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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. Bond
Cost of good sold
Partners receive equal profits and liability
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)
A way for seller of goods and services to have third parties sell his goods or services under license

2. Putable Bonds

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3. 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
Earnings before interest and taxes
holds that no investor can beat the market and that doing research is useless
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.

4. Selling on consignment
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
To maximize the current value per share fo the existing stock
retailer gets inventory which he does not have to pay for until he sells it
FV = PV(1 + r)^t r = interest rate t = # of periods

5. GAAP (Generally Accepted Accounting Principles)
The common set of standards and procedures by which audited financial statements are prepared
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
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. Different classifications of Financial Markets
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Financing: how to get funds; Investing: what to do with funds
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
The common set of standards and procedures by which audited financial statements are prepared

7. Corporation
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
two companies combining resources in a partnership; i.e Sony-Ericsson
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

8. What is the capital budgeting decision?
Cash flow to creditors
Use of debt in a firm's capital structure. more debt = greater degree of leverage
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

9. What is the order of Seniority?
Cross Border Lease used to arbitrage tax law
how company raise money; uses money; transfers of money from savers to spenders
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
Senior secured; Senior unsecured - Senior Subordinated - Subordinated

10. Bank loans are based on what conditions?
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)

11. Corp. Finance involves
how company raise money; uses money; transfers of money from savers to spenders
Substitute for buying an asset
Weak Form Efficiency - Semi Strong Form - Strong Form
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.

12. How to invest in Deflation
The large OTC market is NASDAQ
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Make no periodic interest payments - Yield comes from the difference between purchase price and par value

13. Semi Strong Form
Time Value of Money; Risk/Return
Earnings before interest and taxes
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

14. CFFA
Moving Average; Cash positions of funds; Amount of short selling
Cash flow from assets
Business formed by 2 or more individuals or entities.
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties

15. Working Capital Loan
To maximize the current value per share fo the existing stock
Buys/sells securities for their own benefit - directly with customers -
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Present to Future

16. Which type of stocks carry voting rights?
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Partners receive equal profits and liability
the Coupon rate is periodically adjusted to the current interest rate
Common

17. Sarbanes-Oxley AKA 'Sarbox'

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18. What are the risks of investing in a Bond?
Common
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Where a business sells its account receivables
Earnings before interest and taxes

19. Future Value means ______ money on a time line
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Financing: how to get funds; Investing: what to do with funds
later

20. Operating Lease is...
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
A way for seller of goods and services to have third parties sell his goods or services under license
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Short term Debt Instruments only (Less than 1 year maturity)

21. Money Market Instruments

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22. Securitization
Rate of the extra tax you would pay if you earned one more dollar
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)
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.

23. What is an Annuity?
Unique and Highly complex financial service transaction between a Bank and a Company
Cash flow to stockholders
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
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.

24. Joint Venture
two companies combining resources in a partnership; i.e Sony-Ericsson
Unexpected information; Information that effects the risk or return of an asset
Size of firm; Degree of development of financial markets
retailer gets inventory which he does not have to pay for until he sells it

25. Convertible bond
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Where a business sells its account receivables
Holder can exchange bond for common stock according to the conversion ratio
Unexpected information; Information that effects the risk or return of an asset

26. Debt Market
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
Banks; Insurance Companies; Mutual Funds; Pension Funds
two companies combining resources in a partnership; i.e Sony-Ericsson
Market where Corporate Debt is sold. Short term/Long term

27. CFC
Revenues - expenses = income
Cash flow to creditors
Direct or Private Placement; Public Offering; Rights Issue
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

28. 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
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: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure

29. How might a companies' change in NWC be negative in a given year?
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
Unique and Highly complex financial service transaction between a Bank and a Company
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
More efficient inventory management - increase in AR collections - etc.

30. Core Elements of Financial Management
To maximize the current value per share fo the existing stock
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
The balance sheet
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases

31. Efficient Market Hypothesis
holds that no investor can beat the market and that doing research is useless
Net working capital
Cash flow to creditors
Banks; Insurance Companies; Mutual Funds; Pension Funds

32. What is an ETF?
Assets = Liabilities + Shareholders' Equity
Cash flow to stockholders
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Exchange Traded Fund - Mixture of stocks and mutual funds

33. Strong Form
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.
Matches those who wish to buy with those who wish to sell
Over the counter
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)

34. Credit Quality Risk
Future to Present
the issuer does something which causes the credit quality to go down
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
states that: one Dollar today will be worth more in the future

35. What is an agency relationship?
holds that no investor can beat the market and that doing research is useless
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Technical
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.

36. Double Dip Lease
Cross Border Lease used to arbitrage tax law
Common
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.

37. Venture Capital
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Equity money provided by investors for start up firms with long term growth potential
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
More efficient inventory management - increase in AR collections - etc.

38. Export Credit Agencies
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
State owned institutions which act as finance companies for private domestic entities conducting business abroad

39. Capital Market Instruments
More efficient inventory management - increase in AR collections - etc.
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
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

40. Factoring
Risk that the company will not be able to repay the interest or principle
Where a business sells its account receivables
Weak Form Efficiency - Semi Strong Form - Strong Form
Substitute for buying an asset

41. Dealer
FV = PV(1 + r)^t r = interest rate t = # of periods
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Size of firm; Degree of development of financial markets
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

42. How to invest in Inflation

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43. Callable Bonds
Bond may be redeemed earlier by the issuer
Business formed by 2 or more individuals or entities.
Assets pledged as Collateral for non-payment of debt (collateral)
Assets = Liabilities + Shareholders' Equity

44. Forms of Government Sponsored Financing
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Business formed by 2 or more individuals or entities.
A way for seller of goods and services to have third parties sell his goods or services under license
Weak Form Efficiency - Semi Strong Form - Strong Form

45. Levels of Market Efficiency
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)
A financial statement summarizing performance over a period of time.
Weak Form Efficiency - Semi Strong Form - Strong Form
Where a business sells its account receivables

46. Letters of Credit
Net working capital
Buys/sells securities for their own benefit - directly with customers -
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Common

47. Auction market
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Matches those who wish to buy with those who wish to sell
Technical
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

48. Marginal tax rate
Where a company sells an asset and then leases it back.
how company raise money; uses money; transfers of money from savers to spenders
Holder can exchange bond for common stock according to the conversion ratio
Rate of the extra tax you would pay if you earned one more dollar

49. Floor Plan Financing
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
states that: one Dollar today will be worth more in the future
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership

50. Types of Finance
Government; Personal; Corporate
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
later
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure