned institutions which act as finance companies for private domestic entities conducting business abroad
The balance sheet

30. EBIT
Earnings before interest and taxes
Revenues - expenses = income
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
Loan from one company to another used to buy goods from the company providing the loan

31. Income statement
Tax bill divided by taxable income
A financial statement summarizing performance over a period of time.
later
Overreaction and correction; Delayed reaction; Efficient market reaction

32. Sarbanes-Oxley AKA 'Sarbox'

33. Marginal tax rate
Rate of the extra tax you would pay if you earned one more dollar
FV = PV(1 + r)^t r = interest rate t = # of periods
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
Financing: how to get funds; Investing: what to do with funds

34. Internally Generated Fund
Cost of good sold
Size of firm; Degree of development of financial markets
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Rate of the extra tax you would pay if you earned one more dollar

35. How to invest in Inflation

36. Fundamental principles of 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.
Rate of the extra tax you would pay if you earned one more dollar
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
Time Value of Money; Risk/Return

37. Limited partnership
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.
Loan from one company to another used to buy goods from the company providing the loan
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
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'

38. Equity Issuance
Present to Future
Preferred; Common
Direct or Private Placement; Public Offering; Rights Issue
Earnings before interest and taxes

39. Capital Markets
Long term Debt and Equity Instruments only (more than 1 year maturity)
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
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

40. Aagency costs
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.
The large OTC market is NASDAQ
Unexpected information; Information that effects the risk or return of an asset
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer

41. What affects Bid/Ask Spread?
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Volatility of price movement; Liquidity of the market; Interest costs
Overreaction and correction; Delayed reaction; Efficient market reaction
retailer gets inventory which he does not have to pay for until he sells it

42. What is the OTC market for stocks called?
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Risk that inflation increases since the bond was issued
More efficient inventory management - increase in AR collections - etc.
The large OTC market is NASDAQ

43. Types of Financing: Sale and Leaseback
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Where a company sells an asset and then leases it back.
the Coupon rate is periodically adjusted to the current interest rate
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure

44. What makes a Bond Price Change?
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Where a company sells an asset and then leases it back.
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

45. CFS
Cash flow to stockholders
Time Value of Money; Risk/Return: Greater risk - Greater returns
Substitute for buying an asset
Government; Personal; Corporate

46. Money Markets
Short term Debt Instruments only (Less than 1 year maturity)
Risk that inflation increases since the bond was issued
Holder can exchange bond for common stock according to the conversion ratio
Government; Personal; Corporate

47. Financial leverage

48. Debt Market
Market where Corporate Debt is sold. Short term/Long term
earlier
the issuer does something which causes the credit quality to go down
Volatility of price movement; Liquidity of the market; Interest costs

49. Why might revenue and cost figures shown on an income statement not be representative of the actual cashflow?
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

50. How to calculate FV of a single payment?
FV = PV(1 + r)^t r = interest rate t = # of periods
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Risk that the bond will be called back by bond issuer if interest rates fall to much
Technical; Fundamental

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Test your basic knowledge |

Business Corporate Finance

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3d Computer Modeling

Actionscript

Adobe Flash

Adobe Illustrator

Adobe Illustrator Shortcuts

Adobe Indesign Publishing

Adobe Photoshop CS 2 - CS 3

Adobe Photoshop CS 5

Adobe Photoshop CS 5 Keyboard Shortcuts

Adobe Photoshop Graphic Design

Adobe Photoshop Tools And Commands

Adobe Premiere Keyboard Shortcuts

Adobe Premiere Pro

After Effects Keyboard Shortcuts

Agile Development

Agile Scrum Methodology

Ajax

Android Programming

Animation

Asp.net Programming