AQA • WGU

Company ABC would like to continue to grow, but in order to maintain control of all decisions and ownership, it wants to avoid issuing new stock. Which calculation will show the company's leadership the fastest that ABC can grow? - Sustainable growth rate How can you use the envelope method of budgeting to monitor cash flows? - Put the amount of money budgeted for each category of your expenses into labeled envelopes and then spend the money in each envelope on expenses in that category. ...

Cash Budgets - Profit Forecasting - Balance Sheet Forecasting - Discretionary Financing Needed - The additional financing needed given a firm's expectations for future growth. Spontaneous Accounts - Accounts that vary naturally with sales. Discretionary Accounts - Accounts that do not vary automatically with sales but are left to the discretion of management. pro forma statements - A financial statement that projects an estimate for future periods "as if" sales grew as predicted. ...

What is the name for a forecast of short-term events that helps a company understand if it has sufficient cash? - Cash budget What is the purpose of a monthly cash budget? - To control cash inflows and outflows so you can balance income with expenditures and savings In which situation would a firm need to borrow cash? - When the beginning cash balance plus the net cash is less than the minimum cash balance required for the month How can you use the envelope method of budgeting to monitor c...

Net Present Value (NPV) - the sum (or net) of the present values of all of the project's expected cash inflows and outflows. Advantages of NPV - Considers time value of money Calculates value added to the firm Considers risk and required return Disadvantages of NPV - Requires calculation of appropriate cost of capital Is not useful to compare projects of varying sizes Internal Rate of Return (IRR) - The rate of return that a firm earns on its capital projects. Hurdle Rate - The required...

A bond becomes "premium" or "discount" once it - begins trading on the secondary market. A company called Bobby's Books is considering purchasing a new bookbinding machine. The company calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase the bookbinding machine? - Yes, because the IRR exceeds the cost of capital. A company is considering five projects that are not mutually exclusive. However, the company does not have enough money to do ...

Beta A variable that describes how the price of a security varies with the market. Business Finance An area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to its owners, and the tools and analysis used to allocate financial resources. Capital Budgeting Criteria Metrics and calculations used to determine whether a project or asset will add value and be a worthwhile investment. Capital ...

Finance vs. Accounting - finance is forward looking accounting is backward looking Accounting - recording, reporting, and summarizing past financial information and transactions finance - management and allocation of capital (money) 3 primary areas of finance - business finance investments financial institutions business of finance - deals with sources of funding Capital Structure - the mixture of debt and equity used to finance a firm Asset Pricing - The process of valuing assets. cur...

Balance Sheet Forecasting - Using sales growth and the profit forecast to construct a pro forma balance sheet to understand the future implications of the sources and uses of finances Discretionary accounts - Accounts that do not vary proportionally with sales but are decided upon by management Discretionary Financing Needed (DFN) - The additional financing needed given a firm's expectations for future growth How can a firm grow its fixed assets if it is expecting growth but has reached c...

What is a reasonable alternative to keeping an emergency stash of cash? Investing in a savings account Investing in a readily withdrawable account that still earns some interest is a value-preserving alternative. Which area of finance deals with sources of funding and the capital structure of corporations and seeks to increase the value of a firm to its owners? Business finance is the area of finance that deals with uses and sources of funding to increase the value of the firm. What is t...

7 What is the term for the risk that changes in interest rates will impact the value of a bond? 1.Interest rate risk 2.Firm-specific risk 3.Default risk 4.Systematic risk - Interest rate risk A company called Bobby's Books is considering purchasing a new bookbinding machine. The company calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase the bookbinding machine? 1.No, because the hurdle rate is lower than the IRR. 2.Yes, because the IR...