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Business Corporate Finance

Instructions:

Answer 50 questions in 15 minutes.
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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. How to invest in Deflation
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
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
retailer gets inventory which he does not have to pay for until he sells it

2. What is the largest auction market in the US?
Long term Debt and Equity Instruments only (more than 1 year maturity)
Partners receive equal profits and liability
Loan from one company to another used to buy goods from the company providing the loan
NYSE

3. OTC
Long term Debt and Equity Instruments only (more than 1 year maturity)
Net working capital
Over the counter
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid

4. Future Value means ______ money on a time line
Loan from one company to another used to buy goods from the company providing the loan
earlier
later
Banks; Insurance Companies; Mutual Funds; Pension Funds

5. Semi Strong Form
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Common Stock; Preferred Stock; Long Term Government Bonds
Equity money provided by investors for start up firms with long term growth potential
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)

6. Bond Risk
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Over the counter
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
The study of the relationship between business decisions and the value of the stock in the business

7. Fundamental principles of Finance
Time Value of Money; Risk/Return
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Cost of good sold
Technical; Fundamental

8. Leases
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Cash flow to stockholders
Banks; Insurance Companies; Mutual Funds; Pension Funds
Substitute for buying an asset

9. Noncash items
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
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.
Cross Border Lease used to arbitrage tax law

10. Debtor in Possession (DIP)
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)
Senior security provided for companies in financial distress or under bankruptcy
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Matches those who wish to buy with those who wish to sell

11. Letters of Credit
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Overreaction and correction; Delayed reaction; Efficient market reaction

12. What is an ETF?
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Risk that the company will not be able to repay the interest or principle
Exchange Traded Fund - Mixture of stocks and mutual funds
The study of the relationship between business decisions and the value of the stock in the business

13. What is the order of Seniority?
Holder can exchange bond for common stock according to the conversion ratio
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases

14. Average tax rate
later
Assets = Liabilities + Shareholders' Equity
Tax bill divided by taxable income
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

15. GAAP (Generally Accepted Accounting Principles)
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'
State owned institutions which act as finance companies for private domestic entities conducting business abroad
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
The common set of standards and procedures by which audited financial statements are prepared

16. Core Elements of Financial Management
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
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 common set of standards and procedures by which audited financial statements are prepared
Way to maintain liquidity while waiting for an anticipated inflow of cash

17. Working Capital Loan
Earnings before interest and taxes
Time Value of Money; Risk/Return: Greater risk - Greater returns
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
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'

18. Present value means _____ money on a time line
Assets = Liabilities + Shareholders' Equity
NYSE
earlier
Buys/sells securities for their own benefit - directly with customers -

19. Corp. Finance involves
More efficient inventory management - increase in AR collections - etc.
how company raise money; uses money; transfers of money from savers to spenders
Revenues - expenses = income
Direct or Private Placement; Public Offering; Rights Issue

20. Floating Rate
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.
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Cross Border Lease used to arbitrage tax law
the Coupon rate is periodically adjusted to the current interest rate

21. CFC
Cost of good sold
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Cash flow to creditors
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)

22. The income statement equation
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Revenues - expenses = income
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk

23. What are the risks of investing in a Bond?
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Market where Corporate Debt is sold. Short term/Long term
Assets = Liabilities + Shareholders' Equity
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

24. How to invest in Inflation

25. Capital Market Instruments
Exchange Traded Fund - Mixture of stocks and mutual funds
Common Stock; Preferred Stock; Long Term Government Bonds
Risk that the bond will be called back by bond issuer if interest rates fall to much
Assets = Liabilities + Shareholders' Equity

26. How might a companies' change in NWC be negative in a given year?
Difference between a firm's current assets and its current liabilities``
More efficient inventory management - increase in AR collections - etc.
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.
Holder can exchange bond for common stock according to the conversion ratio

27. Broker
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Banks; Insurance Companies; Mutual Funds; Pension Funds
The study of the relationship between business decisions and the value of the stock in the business
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate

28. Principle Financial Intermediaries
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Banks; Insurance Companies; Mutual Funds; Pension Funds
Partners receive equal profits and liability
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

29. Goal of Financial Management
Senior security provided for companies in financial distress or under bankruptcy
To maximize the current value per share fo the existing stock
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Way to maintain liquidity while waiting for an anticipated inflow of cash

30. Two types of stocks
A financial statement summarizing performance over a period of time.
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Preferred; Common
the issuer does something which causes the credit quality to go down

31. Weak form efficiency
Where a company sells an asset and then leases it back.
Volatility of price movement; Liquidity of the market; Interest costs
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate

32. Capital Structure (or Financial Structure)
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 mixture of long-term debt and equity maintained by a firm to finance its operations
The large OTC market is NASDAQ
holds that no investor can beat the market and that doing research is useless

33. 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.
Moving Average; Cash positions of funds; Amount of short selling
Direct or Private Placement; Public Offering; Rights Issue
Over the counter

34. Capital Budgeting

35. Types of Financing: Sale and Leaseback
NYSE
Where a company sells an asset and then leases it back.
Market where Corporate Debt is sold. Short term/Long term
Technical

36. Different Types of Investing Analysis
The common set of standards and procedures by which audited financial statements are prepared
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.

37. Sole Proprietorship

38. COGS
Cost of good sold
Technical
states that: one Dollar today will be worth more in the future
The common set of standards and procedures by which audited financial statements are prepared

39. Risks of Financial Theories
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
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
Volatility of price movement; Liquidity of the market; Interest costs

40. What is an Annuity?
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Partners receive equal profits and liability
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

41. Discount rates go from _____ to ______ value
Assets = Liabilities + Shareholders' Equity
Future to Present
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond

42. Bank loans are based on what conditions?
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'
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
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

43. Forms of Business Organization
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Cross Border Lease used to arbitrage tax law
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)

44. What incentives to managers in large corporations have to maximize share value?
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
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)
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Cross Border Lease used to arbitrage tax law

45. Strong Form
earlier
The common set of standards and procedures by which audited financial statements are prepared
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)
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)

46. Aagency costs
Partners receive equal profits and liability
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.
Cash flow from assets
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization

47. Zero coupon bonds
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
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.
Loan from one company to another used to buy goods from the company providing the loan

48. Forms of Government Sponsored Financing
Business formed by 2 or more individuals or entities.
Equity money provided by investors for start up firms with long term growth potential
The process of planning and managing a firm's long-term investments
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

49. Corporate Finance
Revenues - expenses = income
To maximize the current value per share fo the existing stock
The study of the relationship between business decisions and the value of the stock in the business
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

50. Liquidity
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
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.
The process of planning and managing a firm's long-term investments
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk