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Test Bank for Fundamentals of Corporate Finance Midterm #1 (6th edition by Jonathan Berk)
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Test Bank for Fundamentals of Corporate Finance Midterm #1 (6th edition by Jonathan Berk)
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Test Bank for Fundamentals ofCorporate Finance Midterm #1 (6th
edition by Jonathan Berk)
capital budgeting - ANSthe process of planning and managing a firm's long-term investments
capital structure - ANSthe mixture of debt and equity maintained by a firm
working capital - ANSa firm's short term assets and liabilities
sole proprietorship - ANSa business owned by a single individual
partnership - ANSa business formed by two or more individuals or entities
corporation - ANSa business created as a distinct legal entity owned by one or more individuals
or entities
agency problem - ANSthe possibility of conflict of interest between the owners and management
of the firm
stakeholder - ANSsomeone other than a stockholder or creditor who potentially has a claim on
the cash flows of the firm.
capital budgeting - ANSwhat long term investments should the firm make?
capital structuring - ANShow will this investment be financed?
working capital management - ANShow will we manage the day-to-day financial activities?
what is the primary goal of financial management? - ANSto maximize share value for
shareholders
sarbox or sox - ANSsets up compliance, driven by corporate scandals
sarbox or sox - ANScreated to minimize accounting fraud
sarbox or sox - ANSintended to strengthen protection against accounting fraud and financial
malpractice.
, NASDAQ - ANSdigital stock
NYSE - ANSphysical stock
liquidity - ANSspeed and ease of conversion to cash without significant loss of value.
market value - ANS________ ________ is more important than book value when making
decisions
depreciation - ANSloss of value
depreciation - ANS_________ does not affect cash flow.
CFFA - ANScash flow from assets
OCF - ANSoperating cash flow
NCS - ANSnet capital spending
cash flow from assets = - ANScash flow to creditors + cash flow to stockholders
cash flow from assets = - ANSOCF - net capital spending - change in NWC
OCF = - ANSearnings before interest and taxes (EBIT) + depreciation - taxes
cash flow to stockholders - ANSdividends paid - net new equity raised
primary market - ANSoriginal sale of securities by governments and corporations, ex: public
offerings, private placements
secondary markets - ANSone owner or creditor selling to another, ex: day-to-day stock trading
dealer market - ANSaka over-the-counter; buy and sell for themselves, at their own risk; ex:
NASDAQ (smaller than NYSE)
auction market - ANSex: NYSE; has a physical location, match those who wish to sell with those
who wish to buy (limited role of dealers)
listing - ANStraded on the exchange in question, often strict criteria must be met
Future Value - ANSthe amount an investment is worth after one or more periods
Compounding - ANSthe process of accumulating interest on an investment over time to earn
more interest
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