Test your basic knowledge |

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. Working Capital

2. Call Risk
Risk that the bond will be called back by bond issuer if interest rates fall to much
Cash flow to creditors
Time Value of Money; Risk/Return
Loan from one company to another used to buy goods from the company providing the loan

3. Franchising
Unique and Highly complex financial service transaction between a Bank and a Company
A way for seller of goods and services to have third parties sell his goods or services under license
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

4. Sarbanes-Oxley AKA 'Sarbox'

5. Types of finance functions
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Financing: how to get funds; Investing: what to do with funds
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
two companies combining resources in a partnership; i.e Sony-Ericsson

6. Limited partnership
Tax bill divided by taxable income
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.
The balance sheet
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.

7. Types of Finance
Buys/sells securities for their own benefit - directly with customers -
Use of debt in a firm's capital structure. more debt = greater degree of leverage
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Government; Personal; Corporate

8. Goal of Financial Management
To maximize the current value per share fo the existing stock
Future to Present
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
The study of the relationship between business decisions and the value of the stock in the business

9. The coupon rate of a bond is based off...
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.
Net working capital
Security; Seniority; Features (putable bond)
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

10. Different classifications of Financial Markets
earlier
To maximize the current value per share fo the existing stock
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

11. Floor Plan Financing
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
states that: one Dollar today will be worth more in the future
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
earlier

12. Three types of loans
Risk that inflation increases since the bond was issued
Over the counter
A way for seller of goods and services to have third parties sell his goods or services under license
Pure discount loans; Interest only loans; Amortized loans

13. Double Dip Lease
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Assets pledged as Collateral for non-payment of debt (collateral)
Bond may be redeemed earlier by the issuer
Cross Border Lease used to arbitrage tax law

14. Vendor Financing
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
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Security; Seniority; Features (putable bond)

15. Operating Lease is...
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
A way for seller of goods and services to have third parties sell his goods or services under license

16. Internally Generated Fund
Exchange Traded Fund - Mixture of stocks and mutual funds
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
later
Time Value of Money; Risk/Return

17. Bond Risk
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
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.
A way for seller of goods and services to have third parties sell his goods or services under license
NYSE

18. Principle Financial Intermediaries
Banks; Insurance Companies; Mutual Funds; Pension Funds
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
Net working capital
Direct or Private Placement; Public Offering; Rights Issue

19. What is the capital budgeting decision?
Exchange Traded Fund - Mixture of stocks and mutual funds
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

20. Inflation Risk
Common
Present to Future
Risk that inflation increases since the bond was issued
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk

21. Money Markets
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)
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Short term Debt Instruments only (Less than 1 year maturity)
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'

22. Capital Markets
Matches those who wish to buy with those who wish to sell
Long term Debt and Equity Instruments only (more than 1 year maturity)
the Coupon rate is periodically adjusted to the current interest rate
Time Value of Money; Risk/Return

23. Discount rates go from _____ to ______ value
Future to Present
Rate of the extra tax you would pay if you earned one more dollar
Holder can exchange bond for common stock according to the conversion ratio
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

24. Balance sheet identity

25. Present value means _____ money on a time line
type of risk where interest rate rises and price of bond decreases
NYSE
Cash flow to stockholders
earlier

26. The income statement equation
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Revenues - expenses = income
Short term Debt Instruments only (Less than 1 year maturity)
Overreaction and correction; Delayed reaction; Efficient market reaction

27. Capital Budgeting

28. Financial leverage

29. Getting Government Sponsored Financing depends on...
Assets = Liabilities + Shareholders' Equity
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
the issuer does something which causes the credit quality to go down
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services

30. 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
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
The study of the relationship between business decisions and the value of the stock in the business
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

31. Strong Form
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

32. Different Types of Investing Analysis
type of risk where interest rate rises and price of bond decreases
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Unexpected information; Information that effects the risk or return of an asset

33. NWC
Where a business sells its account receivables
Net working capital
Time Value of Money; Risk/Return: Greater risk - Greater returns
Over the counter

34. Dealer
Cash flow to stockholders
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
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

35. Leases
Substitute for buying an asset
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 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)
Government; Personal; Corporate

36. Two Basic Principles of Finance
Unique and Highly complex financial service transaction between a Bank and a Company
Cross Border Lease used to arbitrage tax law
Time Value of Money; Risk/Return: Greater risk - Greater returns
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. Two types of stocks
Difference between a firm's current assets and its current liabilities``
Preferred; Common
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
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)

38. Important Determinants in choosing types of financing
Direct or Private Placement; Public Offering; Rights Issue
Size of firm; Degree of development of financial markets
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Risk that inflation increases since the bond was issued

39. Auction market
Where a business sells its account receivables
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Pure discount loans; Interest only loans; Amortized loans
Matches those who wish to buy with those who wish to sell

40. CFFA
Cash flow from assets
Common Stock; Preferred Stock; Long Term Government Bonds
Overreaction and correction; Delayed reaction; Efficient market reaction
Direct or Private Placement; Public Offering; Rights Issue

41. Corp. Finance involves
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.
Rate of the extra tax you would pay if you earned one more dollar
how company raise money; uses money; transfers of money from savers to spenders
Time Value of Money; Risk/Return: Greater risk - Greater returns

42. Type of information that affects Stock Price greatly
holds that no investor can beat the market and that doing research is useless
Net working capital
Unexpected information; Information that effects the risk or return of an asset
Size of firm; Degree of development of financial markets

43. Bank loans are based on what conditions?
Where a company sells an asset and then leases it back.
Assets = Liabilities + Shareholders' Equity
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)

44. What is the OTC market for stocks called?
GAAP - cash v. noncash items - time and costs
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
The large OTC market is NASDAQ
Senior security provided for companies in financial distress or under bankruptcy

45. Corporate Finance (defined)
Common
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
The study of the relationship between business decisions and the value of the stock in the business

46. How to invest in Inflation

47. Financial Statement showing a firm's accounting value on a particular date - a 'snapshot'
The large OTC market is NASDAQ
Pure discount loans; Interest only loans; Amortized loans
Preferred; Common
The balance sheet

48. Structured Finance
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
later
Unique and Highly complex financial service transaction between a Bank and a Company
Risk that the bond will be called back by bond issuer if interest rates fall to much

49. Bond
Size of firm; Degree of development of financial markets
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)
two companies combining resources in a partnership; i.e Sony-Ericsson
Preferred; Common

50. Project Finance
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Cost of good sold
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered