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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. Type of information that affects Stock Price greatly
Unexpected information; Information that effects the risk or return of an asset
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
later
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.

2. Corporate Finance (defined)
Long term Debt and Equity Instruments only (more than 1 year maturity)
The process of planning and managing a firm's long-term investments
The study of the relationship between business decisions and the value of the stock in the business
Matches those who wish to buy with those who wish to sell

3. Risks of Financial Theories
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Cash flow from assets
Overreaction and correction; Delayed reaction; Efficient market reaction
Technical; Fundamental

4. What are some of the shortcomings of the goal of profit maximization?
Cash flow to stockholders
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Matches those who wish to buy with those who wish to sell
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

5. CFC
Cash flow to creditors
The balance sheet
Buys/sells securities for their own benefit - directly with customers -
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid

6. Structured Finance
Unique and Highly complex financial service transaction between a Bank and a Company
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Cash flow from assets
Risk that inflation increases since the bond was issued

7. Two Basic Principles of Finance
Cost of good sold
More efficient inventory management - increase in AR collections - etc.
Time Value of Money; Risk/Return: Greater risk - Greater returns
Holder can exchange bond for common stock according to the conversion ratio

8. Vendor Financing
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Time Value of Money; Risk/Return
The study of the relationship between business decisions and the value of the stock in the business
Loan from one company to another used to buy goods from the company providing the loan

9. Interest Rate Risk
type of risk where interest rate rises and price of bond decreases
Matches those who wish to buy with those who wish to sell
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
More efficient inventory management - increase in AR collections - etc.

10. Export Credit Agencies
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
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.
two companies combining resources in a partnership; i.e Sony-Ericsson

11. Default Risk
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.
GAAP - cash v. noncash items - time and costs
Risk that the company will not be able to repay the interest or principle
Rate of the extra tax you would pay if you earned one more dollar

12. Zero coupon bonds
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Overreaction and correction; Delayed reaction; Efficient market reaction
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.

13. Types of Financing: Sale and Leaseback
Where a company sells an asset and then leases it back.
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Revenues - expenses = income
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

14. Interest rates go from _____ to _____ value
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Present to Future
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'
Technical

15. Tools used for Technical Analysis
Short term Debt Instruments only (Less than 1 year maturity)
Moving Average; Cash positions of funds; Amount of short selling
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Risk that the bond will be called back by bond issuer if interest rates fall to much

16. What is the order of Seniority?
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
Assets pledged as Collateral for non-payment of debt (collateral)
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Short term Debt Instruments only (Less than 1 year maturity)

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.
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Exchange Traded Fund - Mixture of stocks and mutual funds
Government; Personal; Corporate

18. Internally Generated Fund
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
The process of planning and managing a firm's long-term investments
Preferred; Common

19. Time Value of Money
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
earlier
Technical; Fundamental
states that: one Dollar today will be worth more in the future

20. Getting Government Sponsored Financing depends on...
The large OTC market is NASDAQ
later
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

21. What affects Bid/Ask Spread?
Time Value of Money; Risk/Return
Volatility of price movement; Liquidity of the market; Interest costs
Direct or Private Placement; Public Offering; Rights Issue
Assets = Liabilities + Shareholders' Equity

22. Dealer
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
GAAP - cash v. noncash items - time and costs
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Bond may be redeemed earlier by the issuer

23. Efficient Market Hypothesis
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
holds that no investor can beat the market and that doing research is useless
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.

24. Capital Markets
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'
Long term Debt and Equity Instruments only (more than 1 year maturity)
earlier
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.

25. What is an agency relationship?
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.
Cash flow to creditors
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
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.

26. Types of Finance
To maximize the current value per share fo the existing stock
Government; Personal; Corporate
Where a company sells an asset and then leases it back.
later

27. Types of Stock Analysis
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
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)
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Technical; Fundamental

28. 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.
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
Business formed by 2 or more individuals or entities.

29. Inflation Risk
Risk that inflation increases since the bond was issued
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Technical
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure

30. What is a dealer market?
Risk that the company will not be able to repay the interest or principle
Buys/sells securities for their own benefit - directly with customers -
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

31. Corporate Finance
Rate of the extra tax you would pay if you earned one more dollar
Cash flow to creditors
Market where Corporate Debt is sold. Short term/Long term
The study of the relationship between business decisions and the value of the stock in the business

32. Capital Structure (or Financial Structure)
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
The mixture of long-term debt and equity maintained by a firm to finance its operations
the issuer does something which causes the credit quality to go down

33. Fundamental principles of Finance
Time Value of Money; Risk/Return
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Technical

34. COGS
Moving Average; Cash positions of funds; Amount of short selling
Banks; Insurance Companies; Mutual Funds; Pension Funds
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.
Cost of good sold

35. Financial leverage

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36. Bank loans are based on what conditions?
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Ease of transferring ownership - limited liability to debt - unlimited life of 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.

37. Sarbanes-Oxley AKA 'Sarbox'

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38. Average tax rate
Common Stock; Preferred Stock; Long Term Government Bonds
Overreaction and correction; Delayed reaction; Efficient market reaction
Tax bill divided by taxable income
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information

39. Liquidity
Financing: how to get funds; Investing: what to do with funds
Where a company sells an asset and then leases it back.
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.
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.

40. Bridge Financing
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Volatility of price movement; Liquidity of the market; Interest costs
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Way to maintain liquidity while waiting for an anticipated inflow of cash

41. Bond
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Risk that the company will not be able to repay the interest or principle
Holder can exchange bond for common stock according to the conversion ratio
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)

42. Call Risk
Risk that the bond will be called back by bond issuer if interest rates fall to much
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
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.
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership

43. Franchising
A way for seller of goods and services to have third parties sell his goods or services under license
Security; Seniority; Features (putable bond)
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Cross Border Lease used to arbitrage tax law

44. What is the largest auction market in the US?
NYSE
The large OTC market is NASDAQ
Pure discount loans; Interest only loans; Amortized loans
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk

45. Corp. Finance involves
later
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
how company raise money; uses money; transfers of money from savers to spenders
Revenues - expenses = income

46. The coupon rate of a bond is based off...
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Security; Seniority; Features (putable bond)
Direct or Private Placement; Public Offering; Rights Issue

47. Callable Bonds
Moving Average; Cash positions of funds; Amount of short selling
Bond may be redeemed earlier by the issuer
Partners receive equal profits and liability
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases

48. Discount rates go from _____ to ______ value
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Cash flow to stockholders
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Future to Present

49. 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
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)

50. Types of finance functions
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure
type of risk where interest rate rises and price of bond decreases
Financing: how to get funds; Investing: what to do with funds
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)