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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. Franchising
Technical
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
Size of firm; Degree of development of financial markets

2. Commercial Paper
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
The mixture of long-term debt and equity maintained by a firm to finance its operations
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

3. Future Value means ______ money on a time line
Cost of good sold
later
Cash flow to stockholders
More efficient inventory management - increase in AR collections - etc.

4. Head and Shoulder refers to what type of stock analysis?
how company raise money; uses money; transfers of money from savers to spenders
Technical
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Common

5. Money Market Instruments

6. Debt Market
Cash flow to stockholders
Cash flow to creditors
Present to Future
Market where Corporate Debt is sold. Short term/Long term

7. Convertible bond
Matches those who wish to buy with those who wish to sell
A way for seller of goods and services to have third parties sell his goods or services under license
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Holder can exchange bond for common stock according to the conversion ratio

8. Zero coupon bonds
Future to Present
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
retailer gets inventory which he does not have to pay for until he sells it
the issuer does something which causes the credit quality to go down

9. Different Types of Investing Analysis
Volatility of price movement; Liquidity of the market; Interest costs
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
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk

10. Levels of Market Efficiency
A financial statement summarizing performance over a period of time.
The study of the relationship between business decisions and the value of the stock in the business
Weak Form Efficiency - Semi Strong Form - Strong Form
The large OTC market is NASDAQ

11. Stock Prices adjust to new information in these ways...
Difference between a firm's current assets and its current liabilities``
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Overreaction and correction; Delayed reaction; Efficient market reaction
NYSE

12. EBIT
Earnings before interest and taxes
Long term Debt and Equity Instruments only (more than 1 year maturity)
Volatility of price movement; Liquidity of the market; Interest costs
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'

13. Export Credit Agencies
The balance sheet
states that: one Dollar today will be worth more in the future
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Risk that the company will not be able to repay the interest or principle

14. What is the order of Seniority?
A financial statement summarizing performance over a period of time.
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Senior secured; Senior unsecured - Senior Subordinated - Subordinated

15. What is an agency relationship?
Tax bill divided by taxable income
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.
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)

16. What affects Bid/Ask Spread?
Over the counter
Cost of good sold
Volatility of price movement; Liquidity of the market; Interest costs
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

17. Bank loans are based on what conditions?
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 financial statement summarizing performance over a period of time.
Cash flow from assets
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)

18. General partnership
Partners receive equal profits and liability
holds that no investor can beat the market and that doing research is useless
Present to Future
Cost of good sold

19. Securitization
The process of planning and managing a firm's long-term investments
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations

20. Bond
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)
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations

21. Risks of Financial Theories
Future to Present
The mixture of long-term debt and equity maintained by a firm to finance its operations
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure

22. Fundamental principles of Finance
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Matches those who wish to buy with those who wish to sell
FV = PV(1 + r)^t r = interest rate t = # of periods
Time Value of Money; Risk/Return

23. Liquidity
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.
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Equity money provided by investors for start up firms with long term growth potential

24. Project Finance
A financial statement summarizing performance over a period of time.
FV = PV(1 + r)^t r = interest rate t = # of periods
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.

25. A good financial system must have...
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Government; Personal; Corporate
Cash flow to stockholders
Future to Present

26. Sarbanes-Oxley AKA 'Sarbox'

27. Floor Plan Financing
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
how company raise money; uses money; transfers of money from savers to spenders
Matches those who wish to buy with those who wish to sell

28. Weak form efficiency
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Assets pledged as Collateral for non-payment of debt (collateral)
Cross Border Lease used to arbitrage tax law
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

29. COGS
Time Value of Money; Risk/Return: Greater risk - Greater returns
Cost of good sold
Unexpected information; Information that effects the risk or return of an asset
The process of planning and managing a firm's long-term investments

30. Types of Financing: Sale and Leaseback
The balance sheet
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Where a company sells an asset and then leases it back.
Technical

31. Types of Finance
Government; Personal; Corporate
Exchange Traded Fund - Mixture of stocks and mutual funds
Business formed by 2 or more individuals or entities.
GAAP - cash v. noncash items - time and costs

32. Tools used for Technical Analysis
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Moving Average; Cash positions of funds; Amount of short selling
Cost of good sold
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)

33. Interest Rate Risk
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)
type of risk where interest rate rises and price of bond decreases
Cross Border Lease used to arbitrage tax law
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid

34. What is an ETF?
Present to Future
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Exchange Traded Fund - Mixture of stocks and mutual funds
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

35. Selling on consignment
earlier
retailer gets inventory which he does not have to pay for until he sells it
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Risk that inflation increases since the bond was issued

36. Leases
Where a company sells an asset and then leases it back.
Substitute for buying an asset
A financial statement summarizing performance over a period of time.
Use of debt in a firm's capital structure. more debt = greater degree of leverage

37. Getting Government Sponsored Financing depends on...
The study of the relationship between business decisions and the value of the stock in the business
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets

38. Floating Rate
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Business formed by 2 or more individuals or entities.
Long term Debt and Equity Instruments only (more than 1 year maturity)
the Coupon rate is periodically adjusted to the current interest rate

39. Capital Markets
The mixture of long-term debt and equity maintained by a firm to finance its operations
Moving Average; Cash positions of funds; Amount of short selling
Long term Debt and Equity Instruments only (more than 1 year maturity)
Risk that inflation increases since the bond was issued

40. What are some of the shortcomings of the goal of profit maximization?
Where a company sells an asset and then leases it back.
The large OTC market is NASDAQ
Way to maintain liquidity while waiting for an anticipated inflow of cash
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

41. Present value means _____ money on a time line
Technical
earlier
Revenues - expenses = income
how company raise money; uses money; transfers of money from savers to spenders

42. What makes a Bond Price Change?
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Common Stock; Preferred Stock; Long Term Government Bonds

43. Working Capital

44. What is the largest auction market in the US?
NYSE
Cross Border Lease used to arbitrage tax law
Unexpected information; Information that effects the risk or return of an asset
Size of firm; Degree of development of financial markets

45. Broker
More efficient inventory management - increase in AR collections - etc.
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

46. Corporation
Long term Debt and Equity Instruments only (more than 1 year maturity)
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
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
Common

47. Limited partnership
earlier
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
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.
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'

48. What is a dealer market?
Short term Debt Instruments only (Less than 1 year maturity)
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
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)
Buys/sells securities for their own benefit - directly with customers -

49. Inflation Risk
Assets pledged as Collateral for non-payment of debt (collateral)
Direct or Private Placement; Public Offering; Rights Issue
Risk that inflation increases since the bond was issued
Technical; Fundamental

50. Two types of stocks
Present to Future
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Preferred; Common
Use of debt in a firm's capital structure. more debt = greater degree of leverage