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Corporate Finance > Midterm, Fin 1 > Flashcards

Midterm, Fin 1 Flashcards

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1
Q

Calculate profit margin.

A

Net income / sales

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2
Q

Calculate asset turnover ratio.

A

Sales / Total Assets

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3
Q

Calculate the Equity Multiplier.

A

Total Assets / Total Equity
OR
1 + Debt Equity Ratio

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4
Q

Calculate Inventory Turnover.

A

Costs of Goods Sold / Inventory

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5
Q

Calculate Days of Inventory

A

365 / Inventory Turnover

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6
Q

Calculate Current Ratio.

A

Current Assets / Current Liabilities

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7
Q

Calculate the Cash Coverage Ratio.

A

(EBIT + Depreciation) / Interest Expense.

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8
Q

Calculate the P/E Ratio

A

Price per share / Earnings per share

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9
Q

Calculate the Earnings per share

A

Net Income / Number of Shares outstanding

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10
Q

Calculate the Times Interest Earned Ratio.

A

EBIT / Interest Expense

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11
Q

Calculate the Effective Annual Rate.

A

[1+(Quote Rate/m)]^m-1

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12
Q

How do you calculate the Effective Annual Rate in Excel?

A

=EFFECT(nominal_rate, npery)

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13
Q

How do you calculate continuous Effective Annual Rate in Excel?

A

=EXP(number)-1

Number = APR

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14
Q

How do you calculate the PV of a loan?

A

=-PV(rate, nper, pmt, fv, type)

type can be zero

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15
Q

How do you calculate the price of a stock based on a dividend?

A

Dividend / Discount Rate

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16
Q

What are the 3 fundamental concerns of financial managers?

A
  1. Capital budgeting - cash flows
  2. Capital structure - debt and equity
  3. Working capital management
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17
Q

What do you decide when you make a capital budgeting decision?

A

Cash flows

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18
Q

What is the goal of a financial manager?

A

Maximize the current value per share of the existing stock

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19
Q

What are the roles of a corporation?

A

Board of Directors, owners = shareholders

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20
Q

Who are the stakeholders of a corporation?

A

someone other than a stockholder or a creditor who potentially has a claim on the cash flows of a firm

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21
Q

What is the agency problem?

A

Conflict of interest between the principal and the agent

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22
Q

What is double taxation?

A

Being taxed as a corporation and then taxed as an individual.

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23
Q

What are current assets?

A

Cash and accounts receivable, what has a life of less than one year

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24
Q

Why do we use ratios?

A

To compare different companies of different sizes.

To compare the same company at different times.

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25
Q

What is the DuPont Identity?

A

Profit Margin X Total Asset Turnover X Equity Multiplier

  1. operating efficiency (as measured by profit margin)
  2. asset use efficiency (as measured by total asset turnover)
  3. Financial leverage (as measured by the equity multiplier)
26
Q

What is the time value of money?

A

A dollar in hand today is worth more than a dollar promised at some time in the future.

27
Q

What does it mean to have more cash flows earlier in a project?

A

Higher PV, higher FV, worth more to you

28
Q

What is not required to value a coupon bond?

A

Risk-free rate

29
Q

In a fully diversified portfolio of securities, the only type of risk priced by the market is?

A

Systemic Risk

30
Q

The risk of cash flows generated by an asset can be measured by what?

A

Standard deviation and beta

31
Q

How do you calculate the PV of perpetuities?

A

PV = C/R = D/R

32
Q

How do you calculate the Payment based on the PV?

A

=PMT(rate, nper, pv, fv)

FV can equal zero

33
Q

How do you calculate the Average Price Today when you have the Average Past Price?

A

Average Past Price * (1+rate)^time

34
Q

How do you calculate the average tax rate?

A

Find the taxes due for each rate.
Add them together
Divide by taxable income

35
Q

What is the marginal tax rate?

A

The rate it would have to pay if it had another taxable dollar of income.

36
Q

How do you calculate cash flow from assets?

A

CF from creditors/bondholders + CF from stockholders/owners

37
Q

Calculate the Equity Multiplier

A

total assets / total equity

38
Q

Calculate Number of Periods

A

=NPER(rate,pmt,-pv,fv)

39
Q

How do you calculate PV for multiple different cash flows?

A

Calculate PV for each and add the result

40
Q

How do we find the price of a bond today?

A

=PRICE(settlement, maturity, rate, YLD, redemption, frequency, basis)

41
Q

How do you calculate current stock price?

A

Po=(D1+P1)/(1+R)

Zero Growth = D/R

42
Q

How do you calculate the stock price if the growth rate is less than the discount rate?

A

Po = [Do*(1+g)]/(R-g)

43
Q

Calculate NPV

A

=NPV(rate, value1:valuen) + Investment

44
Q

Calculate Geometric Average Return

A

=[(1+R1)X(1+R2)…X(1+Rt)]^(1/t)-1
Holding Period Return^(1/t)-1
t = number of years not number of times

45
Q

Calculate the Holding Return

A

=Ending Return - Beginning Return / Beginning Return

46
Q

What do you have to do to YTM if payments are semiannual?

A

Divide YTM by the number payments in a year (2 for semi-annual)

47
Q

Calculate Stock Growing in Perpetuity

A

Year 17/R-G

48
Q

How do you find the PV of a perpetuity?

A

PV = C/R

49
Q

How do you find the rate if you have the PV and the Payment?

A

C/PV

50
Q

What don’t you need to calculate the value of a bond?

A

risk-free rate

51
Q

How do you calculate total holding period return?

A

find the return for each line, add one, multiple together, subtract 1

52
Q

How do you calculate the geometric average holding period return?

A

Take the total holding period return, add one, to the (1/n) power, subtract one

53
Q

Which is the preferred method for capital budgeting?

A

NPV

54
Q

When is NPV better than IRR?

A

Mutually exclusive projects

Changing cash flows

55
Q

What formula do you use if you have dividend just paid?

A

Po = Do*(1+g)/(r-g)

56
Q

When your given a stock that you’re asked to calculate in year 10, where do you go to PV?

A

D/R, PV of year 9

57
Q

When you have a dividend growing at a certain percent for a few years and then growing in perpetuity, what do you do?

A

1) Calculate Dividends
2) Price in Year 3
3) PV Year 3= Price today
4) NPV of all div
5) SUM = Price of stock

58
Q

How do you calculate OCF?

A

OCF = EBIT + Depreciation - taxes

59
Q

What are the steps to OCF?

A

1) Recreate the income statement
2) Find EBIT using Revenues, Costs, Depreciation
3) Subtract taxes
4) Add depreciation

60
Q

How do you calculate FCF or cash flow from assets?

A

FCF = OCF-CAPEX-change in NWC

Corporate Finance (2 decks)

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