Advanced Corporate Finance Theory Exam Questions with Latest Update

define corporate finance - ANSWER-any decision which affects the finances of a business is a corporate finance decision. - marketing - corporate - human capital - operations management balance sheet: assets - ANSWER-- fixed assets: long lived real assets - current assets: short lived assets - financial investments: securities/other - intangible assets: nonphysical assets (patents/trademarks) - assets in place: existing investments, generate cashflows today, includes long lived (fixed) and short-lived (working capital) assets - growth assets: expected value that will be created by future investments balance sheet: liabilities - ANSWER-- current liabilities: short-term liabilities of the firm - debt - other liabilities: other long term obligations - equity assets - ANSWER-defines any firm investment including already made investments (assets in place) and investments the firm is expected to make (growth assets). the firm's investments are either financed through debt or equity. debt - ANSWER-fixed claim (interest payments) on the cash flows generated by the assets with a limited or no role in the day-to-day running on the business equity - ANSWER-residual claim on the cash flows and a much greater in the operation of the business maximize the value of the business (firm) - ANSWER-1. invest in assets that earn a return greater than the minimum acceptable hurdle rate - the hurdle rate should reflect the riskiness of the investment and the mix of debt and equity used to fund it. - the return should reflect the magnitude and the timing of the cashflows as well as all side effects. 2. find the right kind of debt for your firm and the right mix of debt and equity to fund your operations - the optimal mix of debt and equity maximizes firm value - the right kind of debt matches the tenor of your assets