Overview of corporate finance

Question 1

What is financing broken down into?

Answer 1

Choosing the best sources of financing for investment and capital structure

Question 2

What is short-term financial planning broken down into?

Answer 2

Ensuring you have enough cash and inventory. Ensuring a level of liquidity

Question 3

What is short-term financial planning?

Answer 3

The short term financing of the firm, so the ability to repay loans and to meet short-term financial obligations

Question 4

How can different investment products be financed?

Answer 4

Issuing stock to raise equity borrowing

Question 5

What are some examples of current assets?

Answer 5

Cash stock inventory

Question 6

How can nonconcurrent assets be broken down?

Answer 6

Tangible, noncurrent assets, intangible, nonconcurrent assets

Question 7

What are some examples of tangible, noncurrent assets?

Answer 7

Land building plants

Question 8

What are some examples of intangible nonconcurrent assets?

Answer 8

Trademark patents copyright

Question 9

What are current liabilities?

Answer 9

Short term debts, up to one year

Question 10

what are noncurrent liabilities?

Answer 10

Long-term debts

Question 11

what is equity?

Answer 11

Capital provided by the shareholders of the firm

Question 12

What is Net working capital and how is it found?

Answer 12

Net working capital = current assets - current liabilities

Question 13

Under a balance sheet model, what must always be true?

Answer 13

Total assets = Total liabilities

Question 14

How do you calculate equity?

Answer 14

Total assets - total liabilities

Question 15

How do you find net working capital?

Answer 15

Current assets - current liabilities

Question 16

What is debt financing?

Answer 16

Borrowing money and paying back with interest for example corporate bonds and loans

Question 17

What is equity financing?

Answer 17

Raising money by selling equity (shares)

Question 18

Who are the providers of equity?

Answer 18

Equity holders, stockholders, share holders

Question 19

How can you find the value of a firm?

Answer 19

Firm value = Value of bonds + Value of shares

Question 20

What is the main benefit of equity financing?

Answer 20

You don’t have to pay interest

Question 21

What is the role of a financial manager?

Answer 21

• responsible for an investment decisions
• responsible for financing decisions
• responsible for short-term financial planning
• oversee, accounting, and audit function in the firm
• ensure the financial welfare of the firm (not discussed in this course)

Question 22

What is the book value?

Answer 22

The accounting value of a firm’s assets

Question 23

What is the market value?

Answer 23

The price at which willing buyers and sellers would trade assets

Question 24

What is the goal of financial management?

Answer 24

Maximise the value of owner’s equity

Question 25

What is the average tax rate?

Answer 25

The tax bill divided by taxable income, ie. the percentage of income that goes to pay taxes

Question 26

What is the marginal tax rate?

Answer 26

The tax you would pay in % if you earned one more dollar