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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. Default Risk
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Risk that the company will not be able to repay the interest or principle
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)

2. COGS
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
Cost of good sold
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
Class (minorities); Geographical location; types of industry; Size; Exporting Firms

3. Two Basic Principles of Finance
Time Value of Money; Risk/Return: Greater risk - Greater returns
Where a business sells its account receivables
Commodities (timber - oil - gold); Floating rate notes/bonds; TIP's (Treasury Inflation Protected Securities; Real Estate
Long term Debt and Equity Instruments only (more than 1 year maturity)

4. Type of information that affects Stock Price greatly
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Business formed by 2 or more individuals or entities.
Unexpected information; Information that effects the risk or return of an asset
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases

5. Letters of Credit
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
The study of the relationship between business decisions and the value of the stock in the business
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'
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.

6. Internally Generated Fund
type of risk where interest rate rises and price of bond decreases
Class (minorities); Geographical location; types of industry; Size; Exporting Firms
Financing: how to get funds; Investing: what to do with funds
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization

7. What is an ETF?
Exchange Traded Fund - Mixture of stocks and mutual funds
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control

8. Risks of Financial Theories
Do not consider market emotions; assumes that the market is honest (true information); effects of third parties
Time Value of Money; Risk/Return
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)
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services

9. Capital Market Instruments
earlier
Size of firm; Degree of development of financial markets
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Common Stock; Preferred Stock; Long Term Government Bonds

10. Tools used for Technical Analysis
The process of planning and managing a firm's long-term investments
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Moving Average; Cash positions of funds; Amount of short selling
Cash flow to stockholders

11. Different Types of Investing Analysis
Cash flow from assets
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
GAAP - cash v. noncash items - time and costs
Risk that inflation increases since the bond was issued

12. Forms of Business Organization
Where a business sells its account receivables
Holder can exchange bond for common stock according to the conversion ratio
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Equity money provided by investors for start up firms with long term growth potential

13. Semi Strong Form
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Revenues - expenses = income
Security; Seniority; Features (putable bond)

14. Working Capital

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15. Commercial Paper
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Technical
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.

16. Sole Proprietorship

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17. Off Balance Sheet Financing
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
FV = PV(1 + r)^t r = interest rate t = # of periods
The study of the relationship between business decisions and the value of the stock in the business
Form of financing where large capital expenditures are kept off a companies balance sheet; ex. Joint Ventures - R&D partnerships; Operating Leases

18. Call Risk
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
Assets pledged as Collateral for non-payment of debt (collateral)
Loan from one company to another used to buy goods from the company providing the loan
Risk that the bond will be called back by bond issuer if interest rates fall to much

19. Joint Venture
Risk that inflation increases since the bond was issued
two companies combining resources in a partnership; i.e Sony-Ericsson
type of risk where interest rate rises and price of bond decreases
Claims to wealth and legal structure; Saving and Investment Process; Monetary System

20. Venture Capital
Equity money provided by investors for start up firms with long term growth potential
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.
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.
Cash flow to creditors

21. CFC
Long term Debt and Equity Instruments only (more than 1 year maturity)
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
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

22. Operating Lease is...
Government; Personal; Corporate
states that: one Dollar today will be worth more in the future
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
To maximize the current value per share fo the existing stock

23. Floor Plan Financing
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Unique and Highly complex financial service transaction between a Bank and a Company
Technical; Fundamental
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

24. Franchising
Risk that the company will not be able to repay the interest or principle
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)
A way for seller of goods and services to have third parties sell his goods or services under license

25. How might a companies' change in NWC be negative in a given year?
More efficient inventory management - increase in AR collections - etc.
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
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
holds that no investor can beat the market and that doing research is useless

26. Capital Structure (or Financial Structure)
holds that: neither Technical or Fundamental Analysis work - but Insider information can help beat the market
Cash flow to creditors
type of risk where interest rate rises and price of bond decreases
The mixture of long-term debt and equity maintained by a firm to finance its operations

27. Sarbanes-Oxley AKA 'Sarbox'

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28. Things financial manager should keep in mind when evaluating income statement
Volatility of price movement; Liquidity of the market; Interest costs
Assets pledged as Collateral for non-payment of debt (collateral)
GAAP - cash v. noncash items - time and costs
Future to Present

29. Limited partnership
Preferred; Common
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.
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.
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

30. Important Determinants in choosing types of financing
Earnings before interest and taxes
GAAP - cash v. noncash items - time and costs
The study of the relationship between business decisions and the value of the stock in the business
Size of firm; Degree of development of financial markets

31. Which type of stocks carry voting rights?
Common
Technical
Cash flow to creditors
Preferred; Common

32. Securitization
Where a corporate entity moves assets to a bankruptcy remote vehicle (SPV) to obtain lower interest rates from lenders.
Unexpected information; Information that effects the risk or return of an asset
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases

33. Balance sheet identity

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34. A good financial system must have...
Matches those who wish to buy with those who wish to sell
Claims to wealth and legal structure; Saving and Investment Process; Monetary System
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
Where a company sells an asset and then leases it back.

35. Average tax rate
Tax bill divided by taxable income
Buys/sells securities for their own benefit - directly with customers -
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Where a business sells its account receivables

36. Noncash items
Banks; Insurance Companies; Mutual Funds; Pension Funds
Expenses charged against revenues that do not directly affect cash flow - such as depreciation
Tax bill divided by taxable income
Direct or Private Placement; Public Offering; Rights Issue

37. What is the largest auction market in the US?
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
Financing: how to get funds; Investing: what to do with funds
NYSE

38. Income statement
Senior security provided for companies in financial distress or under bankruptcy
A financial statement summarizing performance over a period of time.
The large OTC market is NASDAQ
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.

39. Types of Finance
Size of firm; Degree of development of financial markets
Use of debt in a firm's capital structure. more debt = greater degree of leverage
The mixture of long-term debt and equity maintained by a firm to finance its operations
Government; Personal; Corporate

40. OTC
Over the counter
Substitute for buying an asset
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

41. EBIT
Revenues - expenses = income
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)
Way to maintain liquidity while waiting for an anticipated inflow of cash
Earnings before interest and taxes

42. Principle Financial Intermediaries
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Use of debt in a firm's capital structure. more debt = greater degree of leverage
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Banks; Insurance Companies; Mutual Funds; Pension Funds

43. Auction market
Matches those who wish to buy with those who wish to sell
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
A financial statement summarizing performance over a period of time.
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'

44. Aagency costs
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
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.
Technical; Fundamental
holds that no investor can beat the market and that doing research is useless

45. Working Capital Management
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
Cross Border Lease used to arbitrage tax law
More efficient inventory management - increase in AR collections - etc.
Assets = Liabilities + Shareholders' Equity

46. Double Dip Lease
Moving Average; Cash positions of funds; Amount of short selling
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)
Cross Border Lease used to arbitrage tax law
Tax bill divided by taxable income

47. Convertible bond
Holder can exchange bond for common stock according to the conversion ratio
The balance sheet
Assets = Liabilities + Shareholders' Equity
The study of the relationship between business decisions and the value of the stock in the business

48. What is an agency relationship?
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
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Government; Personal; Corporate

49. Present value means _____ money on a time line
Business formed by 2 or more individuals or entities.
Tax bill divided by taxable income
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered
earlier

50. Levels of Market Efficiency
Net working capital
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Weak Form Efficiency - Semi Strong Form - Strong Form
Senior security provided for companies in financial distress or under bankruptcy