New Day II Flashcards
WHAT is the coefficient of determination “r” in a multiple Regression equation?
THE Percentage of variation in the dependent variable explained by the variation in the independent variables
i.e. the proportion of the total variation in one dependent variable that is accounted for by two or more independent variables
WHAT is a characteristic that would favor debt financing versus equity financing?
A high tax rate
WHY? - Because interest paid on debt in debt financing is tax deductible
Hence, a corporation that has a high tax rate can lead to a large tax break
WHAT is a firm’s target OR optimal capital structure consistent with?
A Minimum weighted-average cost of Capital
NOTE: Firms will ideally have a capital structure that minimizes weighted-average cost of capital
WHAT kind of platform can a company use to raise funds through crowdfunding?
A crowdfunding platform registered with the SEC
i.e. companies choosing to use crowdfunding must use a crowdfunding platform registered with the SEC
WHAT variables are plotted on the horizontal and vertical axis of a yield curve?
Horizontal (X) Axis - Years to Maturity
Vertical (Y) Axis - Interest Rates
WHAT does the term, “structure of interest rates” mean?
THE relationship between the long-term and short-term interest rates (i.e. the relationship of interest rates over time)
Hence, the term “structure” is graphically depicted by a yield curve
NOTE: The yield curve may change in both slope and position over time
WHAT would be a reason a company would agree to a debt covenant limiting the percentage of its long-term debt?
To reduce interest rates on bonds being sold
WHY are serial bonds attractive to investors?
Investors can choose the maturity that best suits their needs
i.e. They have staggered maturities and mature over a period (series) of years
HOW much can an investor invest, According to the SEC’s Regulation?
IF the investor’s annual income or net worth is $100,000 or more they can ONLY invest 10% of their annual income or net worth whichever is less
WHAT owner percentage must be disclosed under Regulation Crowdfunding?
20%
i.e. Disclosure is required for the information about owners of 20% or more of the company
WHAT do Common Stockholders’ not have a right to?
TO accumulate unpaid dividends
Common stockholders’ DO NOT have the right to accumulate unpaid dividends
i.e. This right is reserved for Preferred Stockholders
WHAT is considered a corporate equity security?
A Share of callable Preferred Stock
HOW? - Because Preferred stock is a form of equity security that has attributes of both debt and equity
IT has a fixed charge but is NOT obligated to make dividend payments
WHAT is the theory underlying cost of capital primarily concerned with?
Long-term funds and new funds
i.e. the cost of Long-term funds and the acquisition of new funds
WHAT is the Maximum amount a firm can raise through crowdfunding in a 12-month period?
They Can raise up to $1 Million dollars
WHAT is graphically depicted when short-term rates are higher than long-term rates on the yield curve?
The curve will be downward sloping
