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. Floating Rate
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
The large OTC market is NASDAQ
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
the Coupon rate is periodically adjusted to the current interest rate


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

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3. Principle Financial Intermediaries
two companies combining resources in a partnership; i.e Sony-Ericsson
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Banks; Insurance Companies; Mutual Funds; Pension Funds
The mixture of long-term debt and equity maintained by a firm to finance its operations


4. Selling on consignment
Common
retailer gets inventory which he does not have to pay for until he sells it
Size of firm; Degree of development of financial markets
Use of debt in a firm's capital structure. more debt = greater degree of leverage


5. Security for a bond
Preferred; Common
Assets pledged as Collateral for non-payment of debt (collateral)
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases


6. Vendor Financing
Technical; Fundamental
Loan from one company to another used to buy goods from the company providing the loan
Overreaction and correction; Delayed reaction; Efficient market reaction
Assets = Liabilities + Shareholders' Equity


7. Equity Issuance
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
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.
Direct or Private Placement; Public Offering; Rights Issue
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.


8. Capital Budgeting

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9. 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.
Direct or Private Placement; Public Offering; Rights Issue
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
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'


10. General partnership
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)
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.
Partners receive equal profits and liability
Cost of good sold


11. Efficient Market Hypothesis
Earnings before interest and taxes
Size of firm; Degree of development of financial markets
Cash flow from assets
holds that no investor can beat the market and that doing research is useless


12. What are Stakeholders?
Common Stock; Preferred Stock; Long Term Government Bonds
Weak Form Efficiency - Semi Strong Form - Strong Form
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
The common set of standards and procedures by which audited financial statements are prepared


13. NWC
Cross Border Lease used to arbitrage tax law
Long term Debt and Equity Instruments only (more than 1 year maturity)
Net working capital
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.


14. CFC
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
Tax bill divided by taxable income
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Cash flow to creditors


15. Weak form efficiency
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Weak Form Efficiency - Semi Strong Form - Strong Form


16. Call Risk
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Weak Form Efficiency - Semi Strong Form - Strong Form
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Risk that the bond will be called back by bond issuer if interest rates fall to much


17. A Bond offering statement contains...
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Where a company sells an asset and then leases it back.
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.
Overreaction and correction; Delayed reaction; Efficient market reaction


18. Franchising
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
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
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)


19. Semi Strong Form
Exchange Traded Fund - Mixture of stocks and mutual funds
More efficient inventory management - increase in AR collections - etc.
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Where a company sells an asset and then leases it back.


20. What is the largest auction market in the US?
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
NYSE
retailer gets inventory which he does not have to pay for until he sells it


21. GAAP (Generally Accepted Accounting Principles)
The common set of standards and procedures by which audited financial statements are prepared
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
Future to Present


22. Capital Market Instruments
Common Stock; Preferred Stock; Long Term Government Bonds
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Direct or Private Placement; Public Offering; Rights Issue
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties


23. Important Determinants in choosing types of financing
states that: one Dollar today will be worth more in the future
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
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.
Size of firm; Degree of development of financial markets


24. Forms of Government Sponsored Financing
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
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
holds that no investor can beat the market and that doing research is useless
Soft Loans; Guarantees; Grants; Taxes; Equity Financing


25. Structured Finance
Short term Debt Instruments only (Less than 1 year maturity)
Unique and Highly complex financial service transaction between a Bank and a Company
Technical; Fundamental
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory


26. Income statement
Technical
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
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.
A financial statement summarizing performance over a period of time.


27. A good financial system must have...
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Moving Average; Cash positions of funds; Amount of short selling
the Coupon rate is periodically adjusted to the current interest rate
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.


28. Things financial manager should keep in mind when evaluating income statement
More efficient inventory management - increase in AR collections - etc.
Banks; Insurance Companies; Mutual Funds; Pension Funds
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
GAAP - cash v. noncash items - time and costs


29. Sarbanes-Oxley AKA 'Sarbox'

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30. Future Value means ______ money on a time line
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
later
how company raise money; uses money; transfers of money from savers to spenders
The process of planning and managing a firm's long-term investments


31. Present value means _____ money on a time line
The process of planning and managing a firm's long-term investments
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
earlier
Assets pledged as Collateral for non-payment of debt (collateral)


32. EBIT
Difference between a firm's current assets and its current liabilities``
Earnings before interest and taxes
The balance sheet
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)


33. Floor Plan Financing
Volatility of price movement; Liquidity of the market; Interest costs
Holder can exchange bond for common stock according to the conversion ratio
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


34. Two types of stocks
Preferred; Common
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Time Value of Money; Risk/Return: Greater risk - Greater returns
Where a company sells an asset and then leases it back.


35. Which type of stocks carry voting rights?
The process of planning and managing a firm's long-term investments
Common
type of risk where interest rate rises and price of bond decreases
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. Risks of Financial Theories
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Where a company sells an asset and then leases it back.
Assets = Liabilities + Shareholders' Equity
Risk that the bond will be called back by bond issuer if interest rates fall to much


37. Corporation
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
type of risk where interest rate rises and price of bond decreases
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases


38. Securitization
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Revenues - expenses = income
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
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.


39. Operating Lease is...
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Size of firm; Degree of development of financial markets
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.


40. Type of information that affects Stock Price greatly
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
type of risk where interest rate rises and price of bond decreases
states that: one Dollar today will be worth more in the future
Unexpected information; Information that effects the risk or return of an asset


41. Money Markets
later
Financing: how to get funds; Investing: what to do with funds
Moving Average; Cash positions of funds; Amount of short selling
Short term Debt Instruments only (Less than 1 year maturity)


42. Balance sheet identity

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43. Time Value of Money
Time Value of Money; Risk/Return
states that: one Dollar today will be worth more in the future
Cost of good sold
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market


44. Noncash items
Over the counter
Risk that the bond will be called back by bond issuer if interest rates fall to much
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


45. Double Dip Lease
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.
Assets = Liabilities + Shareholders' Equity
GAAP - cash v. noncash items - time and costs
Cross Border Lease used to arbitrage tax law


46. Putable Bonds

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47. OTC
A way for seller of goods and services to have third parties sell his goods or services under license
Over the counter
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Banks; Insurance Companies; Mutual Funds; Pension Funds


48. Stock Prices adjust to new information in these ways...
Cash flow to stockholders
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Earnings before interest and taxes
Overreaction and correction; Delayed reaction; Efficient market reaction


49. Types of Financing: Sale and Leaseback
The mixture of long-term debt and equity maintained by a firm to finance its operations
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)
Where a company sells an asset and then leases it back.
Common


50. Letters of Credit
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Buys/sells securities for their own benefit - directly with customers -
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread