Chapters 10-16 Flashcards
What is DFN?
Discretionary Funds Needed also known as external funds needed is the cash a company needs based on informal estimates.
What is the difference between Discretionary accounts and spontaneous accounts?
Spontaneous accounts change based on sales while discretionary is based on judgment.
What is Pro Forma?
Future financial statements based on rough estimates.
What should you do if NPV is positive vs Negative?
If Positive accept if negative reject the investment.
What is IRR?
IRR(internal Rate of Return) is the expected rate of return an investor expects on his investment.
What does IRR do to NPV?
It makes the NPV equal to zero.
What is nationalization?
When a nation owns most of the company shares.
What is Business Risk?
It is the same as operating risk and varies with operating income.
What is working Capital Management?
The cash needed to keep the business running.
Trade Credit
The credit is extended to you by suppliers who let you buy now and pay later.
Collection float
The time it takes to collect money from credit purchases.
Disbursement Float
The time it takes to pay bills. They usually pay slowly to preserve company cash.
What is the replacement cash method?
Using the replacement cost to arrive at the value of the business.
Comparable multiples
To value a business by using financial ratios or information of one company for another assuming they are of the same characteristics.
What is the Dodd-Frank Act?
The law was created to regain control of financial institutions after the 2008 meltdown.
