Fin 301 Study guides, Class notes & Summaries

Using the balance sheet model of the firm, corporate finance may be thought of as the analysis of three primary subject areas. What are these areas: - Answer-capital budgeting, capital structure, net working capital capital structure - Answer-the mix of long-term debt and equity of a firm Which of the following should be the main goal of the financial manager of a corporation? - Answer-to maximize current market value per share of company stock Secondary market - Answer-the market for t...

Maturity of the Bond - Answer-The number of years until the issuer returns the face value to the buyer Face value - Answer-The principal of the bond, which has to be repaid at maturity NPV Rule - Answer-The NPV rule says that you should accept a project if its NPV greater than 0 because it adds value to the firm equal to the NPV. NPV is Measuring - Answer-Value creation Return on Investment - Answer-IRR is Measuring Par - Answer-sales price equals maturity values Discount - Ans...

Which of the following concerning the relationship between risk and return is correct? - Answer-A risk averse investor would prefer a stock with an expected 10% return and a standard deviation of 10% to a stock with an expected return of 10% with a standard deviation of 20% A company that decides to invest to expand its factory for a new product line is an example of which of the following corporate financial decisions: - Answer-Capital Budgeting Which of the following is part of the contr...

Opportunity Costs - Answer-the value of the next highest-valued alternative use of a resource Opportunity Costs consists of: - Answer-- foregone wages - time - production decisions Foregone wages - Answer-- Why did you come to class today? - Should you go to grad school? Time - Answer-outsourcing household chores Production decisions - Answer-Should firms invest in R&D? Corporate Finance - Answer-attempts to answer the following questions: - Capital budgeting - Capital s...

Discount Correct Answer Multiply a number by less than one. Discount rate Correct Answer A function of time and risk: discount rate=f(time,risk) Discount factor Correct Answer A function of both time and the discount rate: [discount rate=f(time,discount)] Present value Correct Answer of an investment is the sum of the expected cash flows multiplied by their respective discount rate. Three-Step Approach [DCF Valuation] Correct Answer 1. Develop a set of expected cash flows. 2. Estima...

Firms use capital to: (i) purchase a company (ii) pay for day-to-day expenses (iii) establish or expand a business A) i B) ii C) ii & iii D) all of the above E) iii F) none of the above G) i & iii - Answer-G) i & iii Which of these items are considered part of a firm's capitalization? (i) Assets (ii) Debt Liabilities (iii) Equity (iv) Operating Liabilities A) (i) and (iv) B) None of the listed answers C) (i) and (iii) D) All of the listed answers E) (ii) and (iii) - A...

How are future values affected by changes in interest rates? - Answer-The lower the interest rate, the larger the future value will be We call the process of earning interest on both the original deposit and on the earlier interest payments: - Answer-compounding the process of figuring out how much an amount that you expect to receive in the future is worth today is called: - Answer-discounting A deposit of $500 earns the following interest rates: 5 percent in the first year, 6 percent ...

It is generally accepted that the primary goal or objective of the managers of a firm should be maximize profit - Answer-false; maximize wealth of owners the common equity portion of a firm's balance sheet may include each of the following: common stock, retained earnings, and long term debt - Answer-false; capital surplus, capital in excess, paid in capital the retained earnings account on the balance sheet as the end of a certain year reflects the portion of the net income that the com...

A firm's capital structure is comprised of only the firm's long-term sources of financing while the firm's financial structure includes both short- and long-term debt and equity financing. - Answer-True A corporation's optimal capital structure is usually the one that will lead to the maximization of the weighted average cost of capital. - Answer-False Financial leverage is derived from the fixed costs of a firm's financing and can have the effect of magnifying the change in earnings ...

A general partnership has which of the following? 1. Each owner has unlimited liability for all firm debts. 2. It is expensive to form. 3. It is difficult to transfer ownership. 4. Large amounts of cash can be raised easily. - Answer-1 & 3 Someone other than an owner or a creditor who potentially has a claim of the cash flows of a firm - Answer-Stakeholder A corporation is a distinct ______ entity. It can have a name and take advantage of the legal powers of natural persons. - Answer-l...