Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Intermediate Finance > Chapter 1 > Flashcards

Chapter 1 Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 66 flashcards SIE Exam flashcards Series 63 flashcards Series 79 Top-Off Exam flashcards Series 7 Top-off Exam flashcards CFA flashcards Series 65 flashcards
1
Q

Why is corporate finance important to managers

A

1.) add value to the firm

2.) Devise strategies to acquire funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a proprietorship

A

business owned by one individual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what are the advantages of a proprietorship

A
  • ease of formation
  • fewer regulations
  • no corporate income tax
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are the disadvantages of a proprietorship

A
  • difficult to raise capital (grow company)
  • unlimited liability
  • limited life
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a Partnership

A

two or more people conducting the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the difference between a general partnership and a limited partnership

A

general: unlimited liability
limited partners: limited liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a corporation

A

legal entity separate from its owners and managers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How to become a corporation

A

File papers to get a charter and create bylaws

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what does a Charter include

A

Name, type of activities, amount of capital stock, # of directors and names and addresses of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what doe Bylaws include:

A

A set of rules drawn by founders of the corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the advantages of a corporation

A

-unlimited life
-easy transfer of ownership
-limited liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what are the disadvantages of a corporation

A
  • double taxation (earnings and dividends)
    -cost of set-up
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

As a corporation grows what happens?

A

Initial Public Offerings (IPO’s) of Stock help raise proceeds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Which of the following represents a significant disadvantage to the corporate form of organization (class reflection question)

A

Exposure to taxation of corporate earnings and stockholder dividend income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What should be a mangers primary objective

A

Shareholder wealth maximization and maximizing the fundamental stock price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Do the same actions that maximize intrinsic stock value usually benefit society (yes/no)

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What determines a firms intrinsic value?

A

The companies ability to generate cash flow now and in the future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does a firms value depend on?

A
  • The size of the firms free cash flow
  • The timing of those flows
  • The risk of the cash flow
19
Q

What is Free Cash Flows

A

All cash flows that are available for distribution to all investors (stockholders and creditors) after expenses and taxes

20
Q

What is WAAC

A

weighted average cost of capital is the average rate of return required by all of the companies investors

21
Q

What is the definition of intrinsic value (fundamental value)

A

Value or price that incorporates all relevant information regarding expected FCF and risk

22
Q

Who are the providers and users of capital?

A
  • Individuals: net savers
  • Non-financial corporation: net users (borrowers)
    -Governments
    -Financial corporations
    -Financial Markets
23
Q

What are the two ways to classify financial securities

A

1.) Time until maturity (capital and money market security)
2.) Types of claimes

24
Q

What are the different types of claims for financial securities

A
  1. Debt: specified payments and maturity
  2. Equity: a claim upon residual value
  3. Derivatives: values depend on the values of some other traded assets
  4. Hybrid: mix of debt, equity and derivatives
  5. Securitized Financial Assets: created from packages of other financial assets
25
Q

Money markets are markets for

A

Short term debt securities

26
Q

What 4 factors affect the cost of Money

A
  1. Production opportunities (ability to turn capital into benefits)
  2. Time preference for consumption
  3. Risk
  4. Inflation
27
Q

What is capital allocated through

A

the price system

“price” of money is a cost for the user but a return for provider

28
Q

when does a financial instruments rate of return generally increase when…

A

maturity and risk increase

  • if u are riskier with money their is higher risk
29
Q

What are Economic conditions that affect the cost of money

A

1.) Federal Reserve policy - stimulate/slow down the economy

2.) The level of the federal budget deficit

3.)The level of business activity

4.) International factors: foreign trade balance, the international country risk, and the exchange rate

30
Q

what does the federal reserve policy do

A

stimulate the economy: purchase treasury securities (lower interest rates)

Slow down the economy: issue treasury securities (higher interest rates)

31
Q

For economic condition #2 what does level of federal budget deficit mean?

A

a budget deficit is when federal government spend more than it takes from tax revenues

32
Q

What does economic condition #3 mean when it says level of business activity

A

interest and inflation typically rise prior to a recession and fall afterwards

33
Q

What does economic condition #4 International factors

A

what does a foreign trade deficit mean… we import more than we export

increase borrowing drives up interest rates

34
Q

What do investment banks do

A

help raise capital

35
Q

what do commercial banks do

A

raise funds from depositors and from issuing stock and bonds

36
Q

what are credit unions

A

member savings are only lent to other members

37
Q

what are mutual funds

A

-pool funds and invest
-very regulated

38
Q

what are hedge funds

A

limited to institutional investors and high-net-worth individuals

39
Q

what are private equity funds

A

limited to a relative small number of large investors
- turn companies private and later sell them for a profit

40
Q

What are life insurance companies

A

take premiums, invest, and make payments to beneficiaries

41
Q

What is the process of securization

A

happened after housing crisis

  • S& L’s now put their mortgages into pools and sell to other organizations like Fanny May (risk shifts to Fanny May)

Fanny Mae doesn’t keep mortgages and puts them in a pool and sells shares to investors (risk shifts to investors)

42
Q

what is securitization def

A

new securities are created based on original securities

43
Q

What is CollateralizedDebt Obligations

A

It is a part of the securities

is and is bundled debt resold to investors

Intermediate Finance (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions