Corporate Finance Flashcards

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1
Q

How Country Risk Premium can be described?

A

Sovereign yield spread (between yields on the country’s government bonds and a developed country’s government bond)

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2
Q

How CAPM can be described?

A

Kce= Rf+β[E(Rmkt)-Rf] for the case of developing country, CPR will be added.

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3
Q

What is factoring?

A

Sales of receivable without recourse.

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4
Q

What is the degree of financial leverage (DFL)?

A

percent change in earnings per share for a given percent change in operating income.

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5
Q

What is the degree of operating leverage (DOL)?

A

percent change in operating income for a given percent change in sales.

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6
Q

What is the degree of total leverage (DTL)?

A

percent change in earnings per share for a given percent change in sales. Equals DFL*DOL

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7
Q

What is flotation cost?

A

Costs associated with issuance. Should be included in initial cash outlay according to CFA.

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8
Q

What is financial leverage?

A

Using more debt compare to equity.

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9
Q

Increase in tax rate will give what impact to WACC?

A

Reduce after-tax cost of debt and therefore WACC.

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10
Q

What is the role of nomination committee?

A

Review the performance, independence, skills , and experience of board members as well as recruiting new board members and creating board nomination policies.

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11
Q

What best measures the pretax cost of debt financing?

A

Yield to maturity.

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12
Q

What is current ratio?

A

Current assets/ current liabilities.

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13
Q

What is quick ratio?

A

Cash+ short term marketable securities+ receivable/ current liabilities (removing inventories from current ratio.)

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