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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. Project Finance
Risk that the company will not be able to repay the interest or principle
earlier
Common
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.

2. Operating Lease is...
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Time Value of Money; Risk/Return
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

3. Interest Rate Risk
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
type of risk where interest rate rises and price of bond decreases
Risk that the company will not be able to repay the interest or principle
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

4. What is the order of Seniority?
Cross Border Lease used to arbitrage tax law
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Unique and Highly complex financial service transaction between a Bank and a Company
Pure discount loans; Interest only loans; Amortized loans

5. Capital Markets
To maximize the current value per share fo the existing stock
Long term Debt and Equity Instruments only (more than 1 year maturity)
Over the counter
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer

6. What are Stakeholders?
Present to Future
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Security; Seniority; Features (putable bond)
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services

7. What incentives to managers in large corporations have to maximize share value?
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)
Cost of good sold
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

8. Forms of Business Organization
The study of the relationship between business decisions and the value of the stock in the business
Financing: how to get funds; Investing: what to do with funds
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
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

9. Present value means _____ money on a time line
earlier
Equity money provided by investors for start up firms with long term growth potential
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.
Long term Debt and Equity Instruments only (more than 1 year maturity)

10. Dealer
the Coupon rate is periodically adjusted to the current interest rate
To maximize the current value per share fo the existing stock
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Government; Personal; Corporate

11. Franchising
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Net working capital
Long term Debt and Equity Instruments only (more than 1 year maturity)
A way for seller of goods and services to have third parties sell his goods or services under license

12. Vendor Financing
Over the counter
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Loan from one company to another used to buy goods from the company providing the loan
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold

13. Goal of Financial Management
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
To maximize the current value per share fo the existing stock
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk

14. Levels of Market Efficiency
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Weak Form Efficiency - Semi Strong Form - Strong Form
Senior secured; Senior unsecured - Senior Subordinated - Subordinated

15. Partnership
Business formed by 2 or more individuals or entities.
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Where a business sells its account receivables
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

16. Income statement
Substitute for buying an asset
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
A financial statement summarizing performance over a period of time.

17. Bond
Cash flow to creditors
the issuer does something which causes the credit quality to go down
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)
Expenses charged against revenues that do not directly affect cash flow - such as depreciation

18. Convertible bond
Volatility of price movement; Liquidity of the market; Interest costs
Equity money provided by investors for start up firms with long term growth potential
Short term Debt Instruments only (Less than 1 year maturity)
Holder can exchange bond for common stock according to the conversion ratio

19. GAAP (Generally Accepted Accounting Principles)
Exchange Traded Fund - Mixture of stocks and mutual funds
Market where Corporate Debt is sold. Short term/Long term
The common set of standards and procedures by which audited financial statements are prepared
GAAP - cash v. noncash items - time and costs

20. Equity Market
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
two companies combining resources in a partnership; i.e Sony-Ericsson
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate

21. The income statement equation
Earnings before interest and taxes
Revenues - expenses = income
Assets pledged as Collateral for non-payment of debt (collateral)
Buys/sells securities for their own benefit - directly with customers -

22. Why might revenue and cost figures shown on an income statement not be representative of the actual cashflow?
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
The study of the relationship between business decisions and the value of the stock in the business
Technical; Fundamental
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

23. Working Capital

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24. Average tax rate
The common set of standards and procedures by which audited financial statements are prepared
Tax bill divided by taxable income
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Cross Border Lease used to arbitrage tax law

25. Financial Statement showing a firm's accounting value on a particular date - a 'snapshot'
The balance sheet
Unique and Highly complex financial service transaction between a Bank and a Company
The study of the relationship between business decisions and the value of the stock in the business
Loan from one company to another used to buy goods from the company providing the loan

26. Interest rates go from _____ to _____ value
Net working capital
A financial statement summarizing performance over a period of time.
Present to Future
Common Stock; Preferred Stock; Long Term Government Bonds

27. Default Risk
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.
Risk that the company will not be able to repay the interest or principle
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

28. CFFA
Ease of transferring ownership - limited liability to debt - unlimited life of the business
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.
Cash flow from assets
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.

29. Selling on consignment
Use of debt in a firm's capital structure. more debt = greater degree of leverage
retailer gets inventory which he does not have to pay for until he sells it
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
two companies combining resources in a partnership; i.e Sony-Ericsson

30. Securitization
The study of the relationship between business decisions and the value of the stock in the business
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate

31. Discount rates go from _____ to ______ value
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Future to Present
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Cash flow to creditors

32. Broker
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Government; Personal; Corporate
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
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.

33. Type of information that affects Stock Price greatly
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Exchange Traded Fund - Mixture of stocks and mutual funds
The study of the relationship between business decisions and the value of the stock in the business
Unexpected information; Information that effects the risk or return of an asset

34. Why is the corporate form of business organization superior when it comes to raising cash?
Overreaction and correction; Delayed reaction; Efficient market reaction
Technical
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

35. Different Types of Investing Analysis
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
how company raise money; uses money; transfers of money from savers to spenders
Overreaction and correction; Delayed reaction; Efficient market reaction
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)

36. Bridge Financing
retailer gets inventory which he does not have to pay for until he sells it
Technical; Fundamental
Way to maintain liquidity while waiting for an anticipated inflow of cash
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'

37. Commercial Paper
Senior security provided for companies in financial distress or under bankruptcy
More efficient inventory management - increase in AR collections - etc.
GAAP - cash v. noncash items - time and costs
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations

38. Working Capital Management
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
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'
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

39. Stock Prices adjust to new information in these ways...
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
A financial statement summarizing performance over a period of time.
Overreaction and correction; Delayed reaction; Efficient market reaction
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)

40. NWC
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
The common set of standards and procedures by which audited financial statements are prepared
Financing: how to get funds; Investing: what to do with funds
Net working capital

41. Bank loans are based on what conditions?
A way for seller of goods and services to have third parties sell his goods or services under license
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
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)
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization

42. Strong Form
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Volatility of price movement; Liquidity of the market; Interest costs
Partners receive equal profits and liability
Risk that the company will not be able to repay the interest or principle

43. What is a dealer market?
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Risk that the company will not be able to repay the interest or principle
Tax bill divided by taxable income
Buys/sells securities for their own benefit - directly with customers -

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

45. Export Credit Agencies
later
Banks; Insurance Companies; Mutual Funds; Pension Funds
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
State owned institutions which act as finance companies for private domestic entities conducting business abroad

46. What is an agency relationship?
The study of the relationship between business decisions and the value of the stock in the business
the issuer does something which causes the credit quality to go down
Cost of good sold
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.

47. How to invest in Deflation
Difference between a firm's current assets and its current liabilities``
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
Buys/sells securities for their own benefit - directly with customers -
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold

48. Auction market
Matches those who wish to buy with those who wish to sell
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Cost of good sold
how company raise money; uses money; transfers of money from savers to spenders

49. General partnership
Rate of the extra tax you would pay if you earned one more dollar
Security; Seniority; Features (putable bond)
Partners receive equal profits and liability
Market where Corporate Debt is sold. Short term/Long term

50. Internally Generated Fund
the issuer does something which causes the credit quality to go down
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
The process of planning and managing a firm's long-term investments