Quiz 3 Flashcards

1
Q

whether banks will typically lend a venture 100% of the value of property put up as collateral

A

no, always less

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2
Q

sale-and-leaseback

A

venture sells asset to a financing company to receive cash then financing company leases asset to the venture

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3
Q

2 alt terms for sale-and-leaseback

A

sale/leaseback

leaseback

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4
Q

4 situations to use sale and leaseback

A
  • venture is facing foreclosure
  • you can only borrow at high interest rates due to bad credit
  • cash shortfall is projected and you need to conserve cash
  • banks wont let you borrow because of bad credit
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5
Q

fixed asset

A

land, buildings, equipment and other long-term (more than 1 year) assets, are also known as plant assets

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6
Q

foreclosure

A

lender takes possession of mortgaged property because borrow defaulted

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7
Q

loan covenant/agreement/promissory note

A

contract between borrower and lender that regulates promises made by each regarding financing

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8
Q

debt service requirement

A

cash needed to pay interest plus principal in the specified period of time

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9
Q

4 common loan covenants

A

maintain specified financial ratios
periodic delivery of financial statements to the lender
restrictions on additional borrowing
restrictions on distributions to owners as pay

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10
Q

P&I

A

principal and interest

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11
Q

5 advantages for the venture of entering into a leaseback, as discussed in class, including 3 that are advantages compared to a bank loan

A
  • provides cash up to 100% financing of asset value
  • allows continued use of the asset
  • bankadv-potentially cheaper financing than a bank loan (lower interest)
  • bankadv-lease payments may be smaller than debt service reqs
  • bankadv-usually no loan covenants
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12
Q

2 disadvantages for the venture of entering into a leaseback

A

the sale portion of a transaction may result in a taxable gain, causes cash outflow
-the venture gives up ownership of the asset

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13
Q

2 disadvantages of giving up ownership of the assets in a leaseback

A
  • no control over the property

- no opportunity to benefit from value appreciation (real estate)

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14
Q

be able to explain which party (the venture, or the leasing/financing co.) is the:

     buyer

     seller

     lessee

     lessor
A

buyer - leasing company
seller - venture
lessee - venture
lessor - leasing company

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15
Q

factoring

A

selling a ventures A/R to a factor

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16
Q

alt term for factoring

A

receivables financing

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17
Q

factor

A

a company that buys A/R at a discount

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18
Q

factor broker

A

connects factors with businesses seeking to sell their receivables for a commission

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19
Q

factoring with recourse

A

if a factored account is uncollectible, the venture must buy back that account

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20
Q

factoring without recourse

A

if a factored account is uncollectible, it is the factors loss usually

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21
Q

2 variables that impact the amount of the discount in factoring

A
  • whether the factoring is with or without recourse

- the creditworthiness of the A/R customers

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22
Q

whether the discount is greater with factoring with recourse, or factoring without recourse

A

the discount is greater without recourse

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23
Q

whether factors prefer to buy business A/R, or consumer A/R

A

business

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24
Q

2 advantages of factoring for the venture

A

provides immediate cash from the sale of A/R

improves cashflow by reducing collection time of A/R

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25
disadvantage for the venture when factoring
commission means more costly than a bank loan
26
whether the business that factored the accounts, or the factor, is responsible for collecting the accounts
the factor is responsible for collecting
27
whether the risk of non-collection is borne by the the business that factored the accounts, or the factor, with factoring WITH recourse
factor with recourse means uncollected accounts goes back to business - business holds risk
28
whether the risk of non-collection is borne by the the business that factored the accounts, or the factor, with factoring WITHOUT recourse
factor without recourse means uncollected accounts are factors problem - factor holds risk
29
current liabilities + long-term debt equals
total liabilities
30
basic accounting eqquation
A=L+OE
31
balance sheet
reports the company's assets, liabilities and owners' equity as of a specified date
32
alt name for balance sheet
statement of financial condition/position
33
current assets
an asset expected to be converted to cash within one year
34
non current asset
an asset expected to be converted to cash in greater than one year - has 2 sub categories
35
current liability
a liability expected to be paid within one year
36
non current liability
a liability expected to be paid in greater than one year
37
consolidated financial statement
financial statements of a parent company and its subsidiaries
38
parent company
a company that owns another
39
subsidiary
a company owned by another company
40
sister companies
companies that share a parent company
41
accounts receivable
amounts due from customers for goods and services the co. has already provided
42
alt name for allowance of doubtful account
estimated uncollectibles
43
A/R net Formula
gross A/R - estimate of uncollectibles
44
which is the total amount owed by customers to the company, gross A/R or A/R net
Gross A/R
45
which is the amount the company actually expects to collect, gross A/R or A/R net
A/R net
46
which is included in the company's total assets, gross A/R or A/R net
A/R net
47
alt name for fixed asset
PP&E property plant and equipment / plant asset
48
whether preferred stock is listed before common stock on the balance sheet, or after
before
49
whether fixed assets are current assets, or non-current assets
non-current
50
which fixed asset is listed first
Land
51
which fixed asset does not depreciate
land
52
which indicates the total cost of the venture's fixed assets, gross fixed assets or net fixed assets
historical cost/gross
53
which is included in the venture's total assets, gross fixed assets or net fixed assets
net fixed assets
54
whether a fixed asset's accumulated depreciation increases over time, or decreases
increases
55
whether a fixed asset's net book value increases over time, or decreases
decreases
56
depreciation
spreading historical cost of a fixed asset over the assets estimated useful life
57
accumulated depreciation
a fixed assets total depreciation from acquisition to the balance sheet date
58
market value
price a buyer would pay to an unrelated seller
59
[liabilities]
debt capital
60
accrued payables
expenses that have been incurred but not yet paid
61
3 examples of accrued payables
accrued wages/salaries accrued interest taxes payable
62
owners' equity
indicates the owners' investment in the business
63
contributed capital
out of pocket investments made by owners in exchange for a portion of ownership
64
2 other terms for contributed capital
invested capital | paid-in capital
65
retained earnings
reinvested profits
66
another term for retained earnings
owners equity and retained earnings | accumulated earnings and reinvested profits
67
dividend
a distribution of profits to the owners
68
whether the book value of a fixed asset is the same as its market value
it is not the same
69
what goodwill on the balance sheet indicates
indicates the co has acquired other companies
70
the type of asset that goodwill is
noncurrent - intangible
71
is par value same as market value
no
72
who determines if corp will pay dividend
board of directors
73
role of board of directors
deciding to pay dividends/to protect the interests of the shareholders
74
formula for ending gross fixed assets
beg gross fixed + historical cost of fixed assets purchased - historical cost of assets sold in period
75
net book value of a fixed asset
historical cost - accumulated depreciation
76
amt reported on balance sheet for preferred stock
number of pref shares issued x par value per pref share
77
amt reported on balance sheet for additional paid in capital preferred
anything contributed above preferred stock par value
78
amt reported on balance sheet for common stock
number of common shares issued x par value per common share
79
amt reported on balance sheet for additional paid in capital common
anything contributed above common stock par value
80
ending retained earnings formula
beg retained earning + net income - dividends
81
gross fixed assets
historical cost of all fixed assets
82
par value
the amount shareholders receive at liquidation + divs/participation
83
formula for total capital contribution
common/pref stock + additional paid in common/pref stock