Fin 301 - Study guides, Class notes & Summaries

The true owners of the corporation are the ________ - Answer-common stockholders which of the following statements best represents what finance is about? - Answer-The study of how people and business make investment decisions and how to finance those decisions The revenue recognition principle requires that ___________ - Answer-revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered. Which of the following parties would be interested...

Capital Budgeting - Answer-the process of planning and managing a firm's long-term investments Capital Structure - Answer-the mixture of debt and equity maintained by a firm Working Capital - Answer-a firm's short-term assets and liabilities. Sole Proprietorship - Answer-a business owned by a single individual Partnership - Answer-a business formed by two or more individuals or entities Corporation - Answer-a business created as a distinct legal entity composed of one or more in...

One disadvantage of the corporate form of business ownership is the: A. double taxation of distributed profits B. firm's greater ability to raise capital than other forms of ownership. C. limited liability of its shareholders for the firm's debts. D. firm's potential for an unlimited life. - Answer-A Agency problems are most associated with: A. limited partnerships. B. corporations. C. general partnerships. D. sole proprietorships. - Answer-B Which one of the following actio...

The uncertainty associated with the expected future returns of an asset. Risk is the part of an asset's price movement that is caused by an unexpected event. Risk is measured by the range of possible returns based around an expected return for an investment Standard deviation is used as a measurement of risk. - Answer-Risk Risk related to a surprise event that affects a single company (firm-specific risk). The effects of unsystematic risk can be greatly reduced or eliminated through div...

Net Present Value Definition - Answer-Incremental or marginal net value created by undertaking a project Net Present Value Decision Rule - Answer-1) If the NPV is positive, accept the project 2) Most reliable method to compare and evaluate projects A positive NPV is expected to..? - Answer-* add value to the firm, and therefore increase the wealth of the owners * NPV directly measures the increase in value to the firm Advantages to using the payback period approach? - Answer-1) Easy t...

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...

Capital budgeting - Answer-planning and managing a firm's long term investments Ex: deciding to open at new location, or what computer system to use Capital Structure - Answer-mixture of debt and equity maintained by a firm Ex: How much should firm borrow and what are least expensive sources of funds for firm Working Capital Management - Answer-firm's short-term assets and liabilities Ex: day-to-day activities, short term assets like inventory and short term liabilities like money owe...

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...

Three Primary Areas of Finance - Answer-1. Corporate finance : how they manage $ 2. Institutions & Markets : dominate economic market 3. Investments : decisions of buying stock/market Basic Corporate Financial Decisions - Answer-The Investment Decision: allocating scarce resources across competing users? The Financial Decision: raising funds to finance these projects? The Dividend Decision: returning funds to investors? corporate financial toolbox- accounting statements & ratios, prese...

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