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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. 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)
Revenues - expenses = income
holds that no investor can beat the market and that doing research is useless
Cash flow to creditors

2. Broker
Cash flow to creditors
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Business formed by 2 or more individuals or entities.
how company raise money; uses money; transfers of money from savers to spenders

3. Important Determinants in choosing types of financing
Senior security provided for companies in financial distress or under bankruptcy
Size of firm; Degree of development of financial markets
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Buys/sells securities for their own benefit - directly with customers -

4. What is the largest auction market in the US?
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
NYSE

5. Equity Issuance
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Loan from one company to another used to buy goods from the company providing the loan
Where a company sells an asset and then leases it back.
Direct or Private Placement; Public Offering; Rights Issue

6. Discount rates go from _____ to ______ value
Future to Present
Assets pledged as Collateral for non-payment of debt (collateral)
State owned institutions which act as finance companies for private domestic entities conducting business abroad
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services

7. Corporate Finance
The study of the relationship between business decisions and the value of the stock in the business
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.
Future to Present
NYSE

8. Internally Generated Fund
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
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

9. Future Value means ______ money on a time line
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
later
Difference between a firm's current assets and its current liabilities``

10. Weak form efficiency
The balance sheet
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Unique and Highly complex financial service transaction between a Bank and a Company
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'

11. Limited partnership
Equity money provided by investors for start up firms with long term growth potential
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.
Earnings before interest and taxes
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases

12. Commercial Paper
Present to Future
Exchange Traded Fund - Mixture of stocks and mutual funds
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations

13. Types of Stock Analysis
Earnings before interest and taxes
Short term Debt Instruments only (Less than 1 year maturity)
Technical; Fundamental
the issuer does something which causes the credit quality to go down

14. Working Capital

15. OTC
Difference between a firm's current assets and its current liabilities``
Over the counter
The study of the relationship between business decisions and the value of the stock in the business
Common Stock; Preferred Stock; Long Term Government Bonds

16. Factoring
Unique and Highly complex financial service transaction between a Bank and a Company
Where a business sells its account receivables
Financing: how to get funds; Investing: what to do with funds
Direct or Private Placement; Public Offering; Rights Issue

17. Levels of Market Efficiency
Unexpected information; Information that effects the risk or return of an asset
The large OTC market is NASDAQ
Weak Form Efficiency - Semi Strong Form - Strong Form
NYSE

18. Two types of stocks
Unexpected information; Information that effects the risk or return of an asset
Risk that the company will not be able to repay the interest or principle
Preferred; Common
The study of the relationship between business decisions and the value of the stock in the business

19. Putable Bonds

20. Different Types of Investing Analysis
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'
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Exchange Traded Fund - Mixture of stocks and mutual funds

21. Working Capital Loan
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Buys/sells securities for their own benefit - directly with customers -
Pure discount loans; Interest only loans; Amortized loans

22. Time Value of Money
states that: one Dollar today will be worth more in the future
Way to maintain liquidity while waiting for an anticipated inflow of cash
To maximize the current value per share fo the existing stock
the issuer does something which causes the credit quality to go down

23. COGS
FV = PV(1 + r)^t r = interest rate t = # of periods
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Cost of good sold
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

24. Working Capital Management
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
The balance sheet
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
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

25. Efficient Market Hypothesis
Equity money provided by investors for start up firms with long term growth potential
holds that no investor can beat the market and that doing research is useless
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

26. Two Basic Principles of Finance
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
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
A financial statement summarizing performance over a period of time.
Time Value of Money; Risk/Return: Greater risk - Greater returns

27. Types of Financing: Sale and Leaseback
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
two companies combining resources in a partnership; i.e Sony-Ericsson
Where a company sells an asset and then leases it back.
Ease of transferring ownership - limited liability to debt - unlimited life of the business

28. Auction market
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
The study of the relationship between business decisions and the value of the stock in the business
the Coupon rate is periodically adjusted to the current interest rate
Matches those who wish to buy with those who wish to sell

29. Corp. Finance involves
two companies combining resources in a partnership; i.e Sony-Ericsson
type of risk where interest rate rises and price of bond decreases
how company raise money; uses money; transfers of money from savers to spenders
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties

30. Bond Risk
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
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)

31. Forms of Business Organization
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
To maximize the current value per share fo the existing stock
Exchange Traded Fund - Mixture of stocks and mutual funds

32. Corporate Finance (defined)
Substitute for buying an asset
The study of the relationship between business decisions and the value of the stock in the business
states that: one Dollar today will be worth more in the future
Security; Seniority; Features (putable bond)

33. Marginal tax rate
retailer gets inventory which he does not have to pay for until he sells it
Rate of the extra tax you would pay if you earned one more dollar
Way to maintain liquidity while waiting for an anticipated inflow of cash
Ease of transferring ownership - limited liability to debt - unlimited life of the business

34. Types of Cash Flows
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
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
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
Technical

35. Three types of loans
Overreaction and correction; Delayed reaction; Efficient market reaction
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
Pure discount loans; Interest only loans; Amortized loans
The balance sheet

36. Average tax rate
Bond may be redeemed earlier by the issuer
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Tax bill divided by taxable income
Holder can exchange bond for common stock according to the conversion ratio

37. Money Markets
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.
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
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Short term Debt Instruments only (Less than 1 year maturity)

38. How to calculate FV of a single payment?
Pure discount loans; Interest only loans; Amortized loans
FV = PV(1 + r)^t r = interest rate t = # of periods
Volatility of price movement; Liquidity of the market; Interest costs
Way to maintain liquidity while waiting for an anticipated inflow of cash

39. What are Stakeholders?
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
A way for seller of goods and services to have third parties sell his goods or services under license
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)

40. Project Finance
Weak Form Efficiency - Semi Strong Form - Strong Form
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Cash flow to stockholders

41. Letters of Credit
Cash flow to stockholders
states that: one Dollar today will be worth more in the future
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer

42. Types of Finance
Government; Personal; Corporate
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Technical
Market where Corporate Debt is sold. Short term/Long term

43. Structured Finance
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Unique and Highly complex financial service transaction between a Bank and a Company
Business formed by 2 or more individuals or entities.
Over the counter

44. Leases
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
The large OTC market is NASDAQ
Substitute for buying an asset
later

45. Balance sheet identity

46. Tools used for Technical Analysis
Holder can exchange bond for common stock according to the conversion ratio
Moving Average; Cash positions of funds; Amount of short selling
A financial statement summarizing performance over a period of time.
type of risk where interest rate rises and price of bond decreases

47. Risks of Financial Theories
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Future to Present
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Revenues - expenses = income

48. GAAP (Generally Accepted Accounting Principles)
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
The common set of standards and procedures by which audited financial statements are prepared
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'
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)

49. Partnership
Risk that the bond will be called back by bond issuer if interest rates fall to much
Common
Direct or Private Placement; Public Offering; Rights Issue
Business formed by 2 or more individuals or entities.

50. Money Market Instruments