Fin 301 - Study guides, Class notes & Summaries

Two main measures for Cost of Debt Capital for entities - Answer-1. Pre-tax - does not include effect in Income Statement (Does not include Tax Shield effect) 2. (Real world) Post-tax - includes effect on Income Statement. (Includes Tax Shield effect) rD, Post-tax - Answer-(1-Trate)*rD, pretax trate= Taxrate Due to the tax shield effect CAPM Assumptions - Answer-- Can't beat the market (Perfect Market) - Riskier projects require higher expected value payoffs (Risk averse investo...

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage. A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate. If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%. Banks A and B offer the same nominal annual...

low risk investments have... - Answer-lower expected returns high risk investments have... - Answer-higher expected returns the least risky investment - Answer-treasury bills the most risky investment - Answer-small company common stocks price/return volatility is a way to measure? - Answer-risk a rational investor requires a higher expected return to accept... - Answer-additional risk model that describes the trade off between risk and return... - Answer-capital asset pricing ...

Finance - Answer-the management of money Corporate Finance - Answer-how companies raise money, how they invest money, how they manage financial resources Capital Markets - Answer-Financial markets where debt instruments and equity securities are bought and sold Investment Decision - Answer-corporate managers need to make sure that the company's money is invested in projects that will be worth more than they cost Financing Decision - Answer-Corporate managers need to decide what comb...

capital budgeting - Answer-the process of planning and managing a firm's long-term investments capital structure - Answer-the specific mixture of long-term debt and equity the firm uses to finance its operations -how much should the firm borrow? -what are the least expensive sources of funds for the firm? working capital - Answer-a firm's short-term assets and liabilities sole proprietorship - Answer-a business owned by a single individual 3 areas of corporate financial managem...

The process of finding the future value of dollar is called discounting. - Answer-False 1. The process of finding the future value of a dollar is called compounding. True False - Answer-True 1. For a series of equal flows over equal periods of time, those flows are called annuities. True False - Answer-True 1. When a series of equal flows over equal periods of time occur at the end of each of the periods, the annuity is called an ordinary annuity. True False - Answer-True 1....

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...

In CAPM, the expected return on a stock is directly related to its _____? A. Alpha B. Beta C. Interest Rate D. WACC E. All of the above - Answer-B Which of the following is true about bonds? A. The longer the maturity of the bond, the higher the interest rate risk B. There is a positive relationship between market interest rate movements and bond prices C. The lower the default risk on the bond, the higher the yield of the bond D. A decrease in market interest rate will decrea...

FIN 301 Penn State World Campus Final Excel project Scenario: Tom Jones, the CFO for the firm PSUWC Energy, LLC, woke up with a start at 4:00 am on July 2, 2012, due to his phone ringing. It was his senior financial analyst, vacationing in Europe, calling with bad news. Tom was supposed to present his project evaluation, at the end of the week, for the Board's proposal that they invest in new equipment that generates electricity, using a new nuclear technology. His staff of financial analysts h...