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.
What is the Volker Rule?
Limits bank investments in hedge funds and proprietary trading.
What is the Sarbanes-Oxley Act of 2002?
This federal regulation is designed to protect investors from corporate funds.
How do you compute taxes in termination cash flows?
(Sales Price - Book Price) * Tax rate
When do you adopt the project for IRR?
When it’s greater than WACC.
Why do firms increase leverage?
To increase Profitability.
What is a firm valuation based on?
Market price
Is PE Ratio used to value a private firm?
Yes
What regulations help with transparency?
Securities Act of 1933
SEC
Sarbanes Oxley Act
What regulations help Protect investors?
FINRA (Self-regulatory security group)
What regulations help unregulated Markets?
Rule 144A - Private securities in the U.S
Reg S - Private Securities offshore
What regulations limit Risk?
Dodd Frank - “Too big to fail banks”
FSOC - Financial Stability Oversight Council)
Volker Rule
Factors of Outsourcing?
Fewer Domestic Jobs
Cheaper consumer goods
Tariffs
More U.S Jobs & Profits
More Expensive consumer goods
Foreign Competition
Fewer U.S Jobs
Cheaper consumer goods
