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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. Aagency costs
Market where Corporate Debt is sold. Short term/Long term
Where a company sells an asset and then leases it back.
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.
FV = PV(1 + r)^t r = interest rate t = # of periods

2. Floating Rate
the Coupon rate is periodically adjusted to the current interest rate
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
To maximize the current value per share fo the existing stock

3. Efficient Market Hypothesis
holds that no investor can beat the market and that doing research is useless
The mixture of long-term debt and equity maintained by a firm to finance its operations
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Risk that inflation increases since the bond was issued

4. Types of finance functions
Financing: how to get funds; Investing: what to do with funds
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Senior security provided for companies in financial distress or under bankruptcy
Size of firm; Degree of development of financial markets

5. What is an agency relationship?
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
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.
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Partners receive equal profits and liability

6. CFFA
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Overreaction and correction; Delayed reaction; Efficient market reaction
Cash flow from assets
Cash flow to stockholders

7. Letters of Credit
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services

8. Type of information that affects Stock Price greatly
Rate of the extra tax you would pay if you earned one more dollar
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Unexpected information; Information that effects the risk or return of an asset
Senior security provided for companies in financial distress or under bankruptcy

9. Bond
The large OTC market is NASDAQ
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)
Risk that the bond will be called back by bond issuer if interest rates fall to much
The study of the relationship between business decisions and the value of the stock in the business

10. Semi Strong Form
State owned institutions which act as finance companies for private domestic entities conducting business abroad
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Cash flow to stockholders
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

11. Goal of Financial Management
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.
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
To maximize the current value per share fo the existing stock
Moving Average; Cash positions of funds; Amount of short selling

12. Types of Cash Flows
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
Risk that inflation increases since the bond was issued
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.

13. NWC
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Earnings before interest and taxes
Net working capital
Volatility of price movement; Liquidity of the market; Interest costs

14. Leases
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
earlier
Substitute for buying an asset
Cost of good sold

15. Interest rates go from _____ to _____ value
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Pure discount loans; Interest only loans; Amortized loans
Present to Future

16. Double Dip Lease
Where a company sells an asset and then leases it back.
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Cross Border Lease used to arbitrage tax law
More efficient inventory management - increase in AR collections - etc.

17. Inflation Risk
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'
Cross Border Lease used to arbitrage tax law
Risk that inflation increases since the bond was issued
Long term Debt and Equity Instruments only (more than 1 year maturity)

18. How to calculate FV of a single payment?
retailer gets inventory which he does not have to pay for until he sells it
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)
FV = PV(1 + r)^t r = interest rate t = # of periods
two companies combining resources in a partnership; i.e Sony-Ericsson

19. A Bond offering statement contains...
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
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 corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.

20. Corporation
Volatility of price movement; Liquidity of the market; Interest costs
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'
Preferred; Common
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

21. The coupon rate of a bond is based off...
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Security; Seniority; Features (putable bond)
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

22. What is the capital budgeting decision?
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Unique and Highly complex financial service transaction between a Bank and a Company
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Use of debt in a firm's capital structure. more debt = greater degree of leverage

23. Credit Quality Risk
the issuer does something which causes the credit quality to go down
Cash flow to stockholders
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.

24. Equity Market
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
GAAP - cash v. noncash items - time and costs
Volatility of price movement; Liquidity of the market; Interest costs
Assets pledged as Collateral for non-payment of debt (collateral)

25. Sole Proprietorship

26. COGS
Matches those who wish to buy with those who wish to sell
Revenues - expenses = income
Cost of good sold
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)

27. How to invest in Inflation

28. Why might revenue and cost figures shown on an income statement not be representative of the actual cashflow?
Loan from one company to another used to buy goods from the company providing the loan
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid

29. Two types of stocks
Partners receive equal profits and liability
The balance sheet
Preferred; Common
type of risk where interest rate rises and price of bond decreases

30. Vendor Financing
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Loan from one company to another used to buy goods from the company providing the loan
Common
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

31. Principle Financial Intermediaries
Banks; Insurance Companies; Mutual Funds; Pension Funds
Cash flow to creditors
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Pure discount loans; Interest only loans; Amortized loans

32. Weak form efficiency
Moving Average; Cash positions of funds; Amount of short selling
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Use of debt in a firm's capital structure. more debt = greater degree of leverage
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

33. Working Capital

34. Dealer
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.
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

35. Head and Shoulder refers to what type of stock analysis?
Technical
GAAP - cash v. noncash items - time and costs
Revenues - expenses = income
Unique and Highly complex financial service transaction between a Bank and a Company

36. Factoring
Direct or Private Placement; Public Offering; Rights Issue
Financing: how to get funds; Investing: what to do with funds
Where a business sells its account receivables
Holder can exchange bond for common stock according to the conversion ratio

37. Floor Plan Financing
Technical; Fundamental
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

38. Marginal tax rate
later
Rate of the extra tax you would pay if you earned one more dollar
NYSE
Security; Seniority; Features (putable bond)

39. Putable Bonds

40. Capital Market Instruments
The study of the relationship between business decisions and the value of the stock in the business
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.
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Common Stock; Preferred Stock; Long Term Government Bonds

41. Tools used for Technical Analysis
Over the counter
Buys/sells securities for their own benefit - directly with customers -
Loan from one company to another used to buy goods from the company providing the loan
Moving Average; Cash positions of funds; Amount of short selling

42. Working Capital Management
More efficient inventory management - increase in AR collections - etc.
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
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.

43. The income statement equation
holds that no investor can beat the market and that doing research is useless
FV = PV(1 + r)^t r = interest rate t = # of periods
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Revenues - expenses = income

44. Bank loans are based on what conditions?
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

45. Types of Financing: Sale and Leaseback
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Where a company sells an asset and then leases it back.
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
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'

46. CFC
Moving Average; Cash positions of funds; Amount of short selling
Cash flow to creditors
Partners receive equal profits and liability
Overreaction and correction; Delayed reaction; Efficient market reaction

47. Corp. Finance involves
Common Stock; Preferred Stock; Long Term Government Bonds
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
how company raise money; uses money; transfers of money from savers to spenders
Short term Debt Instruments only (Less than 1 year maturity)

48. What is the largest auction market in the US?
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Rate of the extra tax you would pay if you earned one more dollar
NYSE
Long term Debt and Equity Instruments only (more than 1 year maturity)

49. Discount rates go from _____ to ______ value
A financial statement summarizing performance over a period of time.
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Future to Present
Risk that the company will not be able to repay the interest or principle

50. Convertible bond
Cash flow to stockholders
Security; Seniority; Features (putable bond)
how company raise money; uses money; transfers of money from savers to spenders
Holder can exchange bond for common stock according to the conversion ratio