FN 3000 Chapters 1-3

Question 1

Finance

Answer 1

the science of the management of money, banking, investments, cash flows, and credit

Question 2

Competition

Answer 2

central nervous system of capitalism

Question 3

Financial managers

Answer 3

produce wealth for shareholders

Question 4

Short-Term vs Long-Term strategy for financial managers

Answer 4

Short-term: wealth maximization

Long-term: capital formation

Question 5

Four areas of finance

Answer 5

Corporate finance
International finance
Investments
Markets and institutions

Question 6

EBIT

Answer 6

earnings before interest and taxes

Question 7

Operating Cash Flow formula

Answer 7

EBIT + Depreciation - Taxes

Question 8

Enterprise Value formula

Answer 8

Total Market value of the stock + Book value of liabilities - Cash

Question 9

Cash Flow to Creditors formula

Answer 9

Interest Paid - Net new borrowing

Question 10

Cash Flow to Stockholders formula

Answer 10

Dividends Paid - Net new equity

Question 11

Cash Flow from Assets formula (two ways)

Answer 11

Cash Flow to Creditors + Cash Flow to Stockholders

Operating Cash Flow - Net Capital Spending - Change in Net Working Capital

Question 12

Change in Net Working Capital formula

Answer 12

Current Assets - Current Liabilities

Question 13

Net Capital Spending formula (two ways)

Answer 13

Ending Fixed Assets - Beginning Fixed Assets + Depreciation

Fixed Assets Bought - Fixed Assets Sold

Question 14

Balance Sheet

Answer 14

Assets must equal liabilities and stockholder’s equity

Question 15

Condensed Income Statement

Answer 15

Sales - Cost of Goods Sold = Gross Margin
GM - Depreciation = EBIT
EBIT - Interest = EBT (earnings before taxes)
EBT - Tax Rate = Net Income

Question 16

Net new borrowing formula (two ways)

Answer 16

debt issued - debt retired

Ending long-term debt - Beginning long-term debt

Question 17

DuPont Formula (short form)

Answer 17

Net Income/Total Equity

Question 18

Return on Equity formula

Answer 18

Profit Margin x Total Asset Turnover x Equity Multiplier

Question 19

Profit Margin formula

Answer 19

Net income/Sales

Question 20

Total Asset Turnover formula

Answer 20

Sales/Total Assets

Question 21

Equity multiplier formula

Answer 21

Total Assets/Total Equity

Question 22

Return on assets formula

Answer 22

Net income/Total Asset Turnover

Question 23

Capital Intensity Ratio

Answer 23

Total Assets/Sales

Question 24

Long-Term Debt Ratio

Answer 24

Long-term debt/Long-term debt and equity

Question 25

Total Debt Ratio

Answer 25

Total Debt/Total Assets

Question 26

Internal Growth Rate

Answer 26

Return on Assets (b)/1 - Return on Equity (b)
b = plowback ratio
Company can grow at this rate without outside financing or new bonds

Question 27

Sustainable Growth Rate

Answer 27

Return on Equity (b)/1 - Return on Equity (b)
b = plowback ratio
Company can grow at this rate in order to get debt ratios back to the rate