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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 calculate FV of a single payment?
Cash flow from assets
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
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.

2. What is the largest auction market in the US?
NYSE
Holder can exchange bond for common stock according to the conversion ratio
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.
To maximize the current value per share fo the existing stock

3. Convertible bond
Short term Debt Instruments only (Less than 1 year maturity)
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
Holder can exchange bond for common stock according to the conversion ratio
The large OTC market is NASDAQ

4. Letters of Credit
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
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)

5. Callable Bonds
states that: one Dollar today will be worth more in the future
Bond may be redeemed earlier by the issuer
Senior security provided for companies in financial distress or under bankruptcy
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information

6. Weak form efficiency
Assets = Liabilities + Shareholders' Equity
unsecured promissory note with a fixed maturity date of 1 to 270 days; Issued by banks and corporations to meet short term debt obligations
Time Value of Money; Risk/Return
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market

7. Bank loans are based on what conditions?
Cost of good sold
Tax bill divided by taxable income
Length; Payment Method (Amortized or Single Bullet); Collateral Protection; Bank Obligation to lend ( Committed or Not Committed); Frequency of borrowing; Pricing (Euribor Rate)
Technical

8. What are Stakeholders?
Banks; Insurance Companies; Mutual Funds; Pension Funds
persons with interests in the existance of the company. (employees - Company Pensioners - Creditors - Lenders - Consumers)
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
The mixture of long-term debt and equity maintained by a firm to finance its operations

9. Project Finance
Common
A financial statement summarizing performance over a period of time.
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 financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.

10. Marginal tax rate
Government; Personal; Corporate
Rate of the extra tax you would pay if you earned one more dollar
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
Financing: how to get funds; Investing: what to do with funds

11. Forms of Business Organization
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.
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
holds that no investor can beat the market and that doing research is useless
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

12. Putable Bonds

13. Working Capital Loan
Way to maintain liquidity while waiting for an anticipated inflow of cash
holds that: you cannot get superior returns from Technical Analysis; Fundamental analysis could beat the market
Loan to finance everyday operations i.e. pay accounts payable - wages - etc. and not to buy long term assets
The study of the relationship between business decisions and the value of the stock in the business

14. Leases
The mixture of long-term debt and equity maintained by a firm to finance its operations
Moving Average; Cash positions of funds; Amount of short selling
Substitute for buying an asset
Interest Rate Risk; Reinvestment Risk; Call Risk; Default Risk; Credit Risk; Inflation Risk

15. What is an Annuity?
Revenues - expenses = income
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Short term; Cancelable; Lessor is responsible; stays off balance sheet; for Financial lease the opposite is true.
By: Claims; Maturity; Seasoning of claims; Time of Delivery; Organizational Structure

16. Types of Financing: Sale and Leaseback
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer
Cross Border Lease used to arbitrage tax law
Weak Form Efficiency - Semi Strong Form - Strong Form
Where a company sells an asset and then leases it back.

17. Bridge Financing
Way to maintain liquidity while waiting for an anticipated inflow of cash
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Risk that the company will not be able to repay the interest or principle
GAAP - cash v. noncash items - time and costs

18. Equity Issuance
Direct or Private Placement; Public Offering; Rights Issue
Cash flow from assets
Cash flow to stockholders
Cross Border Lease used to arbitrage tax law

19. Bond
State owned institutions which act as finance companies for private domestic entities conducting business abroad
Senior security provided for companies in financial distress or under bankruptcy
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)
Risk that the bond will be called back by bond issuer if interest rates fall to much

20. Debt Market
Cross Border Lease used to arbitrage tax law
Future to Present
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
Market where Corporate Debt is sold. Short term/Long term

21. Broker
An intermediary who does not own the object being sold; acts as a middle man; receives a fee for services
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Equity money provided by investors for start up firms with long term growth potential
Sole Proprietorship; Partnership (Limited Liability Company); Public Company/Corporation (through IPO)

22. Corp. Finance involves
how company raise money; uses money; transfers of money from savers to spenders
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread
Revenues - expenses = income
State owned institutions which act as finance companies for private domestic entities conducting business abroad

23. Auction market
NYSE
Matches those who wish to buy with those who wish to sell
Present to Future
Tax bill divided by taxable income

24. The income statement equation
Revenues - expenses = income
equal payments used by financial intermediaries to make regular payments to recipients (pensioners)
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.

25. What are some of the shortcomings of the goal of profit maximization?
Where a company sells an asset and then leases it back.
Difference between a firm's current assets and its current liabilities``
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.

