Fin 301 - Study guides, Class notes & Summaries

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...

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...

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...

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...

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...

3 general concepts of finance - Answer-(1) more value is preferred to less (2) the sooner cash is received, the more valuable it is (3) less risky assets are more valuable than riskier assets The study of finance consists of four interrelated areas: - Answer-1. Financial institutions and markets 2. Investments 3. Financial services 4. Managerial (business) finance 3 major forms of business organization in the U.S. - Answer-Proprietorship Partnership Corporation Proprietorship - A...

Which of the following concerning the relationship between risk and return is correct? A. A risk taker 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% B. Investors generally demand higher return for less risky investments C. Riskier investments tend to have lower returns D. Safer investments historically provide the highest returns E. A risk averse investor would prefer a sto...

Shareholder Wealth - Answer-Represented by market price of a firm's common stock. Present Value - Answer-the value today of some future payment or stream of payments evaluated at an appropriate discount rate. Discount Rate - Answer-takes into account the returns that are available from alternative investment opportunities during a specific (future) time period. Risk - Answer-"the greater the risk associated with receiving a future benefit, the lower the value investors place on tha...

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...

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 ...