Module Fundamentals

Question 1

What is Corporate Finance?

Answer 1

It is the legal study of how companies go about raising capital within a greater national and supranational legal and regulatory framework.

Question 2

Why do companies Raise Capital?

Answer 2

To fund:

1. Working Capital.
2. Capital Expenditure.

Question 3

How do companies Primarily Engage in Corporate Finance? (EMPD)

Answer 3

1. Equidy.
2. Mezzanine Financing.
3. Profit Retention.
4. Debt.

Question 4

How do companies Secondarily Engage in Corporate Finance? (CHAL)

Answer 4

1. Creidt Cards.
2. Hire Purchase & Repurchase Agreements
3. Accounts Recievable Financing
4. Lease & Leaseback Agreements.

Question 5

What are the Principal Sources of Law in this space? (SPICE)

Answer 5

1. Secondary Law.
2. Primary Law.
3. International Standards.
4. Common Law.
5. EU Law.

Question 6

For Borrowers, what is denoted by Cost of Capital?

Answer 6

1. The purchasing price of the capital.
2. The associated contractual, managerial, or such obligations.

Question 7

What is the Core Objective of Corporate Finance?

Answer 7

To raise as much capital as necessary for as cheap as possible without incurring an intolerable level of risk.

Question 8

For Lenders, what is denoted by Cost of Capital? (OCAB)

Answer 8

1. Opportunity Cost.
2. Cost of Lost Interest.
3. Alpha (α).
4. Beta (β).

Question 9

What is Opportunity Cost?

Answer 9

A representation of the potential benefits otherwise lost out on by making a paritcular investment.

Question 10

What is Cost of Lost Interest?

Answer 10

The cost that comes with not having the one’s invested money readily available at any given time.

Question 11

What is Alpha (α)?

Answer 11

A denotation of the inherent microeconomic risk attached to investing in a particular company, i.e. the excess return of an investment relative to the return of a benchmark index.

Question 12

What is Beta (β)?

Answer 12

A measure of the relative volatility of an investment from a macroeconomic perspective, i.e. systemic risk.

Question 13

What is Weighted Average Cost of Capital, i.e. WACC?

Answer 13

The cost of capital as adjusted to the particular capital structure of an undergoing and the price of debt and equity at the material time.

Question 14

How are Stocks Valued?

Answer 14

By calculating the net present value of future cash flows and discounting them against current performance metrics, i.e. according to how well the stock is expected to do in future.

Question 15

In what ways do Transaction Costs manifest for Debt-Heavy Companies?

Answer 15

Procedural fees, e.g. lawyer or bankruptcy fees.

Question 16

In what ways do Transaction Costs manifest for Equity-Heavy Companies?

Answer 16

Subservience to a class of investors whose own short-term interests might not align with the long-term interests of the company.