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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. Bridge Financing
Unexpected information; Information that effects the risk or return of an asset
Way to maintain liquidity while waiting for an anticipated inflow of cash
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.
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

2. Time Value of Money
Time Value of Money; Risk/Return
Matches those who wish to buy with those who wish to sell
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.
states that: one Dollar today will be worth more in the future

3. Interest Rate Risk
FV = PV(1 + r)^t r = interest rate t = # of periods
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Risk that inflation increases since the bond was issued
type of risk where interest rate rises and price of bond decreases

4. Bond Risk
Cash flow to stockholders
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

5. Money Markets
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
Short term Debt Instruments only (Less than 1 year maturity)
Assets pledged as Collateral for non-payment of debt (collateral)
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

6. LLC (Limited Liability Corporation)

7. Floating Rate
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
the Coupon rate is periodically adjusted to the current interest rate
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

8. Head and Shoulder refers to what type of stock analysis?
Cash flow to creditors
Weak Form Efficiency - Semi Strong Form - Strong Form
Technical
The mixture of long-term debt and equity maintained by a firm to finance its operations

9. Why is the corporate form of business organization superior when it comes to raising cash?
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases

10. Present value means _____ money on a time line
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Cash flow from 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
earlier

11. Semi Strong Form
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Substitute for buying an asset
Assets pledged as Collateral for non-payment of debt (collateral)
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market

12. Noncash items
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
retailer gets inventory which he does not have to pay for until he sells it
Cost of good sold

13. 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)
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information

14. A good financial system must have...
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Technical; Fundamental
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

15. Corporate Finance (defined)
The study of the relationship between business decisions and the value of the stock in the business
retailer gets inventory which he does not have to pay for until he sells it
Ease of transferring ownership - limited liability to debt - unlimited life of the business
Unique and Highly complex financial service transaction between a Bank and a Company

16. Call Risk
Risk that the bond will be called back by bond issuer if interest rates fall to much
retailer gets inventory which he does not have to pay for until he sells it
Technical
Exchange Traded Fund - Mixture of stocks and mutual funds

17. OTC
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Over the counter
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold

18. Capital Market Instruments
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Rate of the extra tax you would pay if you earned one more dollar
GAAP - cash v. noncash items - time and costs
Common Stock; Preferred Stock; Long Term Government Bonds

19. Factoring
FV = PV(1 + r)^t r = interest rate t = # of periods
To maximize the current value per share fo the existing stock
two companies combining resources in a partnership; i.e Sony-Ericsson
Where a business sells its account receivables

20. Letters of Credit
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
Overreaction and correction; Delayed reaction; Efficient market reaction
Weak Form Efficiency - Semi Strong Form - Strong Form

21. What affects Bid/Ask Spread?
Matches those who wish to buy with those who wish to sell
The common set of standards and procedures by which audited financial statements are prepared
Volatility of price movement; Liquidity of the market; Interest costs
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)

22. Which type of stocks carry voting rights?
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Common
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

23. Capital Markets
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
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.
Long term Debt and Equity Instruments only (more than 1 year maturity)
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'

24. Things financial manager should keep in mind when evaluating income statement
GAAP - cash v. noncash items - time and costs
Time Value of Money; Risk/Return
Net working capital
Loan from one company to another used to buy goods from the company providing the loan

25. Debt Market
Time Value of Money; Risk/Return: Greater risk - Greater returns
Market where Corporate Debt is sold. Short term/Long term
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
Bond may be redeemed earlier by the issuer

26. Credit Quality Risk
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
the issuer does something which causes the credit quality to go down
A financial statement summarizing performance over a period of time.

27. Getting Government Sponsored Financing depends on...
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Time Value of Money; Risk/Return: Greater risk - Greater returns
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Use of debt in a firm's capital structure. more debt = greater degree of leverage

28. Selling on consignment
Way to maintain liquidity while waiting for an anticipated inflow of cash
retailer gets inventory which he does not have to pay for until he sells it
holds that no investor can beat the market and that doing research is useless
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)

29. Different Types of Investing Analysis
To maximize the current value per share fo the existing stock
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Tax bill divided by taxable income
The mixture of long-term debt and equity maintained by a firm to finance its operations

30. COGS
Risk that the bond will be called back by bond issuer if interest rates fall to much
Cost of good sold
Buys/sells securities for their own benefit - directly with customers -
Assets = Liabilities + Shareholders' Equity

31. Goal of Financial Management
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.
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
how company raise money; uses money; transfers of money from savers to spenders
To maximize the current value per share fo the existing stock

32. Three types of loans
Pure discount loans; Interest only loans; Amortized loans
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Holder can exchange bond for common stock according to the conversion ratio
the Coupon rate is periodically adjusted to the current interest rate

33. Risks of Financial Theories
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Matches those who wish to buy with those who wish to sell
Use of debt in a firm's capital structure. more debt = greater degree of leverage
Unique and Highly complex financial service transaction between a Bank and a Company

34. Export Credit Agencies
retailer gets inventory which he does not have to pay for until he sells it
The common set of standards and procedures by which audited financial statements are prepared
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
State owned institutions which act as finance companies for private domestic entities conducting business abroad

35. Discount rates go from _____ to ______ value
Earnings before interest and taxes
two companies combining resources in a partnership; i.e Sony-Ericsson
Future to Present
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

36. Type of information that affects Stock Price greatly
Where a business sells its account receivables
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.
Unexpected information; Information that effects the risk or return of an asset
GAAP - cash v. noncash items - time and costs

37. Liquidity
The mixture of long-term debt and equity maintained by a firm to finance its operations
Cross Border Lease used to arbitrage tax law
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.
Cost of good sold

38. Convertible bond
Holder can exchange bond for common stock according to the conversion ratio
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
the Coupon rate is periodically adjusted to the current interest rate
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)

39. Strong Form
GAAP - cash v. noncash items - time and costs
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

40. General partnership
Business formed by 2 or more individuals or entities.
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
Partners receive equal profits and liability

41. Aagency costs
Present to Future
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.
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
Security; Seniority; Features (putable bond)

42. Equity Issuance
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
Direct or Private Placement; Public Offering; Rights Issue
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.

43. What are the risks of investing in a Bond?
Exchange Traded Fund - Mixture of stocks and mutual funds
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Common Stock; Preferred Stock; Long Term Government Bonds

44. Net working capital

45. Types of Stock Analysis
Technical; Fundamental
type of risk where interest rate rises and price of bond decreases
Cash flow from assets
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

46. Working Capital Management
two companies combining resources in a partnership; i.e Sony-Ericsson
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
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
The process of planning and managing a firm's long-term investments

47. Equity Market
Long term Debt and Equity Instruments only (more than 1 year maturity)
Cost of good sold
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

48. Zero coupon bonds
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Make no periodic interest payments - Yield comes from the difference between purchase price and par value

49. Callable Bonds
Revenues - expenses = income
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Cost of good sold
Bond may be redeemed earlier by the issuer

50. Security for a bond
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
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.
Assets pledged as Collateral for non-payment of debt (collateral)