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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. How to invest in Inflation

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2. How to invest in Deflation
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Government; Personal; Corporate
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk

3. What is an ETF?
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
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
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'

4. NWC
The study of the relationship between business decisions and the value of the stock in the business
Net working capital
A way for seller of goods and services to have third parties sell his goods or services under license
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

5. Two Basic Principles of Finance
A way for seller of goods and services to have third parties sell his goods or services under license
Short term Debt Instruments only (Less than 1 year maturity)
Cost of good sold
Time Value of Money; Risk/Return: Greater risk - Greater returns

6. Security for a bond
A way for seller of goods and services to have third parties sell his goods or services under license
Assets pledged as Collateral for non-payment of debt (collateral)
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
Make no periodic interest payments - Yield comes from the difference between purchase price and par value

7. Fundamental principles of Finance
the issuer does something which causes the credit quality to go down
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)
earlier
Time Value of Money; Risk/Return

8. Noncash items
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
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.
Assets = Liabilities + Shareholders' Equity
More efficient inventory management - increase in AR collections - etc.

9. Auction market
Common
Matches those who wish to buy with those who wish to sell
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership

10. Efficient Market Hypothesis
Short term Debt Instruments only (Less than 1 year maturity)
The process of planning and managing a firm's long-term investments
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
holds that no investor can beat the market and that doing research is useless

11. Internally Generated Fund
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Overreaction and correction; Delayed reaction; Efficient market reaction
The large OTC market is NASDAQ
Moving Average; Cash positions of funds; Amount of short selling

12. Forms of Government Sponsored Financing
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
later
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

13. Off Balance Sheet Financing
Volatility of price movement; Liquidity of the market; Interest costs
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)

14. Debtor in Possession (DIP)
Cost of good sold
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Senior security provided for companies in financial distress or under bankruptcy
Net working capital

15. Liquidity
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
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.
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.
holds that no investor can beat the market and that doing research is useless

16. Capital Markets
To maximize the current value per share fo the existing stock
Where a business sells its account receivables
Long term Debt and Equity Instruments only (more than 1 year maturity)
Financing: how to get funds; Investing: what to do with funds

17. Which type of stocks carry voting rights?
More efficient inventory management - increase in AR collections - etc.
Common
earlier
Net working capital

18. Vendor Financing
the Coupon rate is periodically adjusted to the current interest rate
retailer gets inventory which he does not have to pay for until he sells it
Unique and Highly complex financial service transaction between a Bank and a Company
Loan from one company to another used to buy goods from the company providing the loan

19. Goal of Financial Management
To maximize the current value per share fo the existing stock
Assets = Liabilities + Shareholders' Equity
FV = PV(1 + r)^t r = interest rate t = # of periods
Risk that the company will not be able to repay the interest or principle

20. Project Finance
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
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.
Cost of good sold
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.

21. Risks of Financial Theories
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
Rate of the extra tax you would pay if you earned one more dollar
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

22. What affects Bid/Ask Spread?
Volatility of price movement; Liquidity of the market; Interest costs
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Market where Corporate Debt is sold. Short term/Long term
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

23. Interest Rate Risk
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
type of risk where interest rate rises and price of bond decreases
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)

24. What is the capital budgeting decision?
Security; Seniority; Features (putable bond)
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Buys/sells securities for their own benefit - directly with customers -
Common

25. Joint Venture
Assets pledged as Collateral for non-payment of debt (collateral)
Equity money provided by investors for start up firms with long term growth potential
two companies combining resources in a partnership; i.e Sony-Ericsson
Unique and Highly complex financial service transaction between a Bank and a Company

26. What is a dealer market?
the Coupon rate is periodically adjusted to the current interest rate
Buys/sells securities for their own benefit - directly with customers -
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
earlier

27. Balance sheet identity

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28. Securitization
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
A financial statement summarizing performance over a period of time.

29. Inflation Risk
Risk that inflation increases since the bond was issued
A way for seller of goods and services to have third parties sell his goods or services under license
Banks; Insurance Companies; Mutual Funds; Pension Funds
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

30. Broker
NYSE
Time Value of Money; Risk/Return: Greater risk - Greater returns
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

31. Book value vs. market value value for a firm's assets

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32. Default Risk
The mixture of long-term debt and equity maintained by a firm to finance its operations
Risk that the company will not be able to repay the interest or principle
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

33. How to calculate FV of a single payment?
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Unexpected information; Information that effects the risk or return of an asset
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
FV = PV(1 + r)^t r = interest rate t = # of periods

34. Franchising
Cash flow to creditors
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
A way for seller of goods and services to have third parties sell his goods or services under license
Where a company sells an asset and then leases it back.

35. Levels of Market Efficiency
Tax bill divided by taxable income
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
The common set of standards and procedures by which audited financial statements are prepared
Weak Form Efficiency - Semi Strong Form - Strong Form

36. Floor Plan Financing
The study of the relationship between business decisions and the value of the stock in the business
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
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

37. CFFA
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Cash flow from assets
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)

38. What is the largest auction market in the US?
Technical; Fundamental
holds that no investor can beat the market and that doing research is useless
Market where Corporate Debt is sold. Short term/Long term
NYSE

39. Different Types of Investing Analysis
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
two companies combining resources in a partnership; i.e Sony-Ericsson
Where a business sells its account receivables
Common

40. Aagency costs
Buys/sells securities for their own benefit - directly with customers -
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.
how company raise money; uses money; transfers of money from savers to spenders
Banks; Insurance Companies; Mutual Funds; Pension Funds

41. Head and Shoulder refers to what type of stock analysis?
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Technical
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Earnings before interest and taxes

42. 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.
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
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
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

43. Leases
Cross Border Lease used to arbitrage tax law
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Volatility of price movement; Liquidity of the market; Interest costs
Substitute for buying an asset

44. What are the risks of investing in a Bond?
A financial statement summarizing performance over a period of time.
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
earlier

45. Forms of Business Organization
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Overreaction and correction; Delayed reaction; Efficient market reaction
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

46. Two types of stocks
Cash flow from assets
Preferred; Common
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
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'

47. Corporation
Difference between a firm's current assets and its current liabilities``
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Exchange Traded Fund - Mixture of stocks and mutual funds
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. Dealer
Ease of transferring ownership - limited liability to debt - unlimited life of the business
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
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
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

49. Factoring
Where a business sells its account receivables
Loan from one company to another used to buy goods from the company providing the loan
Time Value of Money; Risk/Return
State owned institutions which act as finance companies for private domestic entities conducting business abroad

50. Capital Budgeting

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