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Financial Management > Exam > Flashcards

Exam Flashcards

1
Q

Asset Beta

A

Equity Beta * E / (E+D)

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2
Q

Equity Beta

A

Asset Beta * (E+D) / E

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3
Q

Asset Cost of Capital

A

Rfr + Asset B (risk premium)

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4
Q

Equity Cost of Capital

A

Rfr + Equity B (risk premium)

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5
Q

beta for company with 3 divisions

A

(1/3 * beta) + (1/3 * beta) + (1/3 * beta)

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6
Q

market efficiency implies

A

any new info that affects a firm will be incorporated into market price of security

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7
Q

market is efficient if

A

price reflects all relevant and available information

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8
Q

weak market efficiency

A

share prices reflect info in historic share prices - excess returns made

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9
Q

semi strong market efficiency

A

share prices reflect all publicly available info - excess return mades using insider info

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10
Q

strong market efficiency

A

share prices reflect all info - no excess returns made

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11
Q

implications for managers

A

market values the firm and little benefit in attempting to forecast share price movements

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12
Q

money market hedge

A

companies use appropriate money market transactions at current spot rate to lock into exchange rate

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13
Q

matching

A

company selling goods in a foreign currency should try to use raw material importers using the same currency

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14
Q

leading and lagging

A

involves companies settling accounts in foreign currencies at beginning or end according to predictions

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15
Q

various derivatives

A

most common derivatives are options and future contracts

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16
Q

forward exchange contract

A

allows companies to fix future exch rates in advance on foreign currency

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17
Q

reduction in receivables

A

current rec - new rec

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18
Q

financing cost

A

overdraft * reduction

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19
Q

discounted net benefit

A

financing cost + bad debt + admin exp - cost of discount

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20
Q

factoring net benefit

A

financing cost + bad debt + admin exp - (increase finance + annual fee)

21
Q

increase finance

A

reduction * % * (interest - overdraft)

22
Q

annual fee

A

% * trade sale

23
Q

bulk

A

annual cost + order cost + holding cost - bulk purchase discount

24
Q

yearly order

A

units/order size

25
Q

EOQ

A

_/`2* units * order cost/holding

26
Q

order cost

A

yearly orders * £

27
Q

holding cost

A

% * order size /2

28
Q

NPV 5 working out

A

inflated sales, inflated costs, capital allowances, working capital, real terms

29
Q

Nominal NPV

A

inflated revenue/ tax / CA/ Incremental WC/ net cf/ discount

30
Q

inflated sales + cost

A

sales / cost * discount

31
Q

Capital Allowance

A

25% of investment, taken away

32
Q

working capital

A

difference between 10% of inflated sales

33
Q

real terms wc

A

difference between 10% of sales

34
Q

overdraft benefits

A

arranged on short notice and flexible

35
Q

overdraft drawbacks

A

high interest rates, payable on demand

36
Q

factoring benefits

A

prompt payments, saving on admin costs, financing growth through sales

37
Q

factoring drawbacks

A

high costs, less control

38
Q

long term finance benefits

A

not repayable on demand

39
Q

M and M however stock price is affected by

A

taxes and bankruptcy

40
Q

TERP

A

MV in use+Proceeds of new/total shares after

41
Q

value of old share right

A

TERP- New share price / no. of old shares

42
Q

M and M assumes

A

no transaction costs, no issues and securities are efficiently prices

43
Q

M and M rational investors

A

are indifferent to receiving capital gains or dividends on their shares

44
Q

m and m maximise

A

wants a business to maximise its market value by adopting an optimal investment policy

45
Q

optional investment policy requires

A

company to invest in all projects with positive NPV

46
Q

m and m unrealistic assumptios

A

info being available (its not) issuing securities do incur losses

47
Q

m and m argue share valuation is

A

a function of level of corporate earnings rather than earnings paid out as dividends

48
Q

receivables

A

amount * days/365

Financial Management (2 decks)

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