BA101 (Week 4) Chapter 16

Question 0

Capital

Answer 0

Equipment, land, things company owns; Long-term funds

Question 1

Debt financing

Answer 1

Act of borrow funds

Question 2

Creditworthiness

Answer 2

Capacity (make enough enough to pay off cash)
collateral (2nd source of repayment)
Character (successfully managed debt obligation)

Question 3

Collateral

Answer 3

Security, deposit, if you can’t pay back. (Pencil and take ID)

Question 4

Bonds

Answer 4

Long term debt securities purchased by investors.

Question 5

Protective covenants

Answer 5

Restrictions imposed on specific financial policies of the firm.

Question 6

Commercial paper

Answer 6

Short-term debt security normally issued by firms in good financial conditions.

Question 7

Commercial banks

Answer 7

Obtains deposits from individuals and use funds primarily provide business loans

Question 8

Equity financing

Answer 8

Receiving investment from owners (issuing or retaining earnings) cash invested.

Question 9

Common stocks

Answer 9

Security that represents partial ownership of retaining earnings and votes.

Question 10

Preferred Stocks

Answer 10

Security that represents partial ownership of a particular firm and offer specific priorities over common stocks. Does not vote.

Question 11

Prime rates

Answer 11

Rate of interest typically charged on loans to most creditworthy firms that borrow.

Question 12

Par Value

Answer 12

Amount that bond holders receive at maturity.

Question 13

Indenture

Answer 13

Legal document that explains obligations to bond holders.

Question 14

Call Features

Indenture

Answer 14

Provides issuing firm with the right to repurchase the bonds before maturity.

Question 15

Common creditors that provide debt financing

Answer 15

1. Commercial Bank
2. Saving Institution
3. Finance Companies
4. Insurance Companies
5. Mutual Funds
6. Pension Funds

Question 16

Venture capital firm

Answer 16

Firm composed of indictable who invest in small businesses.

Question 17

Initial Public Offering (IPO)

Answer 17

First issue of stock to the public.

Question 18

Stock Mutual Funds

Answer 18

Investment companies that invest funds received from individual investors in stocks.

Question 19

Statement Of Cash Flows

Answer 19

Reports sources and uses of cash organized by activity: operating, investing and financing.

Question 20

Capital Structure

Answer 20

Sources of funds, the amount of debt vs. Equity finance. How the firm finance it’s operations and growth by using different sources of funds.

Question 21

Fixed Rate

Answer 21

The interest rate stays the same.

Question 22

Floating rate

Answer 22

Interest rates are either high or low, depend of stability.