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Finance 201 > Midterm 4 Part 6 > Flashcards

Midterm 4 Part 6 Flashcards

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1
Q

What is a depreciation expense?

A

It’s just the amount that your asset has depreciated within a given period

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2
Q

True or False: Depreciation expenses are tax deductible

A

True

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3
Q

What does CAFE stand for?

A

Corporate average fuel economy

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4
Q

What does CAFE mean?

A

It is a deal between the U.S. and oil companies to make sure that vehicles travel a certain distance on a gallon of oil (ensures economic minimum)

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5
Q

What is the Modigliani and Miller model?

A

The sum of two corporations is worth more than both parts

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6
Q

True or False: Sunk costs are considered in current operations calculations

A

FALSE

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7
Q

True or False: Sunk costs are fixed costs

A

True

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8
Q

What does OCF stand for?

A

Operating cash flow

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9
Q

What is OCF?

A

It is the normal amount of cash generated by a company’s business operations

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10
Q

What is a paper loss?

A

It is essentially the MV - BV equation. The loss happens when the market value does not match the book value

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11
Q

What is a c corp?

A

The owners are taxed separately from the business entity

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12
Q

What is a hurtle rate?

A

It is the minimum amount of return an investor requires

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13
Q

What is bad debt?

A

Money that you have to write off because it’s uncollectable (like if they went out of business and can’t pay you back)

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14
Q

What is a bad debt expense?

A

The AR that you can’t collect (because it’s bad debt)

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15
Q

True or False: The government gives you a tax break for buying a house and owning your home

A

True

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16
Q

How do you get a write off for your mortgage payment?

A

You file something with the IRS

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17
Q

True or False: Personal loans are tax deductible

A

False

18
Q

True or False: Other than personal loans, most loans are tax deductible

A

True

19
Q

What is a reverse mortgage?

A

It is the ability to take out a loan against the equity of your house (if you own house).

20
Q

What is a good faith estimate?

A

It is the document that estimates the costs of getting a reverse mortgage.

I think it can technically be anything though. Like any instance where you would need an estimate of possible costs of the agreement.

21
Q

True or False: You give up earnest money BEFORE doing inspections

A

Pretty sure it’s true.

You have an inspection contingency in place, so that if the inspection fails, you get your earnest money back.

22
Q

True or False: When a firm is in a steady state, there is zero growth

A

True

23
Q

Why is it important to know the value of a firm in the merger and acquisition market?

A

Because if you want to buy a company, you want to know how much the entire thing is worth.

Also consider MnM

24
Q

What is an IPO?

A

Initial public offering. It is when a privately held company issues stocks publicly for the first time (when a private company goes public)

25
Q

What does LTV stand for?

A

Loan to value

26
Q

What is a loan to value ratio?

A

It is a ratio that determines if the loan amount matches the market value of the asset.

27
Q

What is a market cap?

A

It is the value of stocks held by all stockholders. The value of the firm being held by stockholders.

28
Q

True or False: It’s best to have a larger market cap

A

True

29
Q

Why are larger market caps better?

A

Because they usually represent well established companies with good histories

30
Q

What is the Earnings yield ratio?

A

E/P

It is the inverse of the P/E ratio.

31
Q

When would you use the Earnings yield ratio?

A

It can be used to determine which assets are under priced or over priced, it determines optimal asset allocation

32
Q

When would you use the M/B ratio? market to book

A

When you are trying to see how the market values a particular asset.

33
Q

Which types of companies use M/B ratio most often?

A

Companies with tangible assets that have an easily definable market and book value.

Like real estate

34
Q

Where would a CEO’s salary be on a balance sheet.

A

Under current liabilities - maybe

35
Q

Why are smaller companies usually the ones who don’t take the CEO’s salary into account when valuing a company?

A

Because they’re usually being run by a single person who just takes what’s left of the profits at the end of the month rather than pay a set salary.

Larger corporations have better systems in place and follow legal rules more closely.

36
Q

What is the DOW?

A

It is an index fund that tracks the 30 most prominent companies

37
Q

True or False: The more synergy two companies have when merging, the more efficient the new company will be

A

True

38
Q

Examples of synergies

A
  1. Increased revenues
  2. Combined talent
  3. Combined technology
  4. Cost reductions
39
Q

What is the MACRS schedule?

A

Year 1: 33.3 %
Year 2: 44.5 %
Year 3. 14.8 %
Year 4. 7.4 %

40
Q

What is P/EBITDA used for?

A

Entrepreneurial finance

41
Q

True or False: DCF valuation is concerned with intrinsic valuation

A

True

Finance 201 (18 decks)

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