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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. Balance sheet identity

2. How to invest in Inflation

3. Average tax rate
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Tax bill divided by taxable income
Government; Personal; Corporate
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

4. Bond
Preferred; Common
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)
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
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.

5. What is an ETF?
Equity money provided by investors for start up firms with long term growth potential
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Exchange Traded Fund - Mixture of stocks and mutual funds
holds that: there is no information available that can help beat the market (Technical - Fundamental - Insider Information)

6. CFC
Pure discount loans; Interest only loans; Amortized loans
Short term Debt Instruments only (Less than 1 year maturity)
Cash flow to creditors
Earnings before interest and taxes

7. Why is the corporate form of business organization superior when it comes to raising cash?
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.
Ease of transferring ownership - limited liability to debt - unlimited life of the business
earlier
State owned institutions which act as finance companies for private domestic entities conducting business abroad

8. Net working capital

9. Security for a bond
Assets pledged as Collateral for non-payment of debt (collateral)
Risk that inflation increases since the bond was issued
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Cash flow to stockholders

10. Vendor Financing
Pure discount loans; Interest only loans; Amortized loans
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Loan from one company to another used to buy goods from the company providing the loan
Exchange Traded Fund - Mixture of stocks and mutual funds

11. Principle Financial Intermediaries
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
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.
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Banks; Insurance Companies; Mutual Funds; Pension Funds

12. Money Market Instruments

13. Important Determinants in choosing types of financing
Tax bill divided by taxable income
Holder can exchange bond for common stock according to the conversion ratio
More efficient inventory management - increase in AR collections - etc.
Size of firm; Degree of development of financial markets

14. Two types of stocks
Preferred; Common
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Bond may be redeemed earlier by the issuer
Where a business sells its account receivables

15. Floor Plan Financing
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Market where Corporate Debt is sold. Short term/Long term
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership

16. Capital Structure (or Financial Structure)
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.
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
the issuer does something which causes the credit quality to go down
The mixture of long-term debt and equity maintained by a firm to finance its operations

17. What are Stakeholders?
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)
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Time Value of Money; Risk/Return: Greater risk - Greater returns

18. Present value means _____ money on a time line
To maximize the current value per share fo the existing stock
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
earlier
Risk that the company will not be able to repay the interest or principle

19. CFS
Cash flow to stockholders
type of risk where interest rate rises and price of bond decreases
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Use of debt in a firm's capital structure. more debt = greater degree of leverage

20. Limited partnership
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
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 issuer does something which causes the credit quality to go down
Present to Future

21. Head and Shoulder refers to what type of stock analysis?
Technical
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Size of firm; Degree of development of financial markets

22. Book value vs. market value value for a firm's assets

23. Forms of Government Sponsored Financing
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
Banks; Insurance Companies; Mutual Funds; Pension Funds
Rate of the extra tax you would pay if you earned one more dollar

24. Forms of Business Organization
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
A firm's short-term assets (ie cash - inventory) and liabilities (ie accounts payable to suppliers)

25. Corp. Finance involves
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
how company raise money; uses money; transfers of money from savers to spenders
A financial statement summarizing performance over a period of time.
Weak Form Efficiency - Semi Strong Form - Strong Form

26. OTC
type of risk where interest rate rises and price of bond decreases
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Future to Present
Over the counter

27. Types of Financing: Sale and Leaseback
Where a company sells an asset and then leases it back.
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
Size of firm; Degree of development of financial markets
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

28. Franchising
type of risk where interest rate rises and price of bond decreases
Where a business sells its account receivables
A way for seller of goods and services to have third parties sell his goods or services under license
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.

29. What is a dealer market?
Buys/sells securities for their own benefit - directly with customers -
Exchange Traded Fund - Mixture of stocks and mutual funds
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
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.

30. Zero coupon bonds
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.
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
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

31. Bond Risk
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Senior secured; Senior unsecured - Senior Subordinated - Subordinated
Risk that inflation increases since the bond was issued
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

32. Efficient Market Hypothesis
how company raise money; uses money; transfers of money from savers to spenders
holds that no investor can beat the market and that doing research is useless
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Market where Corporate Debt is sold. Short term/Long term

33. Working Capital Management
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Matches those who wish to buy with those who wish to sell
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Pure discount loans; Interest only loans; Amortized loans

34. Export Credit Agencies
how company raise money; uses money; transfers of money from savers to spenders
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk

35. What is the OTC market for stocks called?
The balance sheet
earlier
The large OTC market is NASDAQ
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

36. Types of finance functions
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
two companies combining resources in a partnership; i.e Sony-Ericsson
Financing: how to get funds; Investing: what to do with funds
Cross Border Lease used to arbitrage tax law

37. Equity Market
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
The process of planning and managing a firm's long-term investments
how company raise money; uses money; transfers of money from savers to spenders
The study of the relationship between business decisions and the value of the stock in the business

38. Leases
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'
Assets pledged as Collateral for non-payment of debt (collateral)
Government; Personal; Corporate
Substitute for buying an asset

39. Noncash items
Financing: how to get funds; Investing: what to do with funds
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Cash flow to creditors
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

40. Corporate Finance (defined)
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
states that: one Dollar today will be worth more in the future
two companies combining resources in a partnership; i.e Sony-Ericsson
The study of the relationship between business decisions and the value of the stock in the business

41. The income statement equation
Revenues - expenses = income
Time Value of Money; Risk/Return: Greater risk - Greater returns
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership

42. 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
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Buys/sells securities for their own benefit - directly with customers -

43. Bridge Financing
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 to maintain liquidity while waiting for an anticipated inflow of cash
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Cash flow from assets

44. Goal of Financial Management
retailer gets inventory which he does not have to pay for until he sells it
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
later
To maximize the current value per share fo the existing stock

45. Factoring
earlier
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Where a business sells its account receivables

46. Interest rates go from _____ to _____ value
Present to Future
Banks; Insurance Companies; Mutual Funds; Pension Funds
Long Term Bonds (w/ high - long term - & locked interest rate) ; Short Selling many types of stocks; Holding Cash; Gold
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.

47. Sarbanes-Oxley AKA 'Sarbox'

48. What affects Bid/Ask Spread?
Volatility of price movement; Liquidity of the market; Interest costs
Where a company sells an asset and then leases it back.
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

49. Two Basic Principles of Finance
Financing: how to get funds; Investing: what to do with funds
Use of debt in a firm's capital structure. more debt = greater degree of leverage
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

50. Financial Statement showing a firm's accounting value on a particular date - a 'snapshot'
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
The balance sheet
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
Difference between a firm's current assets and its current liabilities``