26. Sarbanes-Oxley AKA 'Sarbox'

27. Capital Structure (or Financial Structure)
FV = PV(1 + r)^t r = interest rate t = # of periods
Market where Corporate Debt is sold. Short term/Long term
The mixture of long-term debt and equity maintained by a firm to finance its operations
Markets where common or preferred stocks are sold in either the Primary or Secondary Markets

28. Why is the corporate form of business organization superior when it comes to raising cash?
holds that no investor can beat the market and that doing research is useless
when a retailer gets financing from a bank for his inventory; i.e. financing for cars in a car dealership
Net working capital
Ease of transferring ownership - limited liability to debt - unlimited life of the business

29. Things financial manager should keep in mind when evaluating income statement
GAAP - cash v. noncash items - time and costs
The acquisition of long-term investments. the value of the cash flow generated by an asset exceeds the cost of that asset.
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Bond may be redeemed earlier by the issuer

30. A Bond offering statement contains...
Long term Debt and Equity Instruments only (more than 1 year maturity)
Coupon payment will be reinvested when received at a lower rate than initial interest rate of the bond
Capital markets and Finance; Cash and Liquidity Mgmt; Corporate Financial Mgmt; Risk Mgmt; Treasury Operations & Control
Name of Issuer; Par Value; Maturity Date; Coupon Rate; Coupon Payments; Current Market Interest Rate; Current Market Price; Bond Indenture (legal note); Credit Rating.

31. Types of Cash Flows
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
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
Time Value of Money; Risk/Return: Greater risk - Greater returns
Over the counter

32. Two types of stocks
Where a business sells its account receivables
earlier
Preferred; Common
Technical; Fundamental

33. Zero coupon bonds
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory
The large OTC market is NASDAQ
Make no periodic interest payments - Yield comes from the difference between purchase price and par value
the issuer does something which causes the credit quality to go down

34. CFFA
Financing: how to get funds; Investing: what to do with funds
Cash flow from assets
Technical
An intermediary who buys and sells the object being sold. He Buys (Bids) and later re-sells (asks). Profits from the spread

35. What is the OTC market for stocks called?
Banks; Insurance Companies; Mutual Funds; Pension Funds
Most desirable source of Financing; a way for companies to generate cash internally; Net Income + Depreciation and Amortization
The large OTC market is NASDAQ
The common set of standards and procedures by which audited financial statements are prepared

36. Different Types of Investing Analysis
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.
Holder can exchange bond for common stock according to the conversion ratio
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information

37. COGS
Risk that the company will not be able to repay the interest or principle
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
Cost of good sold
Security; Seniority; Features (putable bond)

38. Corporate Finance (defined)
Accounting principles call for revenues and costs to be "booked" when revenue process is complete - not when cash is collected or bills are paid
The study of the relationship between business decisions and the value of the stock in the business
Technical (charts - supply/demand of stocks); Fundamental (Analyze companies information: balance sheet - ect.); Insider Information
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

39. GAAP (Generally Accepted Accounting Principles)
The common set of standards and procedures by which audited financial statements are prepared
holds that no investor can beat the market and that doing research is useless
Common Stock; Preferred Stock; Long Term Government Bonds
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'

40. How to invest in Inflation

41. CFC
earlier
Assets pledged as Collateral for non-payment of debt (collateral)
Cash flow to creditors
Substitute for buying an asset

42. The coupon rate of a bond is based off...
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.
Security; Seniority; Features (putable bond)
Soft Loans; Guarantees; Grants; Taxes; Equity Financing
The study of the relationship between business decisions and the value of the stock in the business

43. What affects Bid/Ask Spread?
Volatility of price movement; Liquidity of the market; Interest costs
Where financing is secured by the projects assets - including revenues. Creditors do not have claims against the sponsors assets.
Moving Average; Cash positions of funds; Amount of short selling
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

44. Selling on consignment
Short term government debt; Certificates of Deposits (CD's); Commercial Paper (CP)
Unique and Highly complex financial service transaction between a Bank and a Company
Partners receive equal profits and liability
retailer gets inventory which he does not have to pay for until he sells it

45. Capital Market Instruments
Over the counter
Where a business sells its account receivables
Common Stock; Preferred Stock; Long Term Government Bonds
Way for companies to reduce working capital by: Decreasing Accounts Receivables; Increasing Accounts Payable; Decreasing levels of inventory

46. Structured Finance
Unique and Highly complex financial service transaction between a Bank and a Company
Movement of Interest Rate; Credit Risk; Features of the bonds. FYI - Long Term Bonds have more price risk
Cash flow to stockholders
Form of Finance that ensure the seller obtains prompt payment upon delivery of his goods to the buyer

47. Factoring
The mixture of long-term debt and equity maintained by a firm to finance its operations
Where a business sells its account receivables
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'
Profit is a vague term - this goal fails to consider whether short-run or long-run profit maximization is being considered

48. Forms of Government Sponsored Financing
The process of planning and managing a firm's long-term investments
the Coupon rate is periodically adjusted to the current interest rate
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)
Soft Loans; Guarantees; Grants; Taxes; Equity Financing

49. Which type of stocks carry voting rights?
Present to Future
Common
Cash flow to creditors
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.

50. Fundamental principles of Finance
Direct or Private Placement; Public Offering; Rights Issue
Buys/sells securities for their own benefit - directly with customers -
Time Value of Money; Risk/Return
Bond holder can 'Put Back' the bond with the issuer - In case interest rates rise or issuers credit quality decreases